Perspectives article: income inequality, health, and household welfare

Alan C. Monheit

Publication Date: 09/30/2021

Abstract

The growth in US income inequality since the late 1970s has directed much public policy attention to the macroeconomic and political factors contributing to such growth. In this review, I focus on the microeconomic implications of income inequality for household wellbeing, specifically, on whether income inequality per se has an impact on the health of household members. In doing so I review work that has posited the social and biological pathways through which inequality may affect health, and the empirical approaches and challenges to identifying such causality. I find that despite both theoretical and conceptual arguments that income inequality may affect the health of family members through the family’s relative position in the income distribution, the weight of the empirical evidence does not support such a causal relationship. I conclude with a discussion differentiating the importance of income support for those in the lower percentiles of the income distribution, and efforts to improve the relative economic status of others.

1 Introduction

Since the late 1970s, the United States has experienced a profound growth in income inequality. The growing disparity in incomes between those in the top percentiles of the household income distribution and those below began in the late 1970s, and now rivals the unequal distribution of income during the Gilded Age of the late nineteenth century and the decade prior to the Great Depression. As of 2018, the top 1% of households accounted for 22% of income, more than double their 9% share in 1979 (Saez, 2020). Income inequality in the United States also stands apart from that of many high-income developed nations (Peterson Institute 2020). For example, income inequality in 2018 as measured by the Gini coefficient (values between zero and one with larger values indicating greater inequality) is 0.390 for the United States, compared to 0.366 for the United Kingdom, 0.334 for Japan, and only 0.303 for Canada, 0.301 for France, 0.289 for Germany, and 0.280 for Sweden (OECD 2021). Moreover, the U.S. income distribution now resembles that of countries in the developing world (Horowitz et al., 2020). Add to this the growth in wealth inequality, where the top 0.1 percent of wealth holders now control 20% of the nation’s wealth compared to only 10% 40 years ago. All told, households in the upper percentiles of the income distribution hold a distinct economic advantage over other households.

In seeking to identify factors responsible for the dramatic shift in the US income distribution, analysts have focused on a number of macroeconomic trends: the stark departure of wages from worker productivity since the mid-1970s; the decline in labor union membership and political influence; the stagnation of real wages and the limited growth in the federal minimum wage; and the effort by rent-seeking employers to maximize shareholder value. The latter behavior has arguably contributed to the growing gap between the earnings of CEOs and wage earners. It also has yielded tenuous employment relationships, as reflected in the growth of the temporary and contingent workforce, and compromised the private safety net of pensions and health insurance. Additional factors contributing to the growth in inequality include skill-based technical change that has made many lower-educated workers redundant, and globalization which has resulted in outsourcing of production and competition from low-wage foreign workers.