Yellen says inequality in the US is widening

Janet Yellen said that inequality in the United States has widened over the past 25 years, with just a slight narrowing during the Great Recession. The Chair of the Federal Reserve System said in a speech at the Conference on Economic Opportunity and Inequality at the Federal Reserve Bank of Boston that this trend is un-American.

Ms. Yellen added, however, that there are still opportunities in the US to bridge the income and wealth gap that so much divides the nation today.

There is currently scarce consensus regarding exactly what equality of opportunity means and the right role of public policy in promoting it, the conference organizers explained.

Even as most observers agree that equality of opportunity is a desirable goal, there are wide disagreements about the optimal degree of equality in economic outcomes and/or which policies are required to achieve this goal.

inequalityMany economists fear that America’s widening inequality may undermine its long-term economic prospects.

The Federal Reserve Bank of Boston wrote:

“As the rungs of the income ladder (outcomes) move farther apart, the consequences – via unequal opportunity – of the specific rung a child’s parents occupy become more severe, increasing the importance of implementing policies to equalize opportunity.”


The Boston Fed has a long tradition of research on inequality and access to opportunities, fifteen years ago it cited it as a problem in the US.

Ms. Yellen said:

“It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.”

From 1989 to 2013, average income in the US for the top 5% of households increased by 38%, but rose by less than 10% over the same period for the other 95%, Yellen pointed out.

In 1989, the richest 5% of Americans held 54% of the nation’s wealth, compared to 61% in 2010 and 63% in 2013. The other 45% in the top half of richest people in country, i.e. households with a net income of $81,000 to $1.9 million, saw their share of the national wealth decline from 43% in 1989 to 36% in 2013, Yellen said.

On a positive note, Yellen said that the rebounding housing market has helped restore much of the value lost during the Great Recession, with homeowners at the bottom making the largest gains. For middle- and lower-income families, home equity represents a major proportion of their wealth.

Ms. Yellen also informed that compared to other advanced economies, the US is no longer the land of opportunities. Economic mobility in America is lower than in most rich nations today.

Funding education through property taxes exacerbates inequality, she said, because wealthier communities end up with far greater resources.

Mr. Yellen said:

“The United States is one of the few advanced economies in which public education spending is often lower for students in lower-income households than for students in higher-income households. Some countries strive for more or less equal funding, and others actually require higher funding in schools serving students from lower-income families.”

A growing number of people believe that economic globalization is bringing with it wealth and income inequality. However, citizens living in the more economically integrated countries (with freer trade) generally enjoy better standards of living compared to those living in protectionist nations.

Video – Income Inequality

This short Market Business News video contains an explanation of what income inequality is.