Income inequality in the United States remained relatively stable for a period of nearly forty years. Beginning in the 1970s, however, this period of stability ended, as the first signs of widening income inequality became apparent. Over the course of the 1970s and 1980?s, an increasingly clear trend toward greater income inequality emerged.
By the end of the 1980s, the top 20 percent of workers were receiving the largest share of income ever recorded by government figures, and the bottom three-fifths were receiving the lowest shares ever recorded. This trend has continued into the 1990s and currently shows no signs of decline.
When the indicators of growing inequality were first observed in the 1970s, some researchers argued that the effects were merely temporary artifacts of short-term labor market disturbances. By the end of the 1980s, however, a long-term trend towards increasing inequality had clearly emerged, pointing instead to inflexible changes in the occupational structure itself.
The new occupational structure appeared to be one with an increase of well-paid technical, scientific, and professional jobs at the top, a sliding middle class, and a growing poorly-paid service and retail jobs at the bottom. Several important labor-force changes appeared to be contributing to the shifting occupational structure.
As occupational reconstructing and growing income inequality became increasingly evident, heated debate as to the causes and magnitude of these changes arose. Two dominant bodies of thought emerged around the issue: the job-skill mismatch thesis and the polarization thesis.
Mismatch theorists argue that there is an increasing distance between the high skill requirements of post-industrial jobs and the inadequate training and mediocre qualifications of workers. They see the post-industrial economy leaving behind unskilled workers, especially women and minorities.
For the mismatch theorist, the trend toward greater inequality is temporary and will dissipate once the supply of workers acquires the skills demanded by a post-industrial economy. And they predict that the overall distribution of workers will experience and upgrading in their wages over the long run.
Polarization theorists, on the other hand, believe that the rise in inequality is permanent, a result of the shift to a service-based economy. This vision of the post-industrial economy is characteristically polarized.
The problem according to these theorists, is the type of jobs being generated in the new economy, not worker attributes. Because they believe the causes are structural and permanent, polarization theorists would deny the efficacy of public policies designed to educate and train unskilled workers. They predict a long-term continuation of the trend towards increasing income inequality.
Do studies show that the long-run increase in income inequality is also related to changes in the Nation?s labor market and it’s household composition. The wage distribution has become considerably more unequal with more highly skilled, trained, and educated workers at the top experiencing real wage gains and those at the bottom real wage losses.
One factor is the shift in employment from those goods-producing industries that have disproportionately provided high-wage opportunities for low-skilled workers, towards services that disproportionately employ college graduates, and towards low-wage sectors such as retail trade. But within industry shifts in labor demand away from less-educated workers are perhaps a more important explanation of eroding wages than the shift out of manufacturing.
Also cited as putting downward pressure on the wages of less-educated workers are intensifying global competition and immigration, the decline of the proportion of workers belonging to unions, the decline in the real value of the minimum wage, the increasing need for computer skills, and the increasing use of temporary workers.
At the same time, long-run changes in living arrangements have taken place that tends to provoke differences in household incomes. For example, divorces and separations, births out of wedlock, and the increasing age at first marriage have led to a shift away from married-couple households and toward single-parent and non-family households, which typically have lower incomes. Also, the increasing tendency over the period for men with higher-than-average earnings to marry women with higher-than-average earnings has contributed to the widening gap between high-income and low-income households.
For ten years now, our economy has been growing more dramatically than any other time since World War II. The stock market is at an all-time high. The government is spending less on itself, and more on the people-we’ve finally achieved a balanced budget. If we’re doing so well, why is?t everyone getting rich? Most economists point to the fact that the upper class is running away with capitalism-and that the middle class is left to defend itself.
Many experts have renamed it the anxious class because most Americans (in fact, 70% of the entire population) aren’t living the lifestyle their parents had in the fifties, while the top 5% is more affluent than ever before. This brings us to the two problems we face as a nation: Should we slow down growth to let everyone else catch up? Or will addressing income inequality eventually hurt the economy for everyone? Three different perspectives have been created that attempt to solve these problems.
