In the United States, the income gap between the rich and the poor keeps growing over the last 30 years. This is characterized by wage inequality whereby the rich and educated tend to have higher paying jobs compared to the poor and the uneducated. This could be attributed to various factors including the gap in access to higher education, the quality of education, globalization, and technology but it all boils down to the fact that education is the major contributor. Income disparities tend to be highly pronounced such that the top ten percent earn more than 9 percent higher than the bottom ninety percent. This means that the lower per centum lives in utter poverty and unfortunately, the trend gets worse since the rich become richer while the poor become poorer. This is an issue that should be discussed at large and addressed to help the average person. The paper discusses the measures of inequality, causes, effects, and what could be done to bring a little balance.
Economists have devised different metrics for measuring income inequality. The most common used measure includes the Gini Coefficient, the Palma ratio, the Lorenzo curve, decile ratios, and, the Theil index. In the United States, the determinant of income is based on productivity but redistribution is allowed to the poorer members of the society. The redistribution is partly done through private charitable giving or through public governmental programs done at all government levels (Ahmed, 2016). Income inequality can be measured by ranking all households by income ranging from the lowest to the highest. The households are later divided into five groups that have equal number of people or rather quintiles. The calculation will allow measurement of the distribution of the five groups and compare the results to the total. The first quantile in the measurement is known as the 20% or the first quantile and it keeps increasing from one quintile to the next (Ahmed, 2016). Inequality will be then measured by the comparison of the share of total income earned by each quantile. A country can therefore measure income inequality using the Lorenz curve which is a graph representing cumulative percentage of income received by a given percentage of households whereby it is arranged from the lowest to the highest income (Ahmed, 2016). The percentage of the household is represented on the horizontal axis while the income percentage is based on the vertical axis. This method evaluates the elative distribution of income within households hence the need to evaluate the data with caution. It also only shows percentage but does not explain whether the income is low or high in absolute sense (Ahmed, 2016). This is because even if the income is 5% it could be enough to keep the family well fed. This means that the method cannot be used to measure poverty or wealth.
For such reasons, the Lorenz curve is used alongside the Gin coefficient to come up with more accurate information on economic inequality. It represents the area between the Lorenz curve and the 45-degree live (Ahmed, 2016). It is then divided by the calculated total area under the 45-degree line. It however depends on the size of the economy and that of the population. It follows the transfer principle whereby if income is transferred from a rich to a poor person, the distribution would be referred to as equal. It also relies on information from the whole income distribution (Ahmed, 2016). A population for example whose half of the population receives zero income while the other half shares the income equally, and another population where three quarter earn one quarter of the income while the rest receives a quarter of the population falls under Gini value of 0.5. However, the first economy could be considered less equal since half of the population receives nothing.
In the United States, income inequality has become a major concern whereby families at the top 1% makes more than 25 times of the bottom 99 percentile. Unemployment is not very high in the United States yet income has stagnated for many years for low and middle class earners. For the CEOs and other influential people, salaries keep increasing thus the notion of the rich getting richer while the poor continue wallowing in poverty (Berman et.al, 2016). The larger share of income is shifted to the richer houses thus aggregate demand is suppressed. In comparison to the productive capacity of the country, aggregate demand seems to be the problem in growth of the United States economy. Because of this, more than 15% of Americans are living in poverty whereby more than 33 million workers earned less than $10 per hour in the year 2006. For a family, this is considered as living below the family level (Berman et.al, 2016). People are therefore in a poor situation whereby they can barely afford meals leave alone health insurance services. The workers also tend to lack insurance, sick days, and pension plans from their employers and despite the long hours put into work, they cannot reach the basic income curve. Income inequity therefore brings about health inequity and as a result, medical costs rise for everyone in the country (Mishel et.al, 2015). This leads to people preferring the use of the emergency rooms rather than hospital and only ending up in hospitals if it is completely necessary.
Income inequality also leads to unemployment, job outsourcing, unfair exchange rates, and cheap labor. In an effort to remain competitive, corporations put profit ahead of their workers. The cheap labor provided in other markets like in china leads to lower-priced companies competing with those in the United States yet the Chinese and Indian companies pay their workers less. This leads to US companies’ outsourcing their high tech in manufacture of products thus leaving the citizens of the United States without jobs (Coady & Dizolli, 2018). This is a major contributor to either unemployment or low wages because families have to find a way to survive. For such reasons, some of the American families are homeless and living in the streets since basic needs such as housing ends up being something they cannot afford. Since 2000, the United States has lost more than 20% of its factory jobs hence a major blow to economic growth. For most companies, the biggest part of their budget goes to payroll and as a result, they have done a reengineering where they hire few full-time employees and more contract and temporary employees (Coadi & Dizolli, 2018). The rest of the lower paid positions are taken by immigrants especially the illegal ones since they might not be in a position to demand higher wages. This promotes inequality since the investors and the businesses are more advantaged compared to wage earners.
Income inequality stretches to different boundaries including creating a gap between the earnings of citizens with college degrees and those without. The U.S Department of Education’s National Center for Education Statistics (NCES) biennially analyzes earnings data in comparison to the level of education (Baum & Steel, 2017). The findings bring out the fact that college degree holders earn a lot more compared to those without. Lower education levels are also associated to higher unemployment rates. The college degree is therefore of more value in terms of income compared to a high school diploma. In 2015, it was estimated that adults with degrees earned $48,000 per year while diploma holders earned $23,900 which is less than half (Baum & Steel, 2017). Over the years, wages for college degree holders tend to increases while those for diploma years decrease. It is however important to note that factors such s the gender and the type of degree for the degree holder impacts the earnings as well. Most white collar job offers require applicants to be holders of at least a 4 years degree while others ask for more advanced levels (Baum & Steel, 2017). This means that the rate of earning will always be defined by a gap whereby one group earns less than the other.
