Question

Between 1968 and 2008 , the percentage share of total income grew for the _____. a) lowest two quintiles b) the middle three quintiles c) the highest quintile d) the highest quintile and the lowest quintile

Short answer

(c) the highest quintile

Step-by-step solution

Understand Quintiles

Quintiles are a way to divide a group into five equal parts. In this context, we're dividing the population based on their income distribution. The lowest quintile represents the lowest 20% of income earners, while the highest quintile represents the top 20% of income earners.

Evaluate Option (a)

Option (a) suggests that the percentage share of total income grew for the lowest two quintiles (the bottom 40% of income earners) between 1968 and 2008. However, it is well known that income inequality has increased over this period, and the share of total income for the lowest income earners has generally decreased. Therefore, this option is not correct.

Evaluate Option (b)

Option (b) suggests that the percentage share of total income grew for the middle three quintiles (the middle 60% of income earners) between 1968 and 2008. While the middle class did see some income growth during this period, it is less substantial than the income growth experienced by higher earners, which leads to the conclusion that option (b) is not correct.

Evaluate Option (c)

Option (c) suggests that the percentage share of total income grew for the highest quintile (the top 20% of income earners) between 1968 and 2008. This option is consistent with the observed increase in income inequality over this period, as many studies show that the richest groups proportionately gained more income than others. Thus, option (c) is the correct answer.

Evaluate Option (d) for Completeness

Option (d) suggests that the percentage share of total income grew for both the highest and the lowest quintile between 1968 and 2008. We've already established that the lowest quintile did not see its percentage share of total income grow. Thus, option (d) is incorrect. In conclusion, the correct answer is: (c) the highest quintile

Key concepts

Income Inequality

Income inequality refers to the uneven distribution of income within a population. Over time, income inequality can either increase or decrease based on various economic factors and government policies. Between 1968 and 2008, the United States saw a notable increase in income inequality. This means that a larger portion of the country's total income went to the higher income earners while the lower income groups experienced relatively little growth in their share of income.
When income inequality increases, it often leads to:

• The rich getting richer while the poor may not see significant improvements in their standard of living.
• Potential socio-economic issues, such as reduced access to education and healthcare for the lower-income groups.
• Impact on overall economic growth, as consumer spending by lower-income groups might be more constrained.

Understanding the reasons behind income inequality is crucial for policymakers to create strategies that promote a more equitable income distribution.

Quintiles

Quintiles are a statistical method to segregate a population into five equal groups according to their income. In any given population,

• the lowest quintile represents the bottom 20% of earners,
• the second quintile represents the next 20%, and so on,
• with the highest quintile comprising the top 20% of earners.

Analyzing these quintiles helps us understand how income is distributed across different segments of the population. By observing changes over time, we can see which segments are gaining or losing share of the total income. In the context provided between 1968 and 2008, the data showed that most earnings growth benefited the highest quintile, suggesting increasing income inequality.
Using quintiles is valuable because it simplifies complex data into more digestible pieces, highlighting where there is maldistribution of income.

Income Growth

Income growth refers to the increase in the amount of money earned by individuals or groups over time. It is an indicator of economic health and prosperity. However, not all segments of the population experience income growth equally. During 1968 to 2008, income growth in the United States was unevenly distributed, with the highest quintile seeing significant increases in their income share.
This phenomenon was largely driven by:

• Globalization, which led to high returns for capital and skills more prevalent among higher earners.
• Technological advancements, which often rewarded higher-skilled workers.
• Policy decisions on taxation and welfare that may have favored the wealthy.

Although the middle class saw some income growth, it was not on par with the highest earners. Understanding who benefits from income growth helps in assessing the economic directions a country is headed and informs necessary interventions to balance income disparities.