Jonah Patel
Income inequality has become a major political issue, with disparities between the highest earners and everyone else growing. This discussion often revolves around the top 1% of wage earners, who, in 2021, earned 14.6% of all wages—a figure that has doubled since 1979. The threshold to enter this top 1% varies depending on location and local wage trends. In the US, the threshold can range from \$435,302 in West Virginia to over \$1 million in states like California, Connecticut, Massachusetts, New Jersey, and Washington. This article will explore the factors influencing these disparities and the implications for economic inequity.
| Characteristics | Values |
|---|---|
| Average annual income | $785,968 to $819,324 |
| Average annual income in West Virginia | $435,302 |
| Average annual income in California, Connecticut, Massachusetts, New Jersey, and Washington | $1 million+ |
| Average annual income in Connecticut | $1,192,947 |
| Average annual income in Mississippi, New Mexico, and West Virginia | $500,000 |
| Average annual income of the top 0.1% | $2.8 million to $3,312,693 |
| Average annual income of the top 10% | $160,000 to $167,639 |
| Average annual income of the top 10% (bottom half) | $133,500 |
| Average annual income of the top 10% (top half) | $223,000 |
| Average annual income of the bottom 90% | $28,340 |
| Average annual income in the US | $59,428 |
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Income vs. wealth
Income and wealth are both key indicators of financial security for an individual. However, they are not the same thing. Income is the amount of money earned annually from a job, a self-owned business, interest on savings, investments, payments from social programs, and other sources. It is usually calculated annually or monthly. Wealth, or net worth, is the value of assets owned minus outstanding debt. It is an amount accumulated over a lifetime or more and can be passed across generations.
While these categories are often correlated, they are distinct. For example, a person may have a high income but little wealth if they spend their earnings instead of investing them in assets. Conversely, a person may have a low income but high wealth if much of their wealth is tied up in an illiquid asset such as a house.
Income inequality measures the distribution of income throughout a population. In the United States, income inequality has increased as a greater share of aggregate income goes to upper-income households, and the share going to middle- and lower-income households falls. This inequality is most pronounced between the top and bottom earners. In 2021, the top 1% of earners made at least $435,302, with the threshold varying by state, while the bottom 90% of earners received just 58.6% of all wages, the lowest share on record.
Wealth inequality measures the distribution of net worth among the population. In the United States, the wealth gap between upper- and lower-income households is sharper than the income divide and has grown more rapidly in recent decades. Upper-income families in the U.S. have significantly more wealth than middle- and lower-income families. For example, as of 2016, upper-income families had 7.4 times as much wealth as middle-income families and 75 times as much wealth as lower-income families.
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Location
The location of an individual plays a significant role in determining whether they are in the top 1% of wage earners. In the United States, the threshold for entering the top 1% varies considerably across different states.
For instance, in states like California, Connecticut, Massachusetts, New Jersey, and Washington, individuals need to earn at least $1 million per year to be in the top 1%. On the other hand, in West Virginia, the threshold is significantly lower, with an income of $435,302 sufficient to enter the top 1%. This disparity is influenced by factors such as the cost of living, average income, and job opportunities within each state.
The East Coast of the United States is home to several states with high earners, including Connecticut, Massachusetts, New York, and New Jersey. These states tend to have higher costs of living and a greater concentration of well-paid jobs in large cities. As a result, the income threshold for the top 1% is typically higher in these states compared to others.
In contrast, states in other regions of the country, such as Mississippi, may have lower income thresholds for the top 1%. For example, in Mississippi, which has the highest poverty rate in the country, earning $361,462 puts an individual in the top 1% of wage earners.
While the focus has been on the United States, other countries also exhibit similar patterns of income distribution. For example, China ranks second in the number of billionaires, and France comes in third, indicating the presence of high wage earners in these countries as well. However, the specific income thresholds and locations for the top 1% of wage earners in these countries are not readily available.
