News & Updates

The growing income gap between the top one percent and the less well-off has been documented many times, most recently in two North Star articles. The first of these articles used data from Minnesota Tax Incidence Studies (MTIS) spanning the last quarter century to demonstrate the increased concentration at the top of Minnesota’s income spectrum, while the second showed the growing gap between the top one percent and middle-income households, defined as the twenty percent of households in the middle of Minnesota’s income distribution (i.e., the middle quintile).

Further analysis shows that—after adjusting for inflation—the average income of these middle-income households changed little from 1988 to 2012, while the average income of the top one-percent surged by over 50 percent. These findings are based on MTIS data covering the period from 1988 to 2012, adjusted for inflation using the Consumer Price Index (CPI). (Projected MTIS data for 2017 are excluded from this analysis because the CPI for 2017 from the Bureau of Labor Statistics is not yet available.)

Before taking into account the impact of inflation, income growth of both middle-income and high-income households appears robust. In nominal dollars (i.e., dollars unadjusted for inflation), the average household income of the middle quintile grew from $20,367 in 1988 to $44,023 in 2012, an increase of $23,656 or 116 percent. Meanwhile, the average household income of the top one percent grew from $379,579 to $1,314,123, an increase of $934,544 or 246 percent. Percentage growth in nominal income for the top one percent was more than double that of the middle quintile over this 24 year span, while the dollar increase was nearly 40 times greater.

The contrast in income growth between the top one percent and the middle-quintile becomes even more stark after adjusting for inflation. The decline in the purchasing power of the dollar due to inflation has vastly eroded the nominal growth in middle quintile income since 1988. In constant 2012 dollars, the average household income of the middle quintile increased from $39,537 in 1988 to $44,023 in 2012, an increase of $4,486 or 11 percent. This translates to an annual average growth rate of just 0.4 percent. Meanwhile, the real (i.e., inflation-adjusted) income of the top one percent grew by $577,269 or 78 percent.

t1p vs mq

The real growth in the average household income of the top one percent proceeded at an uneven pace from 1988 to 2012, interrupted by declines coinciding with economic recessions. (The cause of these declines was briefly discussed in part 1 of this series.) However, the long-term trend in real household income for these high-income households is clearly upward. Meanwhile, the trend in middle quintile income is relatively flat.

A review of selected statistics further underscores the disparity in income growth between the top one percent and the middle quintile from 1988 to 2012. In inflation-adjusted dollars, the average household income of the top one percent has grown seven times more rapidly than that of the middle quintile. In terms of real dollars per household, the income growth of the top one percent ($577,269 in constant 2012 dollars) is 129 times greater than that of the middle quintile ($4,486). In fact, just the growth in the average household income of the top one percent from 1988 to 2012 is thirteen times greater than the entire 2012 average household income of the middle quintile.

The earliest MTIS data is from 1988. Data from other sources suggests that the growth in income disparities between the top one percent and middle-income households began to swell approximately a decade prior to this.

To compound matters, the above analysis assumes that the same rate of inflation applies to all households, regardless of income. However, there is evidence that inflation impacts very high income households less heavily than lower-income consumers. One possible explanation for this trend is that as the income of extremely high income households has soared, manufacturers have directed greater effort toward satisfying this high-end market; as a result of this increased competition, growth in the price of high-end products has been held down. If this is correct, the disparity in inflation-adjusted income between the top one percent and middle-income households might be growing even more rapidly than is indicated above.

Recent research suggests that the focus on the top one percent is somewhat misplaced. According to this line of analysis, the real concentration of income is occurring among a tiny sliver of super-wealthy households at the very top of the top one percent. The final article in this series will examine income concentration among Minnesota’s über-rich and why the entire discussion of income inequality matters.

Big Debt, Big Deal

Minnesota is living under a $27 billion mountain of student loan debt.1 A student graduating in Minnesota today has an average of $31,000 in debt.2 Whether we realize it or not, it is affecting both individuals and the broader community. The challenge of student loan...

Minnesota Business Tax Rate Equals U.S. Average

Business groups—including the Minnesota Business Partnership and Minnesota Chamber of Commerce—actively cultivate the notion that business taxes in the Gopher State are high relative to the rest of the nation. However, total state and local business taxes as a share...

Ensure Respect for Minimum Wage Laws

(Note: This article is co-authored with Laura Huizar, a staff attorney at the National Employment Law Project in Washington, D.C.) A few weeks ago, the St. Paul City Council introduced a draft ordinance that would raise the city’s minimum wage to $15 an hour. That’s a...

Caring in Central Minnesota

Minnesota is getting older every day.1 The aging of our population is increasing demand for home health and personal care workers. We also continue to have population growth through both immigration and natural growth. To fill the needs of our changing population we...

Gas Tax Buys One-Third Less Today Than in 2000

The single largest source of funding for Minnesota’s transportation system comes from the state gas tax. However, the purchasing power of that tax has dropped by over one-third over the course of the century, leaving funding for state roads and bridges in a precarious...

State Aids: The Shrinking Slice of the City Revenue Pie

City property taxes have increased significantly in recent decades. Even after adjusting for inflation and population growth, the property taxes collected by Minnesota cities have increased by 48% from 1990 to 2018. However, real (i.e., inflation-adjusted) per capita...

Government Growth in Context

Shocking claims of growth in government abound. However, viewed in context of the economic, demographic, and societal changes that have occurred over the last fifty years, the growth in government is far less astounding than the sound-bite statistics indicate. For...

Impact of Legislative Decisions on School Funding

State aid to Minnesota school districts—properly adjusted for inflation—has fluctuated significantly over the last fifteen years, but the overall trend has been downward, as documented in a recent North Star report. Of course, long-term trends are not exclusively the...

Minnesota’s Shared Health

Minnesotans value a high quality of life. It is part of the Minnesota story and one of our competitive advantages. This includes having healthy people in healthy communities. Historically, policy makers have recognized the importance of health care access by investing...

Contact Us

Use this form to get in touch with North Star staff, or send your questions, suggestions, and ideas to