The Twentieth Century Record of Inequality and Poverty in the United States

R. D. Plotnick, E. Smolensky, Eirik Evenhouse () and Siobhan Reilly ()

Institute for Research on Poverty Discussion Papers from University of Wisconsin Institute for Research on Poverty

Abstract: When the twentieth century is viewed as a whole, no clear trend in income inequality emerges. Inequality was high and rising during the first three decades and peaked during the Depression. It fell sharply during World War II and remained at the lower level in the 1950s and 1960s. From the 1970s through the mid-1990s inequality steadily increased to levels not seen since World War II, though well below those during the first three decades.

The rate of poverty exhibited a long-run downward trend from about 60–70 percent in the earlier years of the century to the 12–14 percent range in recent years, with considerable fluctuation around this secular trend.

Changes in inequality were produced largely by demographic and technological changes, the growth and decline of various industries, changes in patterns of international trade, cyclical unemployment, and World War II. The primary drivers of the rate of poverty were economic growth and factors that produced changes in income inequality, particularly demographic change and unemployment.

Public policy has reduced the market-generated level of inequality, but since 1950 has had little effect on the trend in inequality. Prior to 1950, the growth of government, and particularly the introduction of a broadly based income tax during World War II, coincided with and partly produced the sharp downward shift in inequality of that era. Government had little effect on poverty rates until 1950. Public income transfer programs have reduced poverty rates appreciably in recent decades. Since World War II, when they have been on a large enough scale to matter, changes in tax and transfer policy have tended to reinforce market-generated trends in inequality and poverty rather than offset them.

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