The Unshrinking Gap

Vilfredo Pareto, a 19th century economist, had a theory: if A equals a given income, and B equals the number of people in a country with incomes greater than A; and if the logarithms of A and B are plotted on the Cartesian y axis and x axis, respectively, the resulting curve will be inclined by approximately 56DEG. In other words, the rich get richer and the poor stay poor.

Pareto has now found an ally in the U.S. Government. Peter Henle, a Library of Congress labor specialist, has found in a new study that the share of wage and salary income going to people who are already well paid is gradually increasing, while the share paid to low-ranking workers is falling. Using Census Bureau figures, he estimates that between 1958 and 1970 the share of all job income that went to the top fifth of male wage earners rose from 38% to 40 1/2%. At the same time, the bottom fifth's share dropped from 5% to 4 1/2%.

Henle's study is the latest in a series of surprising findings on economic inequality in the U.S. During the past year and a half, the Census Bureau, the nonprofit Cambridge Institute in Massachusetts, and M.I.T. Economists Lester Thurow and Robert Lucas have all found that since World War II the U.S.

has made almost no progress toward closing the considerable income gaps between the nation's highest-and lowest-paid workers--let alone creating the classless society of popular myth. Unlike Henle, who based his conclusions on the wages of family breadwinners, the earlier researchers used figures reflecting total family incomes, including "transfer payments" like Social Security. But the results still showed persistent if not growing inequality. The bottom and top fifths of American families had about the same shares of total family income in 1970 as they did in 1947:

6% v. 42%. The three-fifths in the middle brackets received about the same share of income throughout the period: 52%. In 1970 the average family in the top fifth pulled in an income of about $23,000, or approximately eight times that of the typical family on the bottom. If personal income in the U.S. were distributed on an absolutely even basis, each family would receive more than $11,000.

The size of the gap between rich and poor has been something less than a flaming issue simply because all levels of Americans are better off now than they ever have been. Even discounting for the moth holes left in everyone's dollar by inflation, real buying power for the average factory worker with three dependents has increased about 11% in the past decade and more than 29% since World War II. President Nixon argued during the campaign that "the people on welfare in America would be rich in most of the nations of the world today," and his line clearly impressed more voters than George McGovern's grumbling about unfair tax favors to the rich.

Some economists argue, moreover, that the income gap between broom closet and executive suite should continue to yawn wide, for everybody's sake. "I don't think you can narrow the income gap without reducing the nation's real income growth," says Alan Greenspan, a member of TIME'S Board of Economists. "You would get less effort out of a whole group of people who are striving to get rich. Our whole incentive structure depends on having income increments."

Yet narrowing, if not closing the income spectrum has been a U.S. ideal for more than half a century. The nation has imposed a progressive income tax since 1913, enforced a graduated estate tax since 1916 and passed expensive programs designed to alleviate poverty since the New Deal. Why have these policies had so little effect on income distribution between rich and poor?

Analyst Henle blames the structure of the U.S. job market. The number of high-paying jobs, such as engineer, computer programmer and upper-level civil servant, he finds, has increased, and salaries in those categories have risen markedly. But the number of very low-paying jobs--janitor, dishwasher and hospital orderly, for example--has not declined. Henle gives two reasons: an influx over the past few years of postwar babies, who despite generally higher educational levels act as a drag on the lower end of the job market, and an increase in women and part-time workers, who often command relatively low pay. In other words, employers have found so many people available to be hired for relatively little money that they have not gone all-out to upgrade jobs and salaries.

Rising Tide. Other economists point out that effective tax rates on top-bracket individuals have been declining steadily since World War II, because of a combination of loopholes and rate reductions, while rates on lower incomes have increased because of the growing importance of regressive sales, payroll and Social Security taxes. Joseph Pechman, another member of TIME'S Board of Economists, has found that the effective rate of federal income tax paid in 1967 by the top 1% of taxpayers was only 26%, even though the nominal federal tax rates on their income brackets ranged up to 70%.

Whether or not they would be desirable, workable and politically acceptable methods of income redistribution are hard to find. Congress this session will begin re-examining scores of income tax "preferences," but the history of loophole-closing efforts is that they create a new inequity for each one eliminated. The low birth rates of recent years might create a shortage of workers later in the century that would jack up pay in lowly jobs. Direct federal aid to the working poor, as contained in the Family Assistance Plan first proposed in 1969 by the Nixon Administration, could be an effective means of income redistribution, but the President has quietly withdrawn his support of the plan. For now, the most realistic hope of the poor probably lies in continuation of the strong economic advance that John Kennedy once compared to a rising tide that "lifts all the boats."

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