Fair share proponents want drastic government intervention to guarantee equal benefits and results for everyone at the expense of growth. Fair start supporters feel that by providing equal opportunity, the playing field will be leveled without hurting the growth of the economy. Those in favor of the free-market are satisfied with current conditions and, if anything, would like to see less regulation in business and more growth to an economy that appears to be slowing down as it is.
Free market supporters, who I will refer to as strict capitalists, want to accelerate and accentuate the expansive growth periods of the late-nineties. They feel that a capitalist economy if rested in the hands of its laborers and consumers, is able to stand on its own because it is the participants that can make the best decisions as to how goods are allocated and certain needs are met.
For this growth to be prolonged, they accept the existence of income inequality as a necessary element that spurs innovation, risk-taking, and progress. To summarize the capitalist agenda, they would like to reduce government spending and regulations while increasing incentives for growth. This is best accomplished by lowering taxes on the wealthy to allow as many people as possible to engage in entrepreneurial activity.
Another way of decreasing the role of the federal government includes balancing the budget by lowering debt; doing this will free up money for private investment and small business loans, both of which improve the overall health of the economy. In response to fair start and fair share groups, capitalists feel that promoting growth and reducing the role of the government will ultimately improve the standard of living for everyone since all incomes will rise with the overall expansion of the economy.
They would like to improve education, as the fair start proposal plans to do; but capitalists feel that pouring more money into public schools does not guarantee better students. In fact, most free marketers would like to see a voucher system that improves education through competition, not simply dumping money on something and hoping for the best.
Proponents of fair share ideals, who I will commonly refer to as socialists, accept slow growth as a result of watered-down global economics while they hope to establish equal incomes. Market-socialists want to stabilize the local economy with heavy government intervention. They feel that income redistribution will allow everyone to achieve equal results, even if that means slamming the brakes on a progressive economy because they prefer this is the only way for a society to meet its participant’s basic needs.
Heavily taxing the wealthy would provide a means for raising the minimum wage and funding welfare programs that would raise the standard of living for the bottom. To address concerns in the labor market, such as health standards and working conditions, socialists support unions as a way of preventing executives from exploiting the working class.
They are against both capitalists and fair start groups for reasons: Capitalists allow the rich to get richer as they leave behind the working class, which means that a free market only benefits those who possess money and power. Fair start groups don’t go far enough in eliminating the inequalities created by a free market system.
While the previous perspectives are positioned on opposite sides of free-market idealism, the fair start group incorporates the best of both plans to achieve the greatest results through compromise. Fair start supporters would like to close the gap between the rich and the poor through equal opportunity, but they don’t want to get in the way of growth in the economy. There are several points on their agenda that satisfy these objectives.
The Head Start program gives children at all income levels sufficient health care and preparation to succeed in school. Once a child moves on to grade school, they believe that the quality of education should be the same everywhere regardless of the income level of the surrounding community-this is best accomplished by funding public schools separate from property tax.
They would like to lower the cost of a college education to allow everyone equal access to learning beyond high school. Finally, fair start supporters want to expand job training to improve the labor force. They feel that the socialists go too far to establish control over the economy, while capitalists cut too many valuable programs in the name of growth and limited government spending.
The fair start group does?t criticize the other perspectives, though, as much as they fuse those ideas with their own to produce a reasonable plan for improving the standard of living for everyone by creating equal opportunity.
It is in my personal opinion that the most valid and sensible perspective best suited to promote the present economy while still preparing for the future has to be a fair start. It preserves growth and expansion as primary goals for today; how else do you improve everyone?s standard of living without making progress through risk-taking and innovation? Fair start supports the core democratic values of public good and diversity.
This perspective preserves diversity by guaranteeing equal opportunity, not equal results. It is in the best interest of the public to educate everyone and prepare them to be functional members of society. I also endorse a fair start because it includes room on its agenda for public schools, whether they work or not. Educating the youth of America provides the foundation for the future economy. We must remember to consider these nations younger citizens when making economic decisions that promote the general welfare of the nation and its people.
