In aggregate, socioeconomic conditions—income and wealth—in the United States are at or above average for high-income countries. Both the size of the U.S. economy and median household income in the United States are among the highest in the world. As of 2007, the United States ranked second in the OECD (after Luxembourg) in annual household income9 (OECD, 2011e) and seventh in gross domestic product per capita (World Bank, 2012a). However, the United States ranks poorly on the equitable distribution of economic resources, with relatively high levels of poverty and income inequality.
The relative poverty rate,10 defined as the proportion of the population with low incomes relative to the median income, has been higher in the United States than in other high-income countries since at least 1980 (Luxembourg Income Study, 2012). Historically, the U.S. poverty rate declined from very high levels in the 1940s to low levels in the late 1970s (Danziger and Gottschalk, 1986): the rate (based on total household income) fell from 40.5 percent in 1949 to 22.1 percent in 1959, 14.4 percent in 1969, and 13.1 percent in 1979 (Ross et al., 1987). During these same decades, many European countries instituted social welfare reforms that were designed to promote social equity and alleviate economic distress (see Chapter 8), lowering the rates of poverty in many of these countries (Brady, 2005). The gap between the levels of income inequality in the United States and other rich democracies began to widen in the 1970s-1980s, possibly because of the adoption of more conservative economic policies in the United States and a retrenchment in public assistance programs (Card and Freedman, 1993; Danziger and Gottschalk, 1995; Hanratty and Blank, 1990).
Absolute poverty is a basis for comparing incomes across countries against a common benchmark (such as a given level of income in U.S. dollars). Analyses that have used a common data set to compare countries in terms of absolute poverty find that other countries seem to have higher rates
9Household income is defined by the OECD as annual median equivalized household disposable income: gross household income after deduction of direct taxes and payment of social security contributions and excluding in-kind services provided to households by governments and private entities, consumption taxes, and imputed income flows due to home ownership (OECD, 2011e).
10Relative poverty is defined by the OECD as the percentage of people living with less than 50 percent of median equivalized household income. “People are classified as poor when their equivalized household income is less than half of the median prevailing in each country. The use of a relative income-threshold means that richer countries have the higher poverty thresholds. Higher poverty thresholds in richer countries capture the notion that avoiding poverty means an ability to access the goods and services that are regarded as customary or the norm in any given county” (OECD, 2011e, p. 68). See above discussion of absolute poverty as an alternate measure.