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In: Economics

Do you think income inequality is a problem in the United States? Explain why or why...

Do you think income inequality is a problem in the United States? Explain why or why not.

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Expert Solution

Income inequality is a large gap between the money earned in an economy by the richest people as compared to the poorest. Profit includes income, returns on investment, loan, and real estate sales. Inequality of national and global income is becoming a rising problem which needs to be addressed. The top earners will benefit from the economic recovery more than will the bottom earners. The top 10 per cent earn more than 50 per cent of overall income in the United States. With outsourcing and companies replacing workers with technology, inequality has grown.

Through the recovery from the financial crisis of 2008 the wealthy got richer. The average family income increased by 25.7 percent between 1993 and 2015. 52 percent of that growth was received by the top 1 percent of the population This worsening income inequality had continued even before the recession.

Income disparity is blamed on China's cheap labor, unequal exchange rates and outsourcing of jobs. Corporations are also criticized for putting income before the employees. But they do need to stay competitive. U.S. firms must compete with lower-priced Chinese and Indian firms which pay much less to their workers. As a result, many companies outsourced their manufacturing and high-tech jobs overseas. Since 2000 , the United States has lost 20 per cent of its workplace jobs. Traditionally, these were higher-paid Union jobs. Service workers have risen but they are paying much less. Deregulation means fewer strict employment conflict enquiries. That benefits businesses more than wage-earners as well. Technology is fueling income inequality, not globalization. It has also substituted many employees for factory jobs. Many who have technology training will get better paying jobs.

Companies went public during the 1990s to obtain more funds to invest in growth. Managers now have to produce ever-larger profits to appease stockholders. The payroll is the rising budget line item for most businesses. Reengineering has led to fewer full time workers doing work. It also means hiring more contract workers and temporary employees. Immigrants, many illegally in the country, fill more low-paid positions on the service. They have less bargaining leverage to claim higher wages.

The government should provide access to education and employment training for the bottom two-fifths. The best way to increase individual resources and boost the work force is to invest in human capital. Equity in education will put everyone to a certain level , at least. It will be a better option than improving welfare programs or delivering a minimum guaranteed income.

A further part of the solution is legislation. The Dodd-Frank Wall Street Reform Act mandated companies to report employee salaries. Its purpose is to help shareholders better understand the patterns of executive compensation relative to the average employee salary.


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