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March 16th, 2012 at 11:20 am

Income gap growing faster in the U.S. than the rest of the world


U.S. income, while solid among its peers around the world, still leaves many grappling to make ends meet.

An “average” American earns close to $40,000 a year.  That’s pretty good money compared with the rest of the world.

But recent data from a number of sources conclude that the average U.S. income, while solid among its peers around the world, still leaves many grappling to make ends meet. Additionally, the 2011 U.N. Human Development Report finds the gap between the rich and poor in the U.S. continuing to widen.

First, what seems to be good news: For 2010, the average U.S. income was $39,959, according to the Social Security Administration. However, the median income — meaning half of Americans made more, half made less — was substantially lower, at $26,364.

The U.N. analysis uses yet another measurement. That report puts the United States’ gross national income per capita at $43,017, relatively high compared with its industrialized counterparts. The top 10 per capita countries are:

  • Qatar, $107,721
  • Lichtenstein, $83,717
  • United Arab Emirates, $59,993
  • Singapore, $52,569
  • Luxembourg, $50,557
  • Kuwait, $47,926
  • Norway, $47,557
  • Brunei, $45,753
  • United States, $43,017
  • The Netherlands, $36,402

Overall, the U.S. placed fourth in the U.N. study’s Human Development Index, which measures three basic factors of human well-being: a long and healthy life, education and standard of living. Norway, Australia and the Netherlands occupy the top three spots.

The comprehensive U.N. study examines a number of factors, including income, environment and gender equality, with a focus on identifying programs and strategies that are effective in promoting well-being and prosperity.


What ‘average’ will buy

Unfortunately, in the U.S., an average $40,000 income often means living paycheck to paycheck and, perhaps more significant, living beyond your means. To that end, the Federal Reserve reported a nearly 10% jump in overall consumer debt in November 2011, to $2.48 trillion — the biggest one-month percentage increase in overall debt in more than 10 years.

“The average American struggles,” says Ronald Hill, a professor at Villanova University who has studied poverty worldwide. “They have an old car they’re struggling to keep on the road, they may be late with rent payments, and they can’t afford to send their kids to college. At $40,000 a year, they probably haven’t been on a vacation in five years. They feel great restrictions.”

Moreover, the U.N. study also says the growth in financial inequality in the United States easily outpaces its peers. Moving down the list, it’s not until you get to Chile (No. 44 in the overall study) that there’s a faster-growing gap between the wealthy and the poor.

According to the Internal Revenue Service, the average U.S. income, when adjusted for inflation, declined 1% between 1988 and 2008, while Americans making $380,000 or more saw their incomes grow 33%.

“What’s striking about the United States is that, comparable to other countries of comparable income, the inequality in the United States is much wider than any other country,” says William Orme, a spokesman for the U.N. report. “That’s not only the result of increasing concentration of wealth at the top but the stagnation of income for the bottom 75% over the last 10 years. The U.S. is certainly not unique in having little real significant income growth, but the disparity is more acute.”

A possible explanation

But, adds Orme, the income difference can be linked, at least in part, to a cultural and social diversity that’s unheard-of in most other nations.

“It’s not surprising — we are a hugely diverse country,” he says. “Compare suburban Boston with a county on the Texas-Mexican border. You simply don’t find those extremes in other industrialized countries.”

So that raises the question: At what income level does the average American begin to feel the financial noose loosen just a bit? Naturally, every little bit helps, but Hill suggests it takes a good deal more income for someone to feel on the cusp of financial security.

“It’s not until about $50,000 where people reach the place where they don’t need any help, and it’s not until the $60,000 to $70,000 range that they begin to stop living beyond their means,” he says. “They would certainly be getting by, but they wouldn’t be doing great. Realistically, you would almost need to double that income average in the United States to feel like you were living a reasonable life.”

Another worry for Americans

Further sharpening many Americans’ struggles is the all-too-common absence of health insurance (estimates put the range of uninsured between 45 million and 48 million, or 14% to 15% of the population).

While most other countries that placed high on the U.N. Human Development Report have lower median incomes than the United States (including Australia, the Netherlands and Ireland), the guarantee of health care removes the anxiety of a costly illness.

Along those lines, the Corporation for Enterprise Development, a Washington, D.C., advocacy group, estimated in late January that 43% of U.S. households — roughly 127 million people — would fall below the poverty line within three months if confronted by a serious medical illness or some other emergency.

“In a lot of countries where the social safety net is much larger, such as Sweden and Canada, nobody has to worry about health care,” Hill says. “In the United States, a person making that median income likely doesn’t have health insurance. If they do, they are fortunate among their friends who probably don’t have coverage.”

But the news is not entirely negative. For one thing, although the level of financial disparity in the U.S. is high compared with its Western peers, it’s far from the worst in other parts of the world. For instance, the spread between the haves and have-nots in countries such as Chile and Brazil is much greater — and even more so in countries in Africa, the Caribbean and other regions where relatively few, exceedingly wealthy people live with an enormous population existing in crippling poverty.

And if you happen to be one of the fortunate Americans who count themselves as relatively well off, it doesn’t come with the grim circumstances that often exist in other countries where income disparity is more than a matter of numbers.

“Wealthy people have access to things that ordinary people don’t have. But they’re not happier than others — there’s simply no data to suggest that,” Hill says. “And you’re also a big target to others who resent your wealth. That means kidnappings and other crimes. You almost have to live like a drug lord in some of these places because you stand out so much. You’re much more powerful, but you also face a certain amount of isolation.”

Photo credit: CNN



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