Methodology
Running head: INCOME INEQUALITY 1
INCOME INEQUALITY 2
Income Inequality
Danya Alsinan
Lapo Salucci
Income Inequality is a Problem
Why Income Inequality is a Problem
Income inequality is the magnitude of uneven distribution in a population. United States has experienced widening income inequality in the recent times if you consider that the number of Americans living in poverty increased by 15 % between 2000 and 2006 (Saez & Zucman, 2016). Furthermore, in 2012, the income of the 1% in the United States was 22.83% reflecting the widest income inequality gap since the economic depression of the 1920s (Chetty et al., 2014).
Figure 1 illustrates the increasing percentage earnings for the top 10% and the declining percentage earnings for the middle class and the poor. In 1970, the 50% at the bottom earned 19% of the total income, but in 2014, they made only 10 % of the total income reflecting a sharp decline of 9%.In contrast, the top 10% earned 47% of the total income earned in 2014 compared to 31% in 1970 depicting an increase of 16%.This situation seems to have accelerated as illustrated in Figure 2 since the share of US income that went to the top 10% had risen from 47% to 52% depicting the ugly picture of deteriorating income inequality in the United States. Therefore, the claim that income inequality is a problem in the United States is well substantiated and the sooner this problem is addressed, the better for the middle class and the low-income families. Possible reasons for the widening income disparity include technological advancements which have replaced relatively unskilled workers while rewarding highly skilled employees (Chetty et al., 2014). Also, globalization has enabled many corporations in the country to outsource labor from places like China where the cost of labor is lower than in the United States (Saez & Zucman, 2016). Also, the declining political power of the working class means that they do not have a say in the policy-making hence their interests are not taken into account in the law-making process. Finally, the declining value of the minimum wage means that the low-income earners cannot maintain the same standard of living they had in 2009 when the minimum wage was last reviewed (Tsui, Enderle & Jiang, 2017).
Figure 1: Comparison of Percentage of Share of Total Income Earned by Different Classes Between 1970 and 2014
Retrieved from: https://www2.deloitte.com/content/dam/insights/us/articles/3313_IBTN_income-inequality-infographic/figures/3313_infographic.png
The figure illustrates the ever-increasing disparity between the rich, the middle class and the poor. Whereas the poor earned 19% of the total income in 1970, this percentage had declined to 10% in 2014.In sharp contrast, the percentage share of the top 1% had increased by 16 % from 31% in 1970 to 47 % in 2014.
Figure 2: Share of Income that Went to the top 10% in the United States Between 1915 and 2015
The figure above illustrates that from the 1970’s the income disparity in the United States has become more pronounced reaching a peak in 2015 when the top 10% earned 52% of the total income in the United States.
Possible Opposition to the Problem Definition
While most people are likely to agree that income inequality is a problem worth solving, conservatives might not share this ideology and they may hold that income inequality is not a problem, and as such, it is not worth solving. The main argument that conservatives are likely to the front is that inequality is a natural part of free markets (Goda, Onaran, & Stockhammer, 2017). The United States is a meritocratic society meaning that people earn money according to the amount of hard work they put. For this reason, opponents to the notion that income inequality is a problem might argue that a free market is based on the idea that innovation and hard work should be rewarded and therefore, trying to fix income inequality will discourage innovation and entrepreneurial spirit (Helpman et al., 2017). Also, using the free market argument, opponents to the income inequality problem might hold that if people believe that their investments and income would not lead to a significant change in their incomes, their motivation to innovate and invest will decrease (Chetty et al., 2014). This argument is likely to win hearts since the entire US economy is built on innovation and hard work and therefore suggesting that fixing income inequality might remove this admirable aspect of the US economy will make many citizens and policymakers to have a second thought.
Why Taxpayer Money and Money should be Dedicated to Solve Income Inequality
Dedicating time and money to address income inequality is essential for several reasons. To start with, reducing income inequality will boost shared prosperity so that the rich, the middle class and the poor have equal access to quality amenities such as health and education opportunities. Shared prosperity will mean that people from all social classes can reap the benefits of globalization and technological advancement (Rudra & Tobin, 2017). As it stands, the poor and the middle class have seen the ugly face of globalization as companies source for cheap labor in emerging economies. Secondly, a reduction in income inequality is a vital ingredient to a healthy democracy. Notably, extreme inequality can trigger political turmoil where the majority poor rise against the minority rich thus tearing a country apart (Goda et al., 2017). The idea of populism champions the regular people and challenges them to take control over the governing of their country instead of leaving it in the power of few elites. Populism is likely to make a country ungovernable since the everyday people feel that they have been disenfranchised for eons and hence the need to take control of their economic, political and social destinies. Furthermore, reducing income disparity will promote faster economic growth since it leads to a reduction in government welfare spending hence more money can be used in developmental projects such as improving the state of roads and investing in education (Mueller, Ouimet & Simintzi, 2017). Besides, since wealthy people spend less of their income than poor people, putting more money in the hands of the poor and middle class will accelerate economic growth. Thus, it is worth committing time and resources to address income inequality since this will contribute to shared prosperity, healthier democracy and spur economic growth.
References
Chetty, R., Hendren, N., Kline, P., Saez, E., & Turner, N. (2014). Is the United States still a land of opportunity? Recent trends in intergenerational mobility. The American Economic Review, 104(5), 141-147.
Goda, T., Onaran, Ö., & Stockhammer, E. (2017). Income inequality and wealth concentration in the recent crisis. Development and Change, 48(1), 3-27.
Helpman, E., Itskhoki, O., Muendler, M. A., & Redding, S. J. (2017). Trade and inequality: From theory to estimation. The Review of Economic Studies, 84(1), 357-405.
Mueller, H. M., Ouimet, P. P., & Simintzi, E. (2017). Wage inequality and firm growth. American Economic Review, 107(5), 379-83.
Rudra, N., & Tobin, J. (2017). When Does Globalization Help the Poor?. Annual Review of Political Science, 20, 287-307.
Saez, E., & Zucman, G. (2016). Wealth inequality in the United States since 1913: Evidence from capitalized income tax data. The Quarterly Journal of Economics, 131(2), 519-578.
Tsui, A., Enderle, G., & Jiang, K. (2017). Income Inequality In The United States: Reflections On The Role of Corporations. Academy of Management Review, amr-2016.