History has it that in most of the successful ancient civilizations, economic inequality was commonplace between the ruling class and the ruled. This status quo mostly resulted in anger and resentment between the two groups due to the great economic divide.
These historical realities are still very much alive today in our present-day society where income inequality is rampant. The Organization for Economic Cooperation and Development (OECD) asserts that the difference between the rich and the poor in terms of the economy has continued to expand over the last years with the rift between the middle and rich stretching even further.
These facts reinforce the supposition that income inequality is at its all-time highest level in the world. Social and economic trends such as a change in family structures, increasing numbers of immigrants from poorer nations, and globalization have led to rich and middle-income countries experiencing rising economic inequality. Ironically, all this is against a backdrop of great economic growth and prosperity that has been experienced by most of the countries in the world.
Wilkinson suggests that economic inequality is positively related to social vices such as homicide and racism and inevitably fosters social instability. With these daunting realities in mind, it makes sense to explore all aspects of income inequality so as to come up with solutions and measures that can be used to decrease it. This paper shall set out to answer the question as to whether income inequality can be diminished through an extensively and articulate study of what income inequality entails and the various factors that cause it.
Various measures which have been put in place to curb income inequality shall also be highlighted and their respective effectiveness showcased. This shall be in a bid to provide a better appreciation of the issue thereby leading to an enhanced understanding of income inequality, how it affects society, and consequently, how it can be diminished.
This is because to a large extent, income inequality mostly applies to the difference between the rich and the middle-class people in the society. Mainstream media is constantly arraying reports that suggest that the share of income received by the top 5% of the population in countries has exponentially increased over the past half a century. These findings are backed by research findings as can be observed in the report forwarded by the Office for National Statistics
While different authors disagree as to the exact percentage of the income that the top 5 percent of the American population receives, there is an agreement by the general consensus that this figure is well over 20%. This is a marked increase from the figures in the 1960s and 1970s (Office for National Statistics).
The figures presented certainly lay claim to the speculations that there has been an increase in the gap between the rich and the middle class over the past two decades. Smeeding strongly contends that due to the gross injustice perceived by the majority of the population as a result of the income inequality phenomena, social instability and demands for redistribution are almost certain to follow (127). This has been necessitated by the perceived hindrance of inequality to the economic well being of a country.
In recent years, there has been considerable effort directed at investigating the impact of income inequality on the social, economic, and political aspects of life. This is due to the bleak possibilities that income inequality threatens the core foundations of societal development.
Governments all over the world have come up with measures to try and keep the disparities low. An increase in activities that lead to economic growth has also been proposed since it is supposed that a good economy will be beneficial for all members of society. However, most of these proposals have failed to consider the root causes of inequality.
An understanding of the causes can lead to more effective policies aimed at offsetting the balance thus leading to more equitable earning. Various economic scholars and analysis have consequently tried to highlight the various causes of income inequality through extensive studies of the main aspects that have led to an increase in this predicament.
There is a myriad of issues that lead to income inequality in society. However, the varied causes do not apply uniformly throughout all countries since different countries have different social and economic factors that must also be taken into consideration. Contrary to popular belief, the increase in income inequality over the past two decades has not arisen from people in the lower-earning bracket losing their earning power but rather from the upper bracket gaining an even higher earning power thus widening the gap between the two groups
This is a reality which most economists agree with especially in light of the positive economic growth rates and raised standards of living for the general population experienced in most countries. Education has been seen as one of the primary causes of income inequality.
Studies indicate that the returns to skill (a measure of the difference in earnings between more-skilled and less-skilled workers) have changed radically over the past 3 decades. From the 1980s, there was a heightened increase in the wage differential in the labor market (Ryscavage 115). The main differentiating factors were education or experience.
Emphasis on education resulted in higher institutes of learning graduates earning more than similar workers who had only high school diplomas. Due to this shift, higher wages are paid to workers who are more skilled or occupy management and administrative positions than to workers involved in the manual section of the organization.
