Income Inequality in the United States

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Income Inequality in the United States

Introduction

Income inequality refers to the wide gap that exists between money earned by the poorest and the richest people within an economy. Income includes investment earnings, wages, rent, and real estate sales. For a while now, the issue of rising economic equality has become a central issue for the Democratic presidential nominal and policy intervention discussions in the United States. Income inequality is a significant part of how people understand socioeconomic status, including the way people identify middle, upper, and working class. Income inequality is affected by various forms of inequality, such as political power, wealth, and status. This text highlights the status of income inequality in the United States compared to other countries, its consequences, and why people should care about income inequality.

Status of Income Inequality in the United States Compared to Other Countries

In the past 50 years, 20% of highest-earning of United States households have steadily brought a considerable portion of the country’s entire income. According to the Census Bureau Data, in 2018 alone, households that are categorized as top fifth earners accounted for 52% of all income in the United States (Auten & Splinter, 2018). This accounts for more than low four-fifths combined. By comparison, 20% of top-earning households accounted for 43% of United States income compared to 56% for the lower four income quintiles in the year 1968. By 2018, top 5% of households’ income increased to 23% from 16% in 1968.

According to statistics from the Organization for Economic Cooperation and Development (OECD), income inequality is highest in the United States compared to other nations. OECD employs the Gini coefficient to compare income inequalities of various countries. The measure ranges from 0 (perfect equality) to 1 (complete inequality). In 2017, the United States Gini coefficient stood at 0.434. Other countries had a slightly lower Gini coefficient, with France and United Kingdom coefficients standing at 0.326 and 0.392, respectively. According to World Bank estimates, globally, Gini coefficient range from lows of 0.25 to 0.5-0.16 for Eastern European and Southern African countries, respectively.

Overall, 61% of Americans are of the opinion that there is too much economic inequality in the United States today, however, the views tend to differ by household income level and political party. According to a 2019 Pew Research Center survey, amongst Republicans, 41% agree that income inequality is at its highest in the United States while 78% of Democrats and their learners do not agree. Depending on the income groups, U.S adults are likely to agree that income inequality is at an all-time high. However, 27% of upper-income and 26% of middle-income Americans are more likely to agree that there is just about the correct amount of income inequality compared to 17% of lower-income Americans. While the views vary depending on income in two-party coalitions, low-income Republicans are more likely to agree that income inequality in the country is high today (48% vs. 34%). The reverse is true for Democrats, with 93% of high income Democrats agreeing that income inequality is at an all-time high compared to 65% of low-income who do not agree.

Noteworthy, the income gap between black and white counterparts in the United States has persisted over time. The difference in median incomes for black and white households has increased from $23, 800 in 1970 to $33, 000 in 2018. The median income for black households was 61% in 2018 compared to 56% in 1970. According to Current Population Survey data, the figure is a slight reduction of 63% before the Great Recession of 2007.

Why Care About Economic Inequality

Inequality Boots Fairness

One of the main reasons why people should care about economic inequality is that it boosts fairness. Some people argue that a society that has pronounced economic inequality is fairer than one that has general, equal wealth distribution. Unconstrained markets tend to develop economic inequalities more naturally. Generally, economic equality needs employment of redistributive state policies like progressive taxes. In essence, economic equality needs taking from those who have and giving to those who do not. The notion is that property rights form the basis for neoliberal economic theory. States view it as a necessary evil to facilitate a free and rational operating market. Political interference for natural economic processes should be maintained to a minimum since government interference tends to disrupt the moral rights of individual freedom and independence. Redistribution does not seem fair to some people. Redistributive policies and taxes curtail income inequality involuntarily and take away assets from people without a necessary exchange.

Growth

Another reason why people should care about income inequality because it drives growth. Increasing levels of economic inequality tend to correlate with economic growth. A perfect example of the correlation between wealth disparity and economic growth is the economic expansion that took place in the United States in the years prior to 2008. The period coincided with the rising income inequality rates. During the economic recession of 2007-2008, income inequality reduced drastically. As the country began to recover from the recession, so did the income inequality rates. According to observers, incentives tend to be greater for entrepreneurship and innovation when inequality is high. For instance, high-executive positions that attract high salaries tend to create an incentive for low-income earners to get coveted labor positions. Less-wealthy members of society work hard, develop new businesses and invent products to becoming members of the highest income groups. Contrary to this, when the income inequality gap is small, low-income groups tend to have fewer incentives to upscale their income.

Consequences of Income Inequality on Society

Inequality Reduced Educational quality

One of the main consequences associated with income inequality is decreased education. There is substantial empirical research that links poverty to education. Countries with a low–income population and a high degree of economic equality have significantly higher educational levels ( Tsui, Enderle, & Jiang, 2018). An increase of one-point in the Gini coefficient translates into a 40% increased in graduation and a 10% reduction in high school graduation. In a society that is economically equal, its wide-average education level reduces while educational elites increase. One of the proposed connections between inequality and education is that societies that are unequal tend to underinvest in education. The result is that poor people cannot invest or pay for education or spend time in school, which could otherwise be used to spend working. The benefit of increased Gross Domestic Product (GDP) coincides with increased inequality rates. From a liberal economic theorists’ perspective, fairness is maximized in societies that are economically stratified to avoid redistributive theorists.

Economic Inequality Stifles Growth

High economic inequality translates to high poverty levels. Poverty is linked with poor public health and crime, which tends to burden the economy. In the face of low incomes and rising food prices, the support for growth government policies tends to reduce. People that are wealthy tend to support disproportionate political power over poor citizens. This encourages the emergence of inefficient tax structures that are skewed in favor of the wealthy. Unequal distribution of income warrants political stability that discourages capital accumulation threatens property rights, and increases risk of repudiated contracts.

Inequality and Crime

Another consequence of income inequality to society has to do with increased crime. According to numerous studies, there is a positive correlation between crime and inequality. According to research conducted between 1968 and 2000, economically unequal societies tend to have a higher crime rate (Liu, Wei, & Simon, 2017). Survey concludes that inequality is the single factor that is consistently and closely related to crime. Additionally, inequality boots incentives to carry out crime. There are few legal methods for obtaining resources that are available for the ever-rising number of few people in society. Even after taking into consideration punishments, illegal methods of obtaining assets tend to have better returns than legal means of getting resources.

Conclusion

In closing, it is no doubt that income inequality is a hot topic of discussion in United States politics. Paying attention to income inequality is crucial as it is important to driving growth and development in a society. As regards trends, the United States economy is performing well on various fronts. The two main reasons why we should pay attention to economic inequality are that it drives growth and increases fairness. The common consequences of income inequality to society are that it cripples growth, leads to crime, and reduces the quality of education. While it is true that income inequality has increased significantly over the last decade, it has boosted the rise of the top wealthy.

References

Auten, G., & Splinter, D. (2018). Income inequality in the United States: Using tax data to measure long-term trends. Washington, DC: Joint Committee on Taxation.

Liu, B., Wei, Y. D., & Simon, C. A. (2017). Social capital, race, and income inequality in the United States. Sustainability, 9(2), 248.

Tsui, A. S., Enderle, G., & Jiang, K. (2018). Income inequality in the United States: Reflections on the role of corporations.