February 1st, 2015
by Atlanta Fed
Wealth and income inequality - in particular, the perceived widening of the gap between rich and poor - has been in the public discourse in recent years. Economic Policy Analysis Specialist Nick Parker looks at the topic, highlighting recent trends and some new research exploring potential links to monetary policy, in the September - December issue of EconSouth.
Researchers have observed a steadily widening gap in the distribution of income and wealth in the United States, with the top 5 percent of households accruing an increasing share of the resources, Parker notes. Although the trend paused during the Great Recession, it has since resumed partly because of the slow labor market recovery and sluggish wage growth.
So what's behind the growing gap? Parker says that preliminary research points to several potential factors, including a decrease in the real value of the U.S. minimum wage and the weakening of U.S. labor markets. He also notes disparities in educational attainment—especially postsecondary education—that may have contributed to income inequality.
Some researchers maintain that a greater concentration of income among top earners could affect the larger economy by dampening consumer spending and overall demand. Still, most agree that more research is necessary to determine the direct economic effects of inequality, Parker notes. He adds that the issue of greatest concern to policymakers is the potential impact of inequality on social mobility.