It follows logically that income gaps attributed to education levels are significant since only a small proportion of the population gets to pursue the highest levels of education. This observation implies that children of poorer parents are less likely to become rich in the future than children of richer parents.
A significant change in the family composition also contributed vastly to the income disparities that are observed today. Statistics provided by Ryscavage indicated that a rise in divorce rates and marital separations compounded with the upsurge of premarital pregnancies led to an increase in the number of single-parent families.
This shift from the traditional family set up which had two providers (i.e. the male and female figure) means that a single-parent family structure does not receive as much income as a two-parent one. Furthermore, due to moral decadence and the fear of responsibilities, most men bail out on their families leaving the women as the sole providers for such single families.
In most situations, women earn lower incomes as compared to their male counterparts. Other changes in the family structure such as an increase in the number of persons living alone and cohabitation of unrelated individuals have also led to the increase in the income inequality as such groups of people cannot enjoy the benefits that stem from collective spending and catering of bills which greatly increases the individual’s economic power.
On the same note, Ryscavager acclaims that the gradual population increase being experienced globally has contributed significantly to the prevalence of income inequality (124). He states that population increase has an adverse effect on the labor market and consequently the labor prices. In America, the population that stands between the ages of 18-25 is significantly large.
Ryscavager states that the presence of a large working population accompanied by a general lack of employment opportunities leads to a desperate situation that finds most of these people underemployed and underpaid.
However, the profit margin received by the employers still grows, bettering their income status while frustrating that of the employees. Such scenarios have greatly contributed to income inequality not only in America but in most economies across the globe.
In addition to this, overpopulation has influenced the migration patterns in various localities within the states. The movement of masses from the rural areas to major cities not only affects the income distribution in the states but also the general prices of goods and services within these cities due to increased demand.
However, these financial changes are not reflected on the payslips those in the lower-income brackets are forced to pay more on the same salaries as opposed to high-income earners who probably don’t feel the financial pinch associated with inflation. Also, in such situations, the low-income earners are more likely to spend more than they save on their payments. This leads to fewer developments on their side a fact that further facilitates poverty and income inequality.
A notable shift in economic activities away from the good-producing industries to the service-producing industries is also blamed for the current income inequality. Prior to the 1980s, goods-producing industries paid much higher wages than the service-producing industries.
Loss of jobs in these industries therefore had a direct and dire implication for the middle-class society who relied heavily on this industry for their livelihood. Smeeding asserts that there is evidence that both the changing supply and demand for labor of different skills can explain some of the changes in earned incomes across rich nations
Businesses have also been blamed for further advancing inequality through various practices. Business enterprises both large and small have adopted various measures so as to ensure that they remain competitive in a market that is increasingly saturated and competitive in nature.
In a bid to increase their profitability, most organizations are constantly laying-off of sections of their labor force and decreasing the wages of the remaining workers so as to achieve higher profits. This compounded with the effects of high mechanization has meant that a good section of the population is increasingly unemployed thus moving closer to the bottom of the income inequality bracket.
Immigration is another social occurrence that has been blamed for the disparities in economic levels. Smeedings asserts that in general, nations that exhibit higher levels of immigrants will have greater inequalities especially at the lower end of the income distribution (15). It has been observed that most immigrants to developed countries originate from poorer nations. They more often than not lack any special work skills and mostly join the unskilled workforce.
In the past decade, there has been an influx of immigrants to most western nations leading to an increase in the people on the lower end of the income scale thus increased income inequality. Further competition for the already scarce jobs increases leading to unemployment by the legitimate citizens and immigrants alike.
Another perspective of education as a cause of income inequality has been advanced by Tanzi and Chu. The authors propose that the cost of high learning is increasingly becoming higher making it out of the realms of the lower-income bracket families. This, therefore, means that such families are unable to provide a high education for their children leading to them earning lower salaries and wages.
The higher earners on the other hand can afford the high cost of education and the members of such families thereby end up being in the top-earning bracket due to their high levels of education. This vicious cycle means that the rich keep getting richer while the low and middle class stagnate.
