Income Polarization in the United States
| Author | Ali Alichi - Kory Kantenga - Juan Solé |
| Pages | 1-3 |
IMF
Volume 18, Number 1 March 2017
www.imf.org/researchbulletin
B U L L E T I N
In This Issue
1
Income Polarization in the
United Sta tes
4 The Future Wealth of
Nations: World Trade in
Services
8 Q&A: Seven Questions
on China-Africa
Relations
10 Recommended Readings
From IMF Publications
11 IMF Working Pape rs
12 Staff Discussion Notes
12 IMF Economic Review
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Income Polarization in the United States
Ali Alichi, Kory Kantenga, and Juan Solé
The U.S. middle clas s is shrinking. Since 2000, more middle-income household s
have fallen into lower rather than higher in come bracket. Combined with real
income stagnation, this pol arization has had a negative impact on the macroecon-
omy, hampering the main engine of U.S. growth: c onsumption. It is estimated that
over 1998–2013, the U.S. economy has lost the equivalent of more than one year of
consumption growth due to increa sed polarization.
e U.S. middle class—those hous eholds with 50–150 percent of median disposable
income—has been shrin king. Middle-income households declined by 11 percentage
points (from 58 to 47 percent) of the total U.S. household population between 1970
and 2014. In other words, the U.S. income distribution has b een polarizing, or hol-
lowing out, as middle-income households beca me richer or poorer (see Figure 1).
From 1970 to 2000, this polari zation was mainly good news because more
households moved into upper income ranks (with di sposable incomes higher
than 150percent of the median) tha n slipped down (with disposable incomes
lower than 50 percent of the median). Since 200 0, however, the story has reversed.
More middle-income households have fallen into lower-income than higher-
income brackets.
Falling into a lower income bracket ta kes a toll on households, especially at a
time when average real (aer-ination) incomes have been broadly sta gnating. At
the aggregate level, the hollow ing out has damaged the economy in recent years
by hampering consumption—the ma in engine of U.S. growth. Lower consump-
tion in the world’s largest economy also hur ts its trading partners, as wel l as
many other countries t hrough global production and nancial ch ains.
Middle Class Trends
A strong economy needs strong consumption and invest ment to function
well. Low-income households have limited abilit y to consume and save little.
High-income households save a lot, but relative to their incomes, consu me too
Research Summary
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