Lower US income inequality will shift policy narrative

Significance

For the last two decades income inequality among workers has widened in the United States and become a significant political issue. However, the tight post-COVID-19 labour market has lifted overall incomes, with disposable income for the bottom 50% of the labour market being 20% higher in 2021 than in 2019.

Impacts

• Tight labour markets will drive higher wages and reduce income inequality in the absence of large-scale immigration.
• Tight labour markets will have a dramatic impact in reducing employment discrimination experienced by minority workers.
• Some Democratic voters who want to see child tax credit and earned income tax credit restored will be disappointed.
• The evident impact of COVID-19 support schemes will create expectations for similar government measures in the future.