Globalization has also been blamed for the increase in income inequality mostly in developed nations. Globalization is a process characterized by a major integration of economies and cultures. This trend is becoming rife and with it, a shift in the way businesses and societies operate.
Keller suggests that globalization is more of a gradual process whose impacts on economies are less revolutionary in nature. One of the adverse repercussions of globalization is that it leads to the laying-off of workers as jobs are outsourced. The study by Keller indicates that a division of labor undertaken on an international scale whereby multinational companies from Western nations draw on developing countries’ workforces for manufacturing activities has increased the unemployment level in the West.
Further reinforcing these findings, Keller observes that the deindustrialization of the west (whereby industries shift to the developing countries) has led to a 10-20% loss of manufacturing jobs in the USA. This has led to an increase in income inequality since most of the workers in the manufacturing companies are mostly middle to low-class members of society.
Most of the effects of inequality are negative. The linkage between inequality and crime is especially troubling. Bernasek, an economic reporter for the New York Times hypothesized that, as the income distribution becomes more polarized, the interaction between the two groups from the different sides of the income divide is further minimized.
This in turn lowers both the expected future income of the poorer and their incentive to supply labor in the legal labor market is thus weakened. Findings indicate that the crime incentive for the richer is far lower due to high income while it remains heightened for the poorer (OECD).
This is because individuals feel more frustrated when they belong to the low-income group than the high income group. This leads to antagonism by the low earners to the high earners which leads to the propagation of crime. In addition to this, the relationship between inequality and violence is a robust one. This is purely due to the fact that to a larger extent, poverty is independently associated with higher levels of violence.
Research suggests that income inequality may be a significant determinant of health. Ryscavage compliments this statement to the fact that higher income inequality in a society leads to the greater difference in resources across the community which results in greater differences in health across communities (120). Health care acquisition thereby becomes almost an unattainable affair for the low earners since the cost of health care and a healthy lifestyle becomes more expensive in the community.
In her articles, Bernasek also suggests that income inequality leads to a lack of solidarity and social cohesion due to stress-related factors that are developed by income inequality. This in turn dramatically decreases life expectancy rates. These assertions borrow from the psychosocial environment interpretations which theorize that inequality produces a social environment that ultimately affects the individual’s health.
In recent years, studies to indicate the effects of income inequality have been sanctioned. It contended that inequality may hinder the economic growth of a nation. In the earlier days, income inequality was indeed a sign of economic growth since it marked the population shift from rural to urban with the urban population earning higher.
As such, it was seen as a necessary condition of economic takeoff. However, the Office for National Statistics proposes that inequality leads to redistributive demands in the form of heavier tax burdens and a lack of incentives for investors which leads to the slowing down of growth.
In addition to this, inequality leads to instability in the political system which becomes characterized by riots, assassinations, and even outbreaks of civil wars. This state discourages investments thereby further plunging a nation into reduced earning.
However, Bernasek contends that the effects of income inequality are not inherently adverse. She asserts that without inequality, there would be no motivation for anyone to earn more than the rest of the people. However, given the many adverse effects that sprout from income inequality, the virtue of income inequality as a motivating factor seems to pale in comparison. There is therefore a pressing need to come up with means that alleviate the gap in income thereby leading to a more harmonic society.
While education has been observed to be one of the leading causes of income difference, it can also be one of the solutions. Keller theorizes that as the supply of education labor rises as a result of either government policies or private endeavors that universalize education, the wage premium on education will decrease. This will in effect negate the previous effects of increased income inequality due to the limited educated labor force.
As such, an expansion of education reduces inequality. In her study on education policy’s ability to improve income distribution, Keller asserts that the overall public expenditure on education is not sufficient to decrease inequality. She goes on to recommend that expenditures per student should be kept up so as to prevent the deteriorating of education quality. This move will benefit the entire population since it will result in reduced inequality in the long run.