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Average income
The average income required to be in the top 1% of wage earners varies depending on location and local wage trends. In the United States as a whole, estimates place the figure at around $707,296 to $788,000, with some sources giving a median of $785,968 or $787,712. However, the specific amount varies significantly by state. For example, in West Virginia, the threshold is as low as $420,000 to 435,302, while in states like California, Connecticut, Massachusetts, New Jersey, and Washington, you need to earn over $1 million annually.
The top 1% income threshold in each state is influenced by factors such as the cost of living, the presence of large numbers of Fortune 500 companies, and the absence of income tax in certain states. For instance, California, Connecticut, and New York are among the states with the highest top incomes, and they also host many Fortune 500 companies. Conversely, states with lower top incomes, such as West Virginia, tend to have higher rates of poverty.
While income and wealth are often correlated, they are distinct concepts. High earners may not necessarily be wealthy if they spend most of their earnings, while wealthy individuals may have relatively low incomes if their wealth is tied up in illiquid assets like real estate or certain types of stocks.
It is worth noting that income inequality has become a significant political issue, with disparities between the highest and lowest earners growing over time. According to the Economic Policy Institute (EPI), the top 1% of earners in the United States saw their wages grow by 172% between 1979 and 2022, while the bottom 90% of earners experienced a more modest growth of 33%.
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Wage distribution
The income required to be in the top 1% of wage earners varies depending on location and local wage trends. In some states, such as California, Connecticut, Massachusetts, New Jersey, and Washington, the threshold to be in the top 1% is over $1 million per year. However, in other states like West Virginia, the top 1% earners need only around $435,000 per year. The nationwide median income for the top 1% is around $700,000 to $800,000, with the average annual wage for the top 0.1% being over $2.8 million in 2022.
It is important to note that inequality in wages and incomes is not inherently bad. Many people would consider it unjust if the inequality resulted from government privileges, creating perverse incentives for individuals. However, economists argue that it is crucial to understand how the inequality came about. Government aid to the poor, increases in compensation for health insurance and pension benefits, and taxes can all impact income distribution and must be considered when analyzing wage distribution.
While income is a major factor in determining an individual's standing within the top 1% of wage earners, wealth, or the amount of assets owned, is another critical component. High earners may not necessarily be wealthy if they spend a significant portion of their earnings. Similarly, wealthy individuals with a high net worth may have relatively low incomes if their wealth is tied up in illiquid assets. Therefore, both income and wealth must be considered when examining wage distribution and the factors that contribute to an individual's overall financial standing.
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Wealth inequality
In 2021, the average annual wage for someone in the top 0.1% was $3,312,693, while the top 1% earned an average of $785,968. In contrast, the bottom 90% of wage earners experienced much slower wage growth, with their wages increasing by only 28.7% between 1979 and 2021. This disparity is even more stark when comparing the top 0.01% with the bottom 20%, with the former's income growing nearly 27 times faster than the latter between 1979 and 2021.
The threshold to be in the top 1% varies by location and local wage trends. In 2024, the income threshold to be in the top 1% in the United States was a median of $707,296, with West Virginia having the lowest threshold of $435,302, and Washington, D.C. having the highest at $1,250,029.
The rise in wealth inequality in the United States has been influenced by several factors, including technological change, globalization, the decline of unions, and the eroding value of the minimum wage. This has resulted in diminished economic opportunity and mobility for those on the lower rungs of the economic ladder, as well as a negative impact on their political influence and geographic segregation by income.
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Frequently asked questions
Move to West Virginia, where it only takes an income of $435,302 to qualify, compared to states where the top 1% threshold exceeds $1 million.
The average income of the top 1% of wage earners was $785,968 in 2022. In the top 0.1%, the average income was over $2.8 million in 2022.
The US is home to the most top earners worldwide. Over 21 million people in the US are part of the top 1% of ultra-high-net-worth individuals worldwide.
