Prosperity Watch Issue 18, No. 2: Income Inequality Grows in North Carolina, Likely Slowing Economic Growth

Income inequality—the extent to which income is distributed unevenly—is widespread and growing in North Carolina and the nation. Americans are experiencing historically high levels of income inequality as this chart shows. Since the late 1960s, income inequality in America has been indisputably trending upward.

Census data show that a wide income gap exists in North Carolina, with the top and bottom quintiles of the income distribution separated, on average, by an annual income of $144,246. The top quintile of households held more than half of all income in the state, meaning they held more income than the bottom 80 percent (lowest 4-fifths) of households combined in 2011 (see the chart below). The top quintile of households’ average income is more than 15 times as large as the average income of the entire bottom fifth and 3.5 times as large as the income of the middle fifth.

Income inequality is also growing. Each quintile of the income tier has experienced shrinking household incomes since 2007, but none more so than the households in the bottom fifth. For the average household in the bottom quintile, income dropped by 10.4 percent between 2007 and 2011, compared to 9.2 percent and 6.4 for the average household in the middle and top quintiles, respectively.

Growing income inequality limits economic mobility, which is the ability to climb up the income ladder, and limits and erodes the equality of opportunity. But beyond the impact of opportunity at the individual level, income inequality also has real negative effects at broader state and national levels. A recent study published by the International Monetary Fund found that income inequality stymies long-term, rapid growth.

Policies can reverse this troubling trend and support economic growth. Policymakers need to enact policies that grow our economy equitably and address the rising income gap by making changes to the tax code, which is a major driver behind income inequality. It is also important to invest in tools that support equality of opportunity for all people—such as tax credits for low‐income families and high-quality schools and job training programs—and in the meantime provide adequate services to those in need.

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