Question

Describe the causes of income inequality in the United States.

Answer 1

Certainly the disparity between wealthy minority and the rest of Americans has widened considerably over the past 40 years. The top 10% of earners collected almost half of the nation’s total income (48.2%), the greatest disparity between the rich and rest of American population since the roaring twenties.

Nobel prize winning economist Joseph Stigletz says that Americans generally underestimate the following:

• The magnitude of inequality that exists
• The rate at which it has occurred
• Its economic effects on the society.

Causes of income inequality

The fundamental causes of the gap are not primarily political but technological and economical. However, government policies have highlighted and exaggerated the consequences of the underlying sources of income disparity.

1. Technology

Computerization and automation have eliminated many of the jobs upon which Americans have historically relied. The percentage of American workers engaged in manufacturing industry peaked in the mid 1940s and has steadily declined, while service industry employment has exploded. .

The largest employers in 1960s were manufacturers:

U.S.Steel

General Electric

Fire stone

The following retailers replaced the above by 2010

Walmart

Target

Kroger

According to the study of University of Michigan Ross School of Business, the median average hourly wage for vehicle manufacturing in May 2008 was $27.14, while the median hourly wage for a retail position was $9.33. In short more people are making less money.

2. Globalisation

Technology also spurred the export of jobs to other countries, as trade barriers dropped and the world became a general marketplace. The growth of multinational corporations with adherence to no particular government and their transfer of intangible assets such as business knowledge, management practices and training has resulted in hundred of thousands of jobs moving from America to workers in lower-cost countries. Off shoring has become a common practice enabled by technology that eliminates experience and expertise barriers.

In an article of the April –June 2009 issue of “World Economics”, Princeton Economist Alan Binder estimated that up to 30 million jobs such as were “offshorable” at that time, including highly technical jobs such as computer programmers, system analysts, machine operators, software engineers.

3. Government Policy

One of the biggest falsehoods fostered upon the American People is that lowering personal tax rates stimulates investment and growth of the economy. A report by Feldstein and Douglas W.Elmendorf states that there is not conculsive evidence to substantiate a clear relationship between the 65 year steady reduction in the top tax rates have had little association with saving, investment or productivity growth. However the top tax reductions appear to be associated with the increasing concentration of income at the top of income distribution.

4. Polarization and Political Dysfunction

Writing in the New York Review of Books, Author and political observer Elizabeth Drew states that Republican-controlled state legislatures have “cut taxes for the wealthy and corporations and moved toward a more comprehensive sales tax; slashed unemployment benefits; cut money for education and various public services and sought to break the remaining power of unions. These efforts further make worse the income disparity between the wealthy and majority fostering disappointment with both government and the value of voting. According to 2008 study, as income inequality grows, democratic political involvement falls.