Despite the efforts put in by the American public education, the education gap keeps widening. It is mainly linked to income inequality whereby parents who can afford to pay for their children’s college education are those who earn good wages as a result of a good college education hence a degree (Baum & Steel, 2017). As much as public high schools are free, it becomes yet another story whereby college education in the united sates tends to be an expensive affair whereby parents put up a college education account and start saving for their children’s education when they are still young. This is however impossible for the lower income households and for the high school diploma earners since they do not earn enough to sustain their families leave alone pay for a college education (Baum & Steel, 2017). Today, education has become more critical than ever. The sons and daughters of the people that attained a college education are seven times more likely to get a college degree.
Only 5% of Americans whose parents never finished high school end up with a college degree. There seems to be disparities in education from the begging of a child’s schooling in kindergarten. Children from low income families already get to school at least a year late compared to the others. They are already set a year behind and grasping what others have already learnt might be problem. Children from low economic households face many problems which lead the performance gap (Coady & Dizolli, 2018). Parents tend to be teenage mothers, suffering from health issues such as obesity, and paying for private tuitions, elite sports, music and arts is bound to be difficult hence the gap with the well off families. This already puts the children at a disadvantage. Schools are also financed by real estate taxes thus the neighborhoods with expensive homes gain more since they have access to well-funded schools as compared to people from lower income areas (Coady & Dizolli, 2018). The proficient gaps evident way before college tend to be the problem and for that reason, the gap continues widening.
Increasing opportunities for higher education rather than primary education could be of use in closing the inequality gap. This is merely because of the fact that higher education seems to be more marketable in terms of job opportunity and income. The labor force would also be advanced meaning that it might not be necessary to outsource manpower from outside a particular county. Allowing opportunities for higher education means that there are more people with different skills available hence they can fill the gaps that are most often required in given corporations in terms of job opportunities (Coady & Dizolli, 2018). Creating more opportunities for higher education ensures an improvement in the production and employment structures thus reducing the rate at which wages differ which is the major cause of income inequality. Higher education also tends to be a lot more expensive all over the world thus only a selected few are able to achieve and attain this. This is something that governments should be focused on standardizing so that there are equal opportunities for students and people from all socio economic classes (Berman et.al, 2016). This improves the quality of education and the number of degree holders thus giving any country the power of productivity in different sectors since most countries are already doing well in international markets. The major problem is then attributed to stagnation of salaries and can be eliminated through providing more opportunities for higher education.
Apart from the obvious income and wages gap, there are other reasons for income inequality in the United States and they include technology, globalization, the rise of superstar organizations, and the decline of organized labor. Technology which could also be called the digital revolution comes with a lot of advantages for those with the skill sets but it tends to kill middle skill jobs (Berman et.al, 2016). Softwares have filled gaps of clerical and manufacturing jobs which at a time were the income generators for middle class income workers. This brings about wage pressure that causes economic insecurity for the less educated. Globalization in terms of competition from other growing economies from china together with reduced trade barriers reduced prospects for American workers without advanced skill even further (Berman et.al, 2016). The consequences have affected workers in the textile, furniture, and leather industry. China mainly moved from being a poor country to one of the biggest producers with highly skilled labor that uses modern technology thus causing a further imbalance in the economic equity in the United States. The United States also experiences a decline in organized labor such that the number of workers represented by labor unions has drastically decreased (Berman et.al, 2016). This shrinks the power of the employees to bargain for better wages through the union thus employers pay them low wages because they do not have a bargaining platform to represent their rights.
Federal policy makers need to devise ways that will help in reducing the income inequality by addressing some of its causes. Education seems to be the biggest cause of inequality and should be addressed all the way from congress. Lower income areas should be allocated enough funding to help the students have access to some of the best facilities and programs available in the better funded schools (Mishel et.al, 2015). As mentioned earlier, higher education squeezes the pockets of parents and for those who cannot afford, they children have to work with the high school diploma and the trend continues. As a policy maker, it would be important to lobby for college fees to be reduced or for the lower income families to have access to scholarships and sponsorships from the government and other private organizations. It would be useful to draw up the advantages that a college degree holds over the high school diploma to help with the motion (Mishel et.al, 2015). Community colleges should also be upgraded so that the students from lower income homesteads can earn a productive degree. They should bring up skills that deal with the major causes of inequality such as giving students technology skills.
In conclusion, when people feel that that the system is rigged against them, democracy also suffers. It is therefore in the best interests of the government to try and bring a balance to income and wages. Kids from affluent families end up receiving the best even though they have mediocre talents and they end up giving less at the work stations compared to the other less fortunate kids who could be genuinely talented in that particular field but lacks the proper skills. Education should therefore be elevated and made affordable for all citizens to allow a robust growth in economy. Otherwise, the wealthy ones will always be pulled down by the poor percentage of the population thus stagnation or poor growth of economy. In addition, there is minimal utilization of all the potential labor available thus leaving room for the benefit of the doubt. A country then does not realize their full potential economically.
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Baum, S., & Steele, P. (2017). Who goes to graduate school and who succeeds?. AccessLex Institute Research Paper, (17-01).
Berman, Y., Ben-Jacob, E., & Shapira, Y. (2016). The dynamics of wealth inequality and the effect of income distribution. PloS one, 11(4), e0154196.
Coady, D., & Dizioli, A. (2018). Income inequality and education revisited: persistence, endogeneity and heterogeneity. Applied Economics, 50(25), 2747-2761.
Mishel, L., Gould, E., & Bivens, J. (2015). Wage stagnation in nine charts. Economic Policy Institute, 6, 2-13.