However, research shows that in the Less Developed Countries, and expanding education can lead to an increase in income inequality. This is because if jobs remain unchanged, the educated members of society will end up receiving better paying low-income jobs thus marginalizing the uneducated people’s labor.
In this case, policies that result in the increase in jobs have been observed to function better. Policymakers should also shift focus from theoretical to practical forms of education so as to produce a large self-employable workforce.
Immigration has been blamed for an increase in income inequality since most of the immigrants are unskilled laborers as has been discussed previously in this paper. Smeeding declares that the opening up of western countries such as the US to legal immigration exposed the domestic poor to wage completion causing the lower-income and upper-income gap to increase even further.
This being the case, the government should put in place stricter immigration policies so as to prevent the influx of immigrants thus keeping decreasing the inequality gap.
Most western nations have some social schemes in place to protect their citizens from the extreme effects of poverty. High spending by the government on social benefits such as unemployment benefits and family benefits reduces the income inequality gap.
Studies show that a decrease in federal spending on social benefits in countries such as the USA has greatly increased inequality. Social schemes serve as a means to distribute resources. In health care, these social schemes enable the low earners to have access to medical services that would otherwise have been prohibitive to them.
Savage contends that while such policies appear to be humanitarian in nature and of no economic value for the nation, they actually do lead to an improvement in the overall economic well being of the nation. He outlines that due to the money saved due to these benefits can be used for other purposes such as education and improvement of living standards.
An analysis of the taxes and benefits redistribution in the United Kingdom pointed to the decrease in the gap between the top and bottom fifths by a ratio of four to one (Office of National Statistics). These results reinforce the fact that government policies can play a monumental role in income inequality reduction.
The UK reports stated that cash benefits such as income support made up 57% of the gross income of the poorest households. This articulates the fact that government policies can physically carry out redistribution of wealth.
Government policies on sensitive issues such as health can contribute a great deal in narrowing the income gap. Health care has been highlighted as one of the causes of an increase in income inequality. Government policies aimed at providing a universal health care solution should therefore be applauded since they will lead to a decrease in the gap between the top and lower levels in the income scale.
In light of the changing family structures as has been described in this paper, affirmative action and female empowerment policies should be considered in the fight for income inequality reduction. Single parent females should be afforded an opportunity to advance economically despite the odds that are in their path.
Another lasting solution to this problem would be to introduce or to increase the minimum wage levels currently in place. This is a government initiative and may come at a grave cost. However, the long term benefits to be accrued from such a venture far outweigh the short term inconveniences that may accompany it.
The increment of the minimum wage will in the long run ensure that the households earn enough to maintain their standards of living all the while affording them an opportunity to save for future development and investments. Additionally, the implementation of this policy will lessen the income inequality gap as well as the social inequality gap brought about by discrimination based on financial status.
Taxation remains the most important front from which the government forces can wage a comprehensive war against income inequality. This is because governments all over the world obtain the bulk of their revenue through taxation of their citizenry. With this in mind, the implementation of effective taxation policies can lead to a reduction in inequality. Progressive taxation is deemed as the surest way to reduce inequality.
Progressive taxation means that the higher earners are taxed highly and this taxation increases with an increase in earnings. However, taxation remains a touchy issue especially in democratic nations since citizens are opposed to the constant hike in taxation. Politicians are therefore wary of raising taxes since they may lose favor with the citizens if they increase the tax levels even if for a good cause.
At the present, most of the government policies fail to address the income inequality issue or end up abetting income inequality (Bernasek). This is mostly by the lack of adoption of measures such as increased social spending on education and health care.
Immigration still remains rampant and the adoption of a free market only worsens the situation for local businesses which must compete with their international counterparts who at times have the advantage of low-cost production. Despite these deterring factors, reduction inequality can still be attained by the progressive implementation of the above-outlined measures.
Decentralization of industries and companies may also help in alleviating the income inequality crisis. The concentration of industries in the town areas denies those in rural areas job opportunities. However, if these industries and companies are well spread throughout the states then they offer job opportunities to the locals and as a result, minimize the income gap between the citizens. To facilitate this, the government should establish more incentives offered to investors willing to start up their businesses in less developed areas.
At the same time, the government as well as responsible policymakers should impose higher taxes on all potential investors looking to invest in well-established areas. Such investment policies may assist in the redistribution of industries from the towns to rural areas a move that will increase job opportunities, alleviate poverty, and ensure equal distribution of opportunities and resources within the economy.
Inequality has been universally acknowledged as a major roadblock in the way for economic and social prosperity. This paper set out to investigate whether income inequality can be diminished and if so, how it can be done. To this end, the paper has articulated the issue of income inequality that faces both developing and developed nations alike.
The evidence presented herein suggests that globalization, education, and a shift in the family structure are arguably the most fervent forces at play in the widening income inequalities in rich countries. Previous misconceptions that inequality was inevitable on the road to economic development have been dismissed as it has been highlighted that inequality is actually a deterrent to the economic prosperity of nations.
Calls for improvement in the economy of the nation have been forwarded as the most effective way to deal with income disparities, especially in developing countries. However, the trend in the income equality gap increases continuously to persist despite the economic realities thus suggesting that the problem is unlikely to be resolved by policies aimed at mere economic growth.
Domestic policies including labor market institutions and welfare policies have been observed to act as powerful forces in countervailing inequality in nations. The unique political and economic structures of particular countries are of prime importance in reconciling the rich and middle classes. This paper also hints at the importance of more stringent immigration policy for a diminished gap in the income scale.
Whereas complete income equality is an idea that will never be achieved in the world, lessening of the gap is an achievable goal that can be attained should the governments and other relevant institutes diligently undertake the practices and policies outlined in this paper. A more equitable community will not only be harmonious but will also lead to more industrial growth hence a higher standard of living for most members of the society.
Income inequality has been a major concern around the world, and it mainly links to how economic metrics are distributed among individuals in a country. Economists generally categorize these metrics in wealth, income, and consumption.
Wilkinson and Picket (2009) showed in their studies that inequality has drawbacks that lead to social problems. This is because income inequality and wealth concentration can hinder or delay long term growth. In 2011, International Monetary Fund economists showed that less income inequality increased the duration of countries’ economic growth spells more than free trade, low government corruption, foreign investment, or low foreign debt (Berg and Ostry, 2011).
This essay will be structured as follow: 1- Theoretical Analysis: showing reasons that cause income inequality. 2- Empirical evidence. 3- Possible policies to solve the inequality problems. 4- Conclusion. 1. Theoretical Analysis An important factor in the creation of inequality is the variation in individuals’ access to education.
According to Bosworth et. Al, (1999) education in a field that requires or demands a high number of workers, creates high wages for those with advanced education. As a result, those who are unable to afford good quality education or choose not to participate in schools or colleges, generally receive much lower wages and thus it lowers aggregate savings and investment.
Inequality is not favorable in society. There is inequality in many aspects of our society, such as race, and gender. The main inequality we look at is income inequality in the United States. One percent of the population controls the vast majority of the United States’ currency.
The Gini coefficient has been increasing ever since the Industrial Revolution, a period where education, manufacturing, and economics has shown growth. However, income inequality has increased in the Industrial Revolution. There are many events and causes that have led to the rise of income equality in the United States.
According to Hernaes (2017), technology in the United States has been growing. With the growth of technology, more “blue-collar” jobs are being replaced. Inequality is increasing because the jobs being replaced are lower-wage jobs. The reason for inequality is that those in the lower class and even the middle class are losing their jobs.
Those in the upper class mostly retain their jobs because their labor requires more skilled labor. The income gap increases because the wealthy can allocate their spendings on other resources, or cheaper resources that will replace labor. The loss of these jobs would cause the poor to become poorer, and the rich become richer.
The supply of labor demanded would decrease, resulting in fewer workers. The growth of technology began as a “slow train since the 1980s.” Technology has been growing “exponential” ever since.
Over centuries, the economy has been the major thing that has kept the world going receiving help from the middle-class society. However, there have been some downfalls over the years which have made it difficult to get back up from.
Income inequality is an income distributed unevenly to the population; the United States has the most unequal distribution of income and wealth today. In the documentary Inequality for All by Robert Reich demonstrates in a graph how much an employee from the top is receiving a 1 percent more than a typical worker during the 1970s.
In recent years, the United States economy has been suffering from the slow growth being held down by job creation and the labor market. After Donald Trump being elected as president, there has been a promise made by regulating taxes.
Overall, to sustain a strong and vibrant middle class, workers must join together for the purpose of improving their work pay, investing in education, and also to be able to fix the tax system; these actions will give strength to the communities’ voice making a possible change in the economy.
To begin with, the voice of workers is intended to be heard by politics to try and make a change in each and one of their lifestyles. Unfortunately, during recent years there has been a downfall in unions, “Smaller numbers in unionized workers mean less bargaining power, and less bargaining power results in fewer wages” (Reich).
Example #7 – interesting ideas
Now- what is your idea- are you for or against income inequality? No one comes out and says they are for income inequality. It’s just that different groups have different ideas. For the most part, conservatives and business owners want to be able to hire people at low wages so that the businesses make more profit. They say that is good for the country.
Liberals, unions, and some politicians like Bernie Sanders believe that we need minimum wage increases to boost income, equal pay for women regulations, penalties for companies where the upper management makes huge salaries, and retraining for the unemployed to help them get better jobs. Try looking up some of those things and see which groups and organizations support those ideas.
A major social problem in America today is its inequality in the distribution of income. “Income inequality refers to the gap between the rich and the poor. The United States has the most unequal income distribution in the industrialized world, and it is growing at a faster rate than any other industrialized country” (Eitzen & Leedham, pg. 37). The main reason as to why income is distributed so unequally is because of the gap between social classes.
Each social class has a certain power, and that power is their economic ability to change society. The four major classes are capitalists, managers, small entrepreneurs, and workers. A person’s clothing, housing, and educational opportunities usually depend on their class, but that is a direct reflection of their income. A person does not gain any class or power without their income being taken into consideration. The only problem is, is that there is also class inequality, which further prohibits people to earn an equal income.
Income inequality in the United States is caused primarily by inequality of productivity among its citizens, and secondarily by a government that coercively taxes the productive people and gives it to those who don’t produce.
If you want income equality (that’s not a right given in the US Constitution, since the US was originally designed as a merit-based free-enterprise culture), I would suggest you take North Korea as an example of what happens when governments redistribute wealth to create “equality.”
The best programs the US should put forward are like the Sherman-Anti Trust act: big rich people should be forced to compete; should not “buy” government influence, and the government should not over-tax their productive people.
And remember, the US has some of the richest “poor” people in the world, in a system that is fluid and does allow people to improve their lot.
Wiki has a pretty good write up with some links to reference material. Almost all studies show some gap after attempting to factor out all the typical things that people feel contribute to the differences other than discrimination. The 77 cents figure is before they control for a wide range of differences that do affect pay other than gender discrimination.
I suspect there are some two-layer effects that haven’t shown up in very many studies yet. Women may be more reluctant to negotiate starting pay, but it may be because they get a different reaction to doing so than men do, hence some of their reluctance is explained by the different reactions which may be discrimination. This causes discrimination to be underrepresented in the data.
The majority of the world’s population then (as now) lived in Asia, and the despotic empires there were run in a way that meant there was far, far more inequality affecting far more people in a far bigger area.
The Industrial Revolution actually reduced inequality – incomes rose in real terms, and life expectancy increased,, and in terms of the regimes ruling them previously, peoples in colonies ruled by Europeans were possibly treated far less unequally (though still unequally) in many cases than they had been before.
For example, in British India the rule of law applied to all – there was no special treatment for Muslims or extra taxes for non-Muslims to pay as there had been under the Moghuls. So, I would argue that the Industrial Revolution and European imperialism actually reduced global inequality for many people in many parts of the world.