The Widening Divide: Income Inequality in the United States
Despite what most would like to believe, inequality is common in the United States. Whether it manifests as racial inequality, gender discrimination, or financial inequality, forms of inequity are pervasive and omnipresent in every aspect of our lives.
The United States has one of the highest levels of income inequality among developed nations. Over the past several decades, income disparities have been widening, with the wealthiest individuals and households experiencing significant gains in income while the incomes of lower and middle-income groups have stagnated or grown at a slower pace.
To see the complete picture of income inequality in the United States, it is essential to understand what causes the income gap in the first place.
Causes:
Income inequality in the United States is not caused by a single thing but instead by a combination of advances in technology, globalization, and domestic policies.
Technological advancements, particularly in automation and artificial intelligence, have led to the displacement of certain jobs and tasks that were previously performed by humans. Many jobs, such as those in manufacturing and retail, are now automated, leading to reduced demand for certain types of labor. This disproportionately affects the lower class and as a result, income inequality has widened as individuals lose their jobs or face reduced wages.
The Peterson Institute for International Economics describes globalization as “the growing interdependence of the world’s economies, cultures, and populations, due to cross-border trade in goods, services, technology, people, and information.” While globalization has contributed to economic growth and increased efficiency, it has also contributed to income disparities in several ways. Globalization has resulted in the outsourcing of jobs to countries with lower labor costs, leading to job losses or wage stagnation for workers in the United States. Leaders of large corporations make huge financial gains due to the lower costs of labor, while job opportunities for the lower and middle class in the U.S. are reduced significantly and workers in affected industries have to decide whether to work for less pay or find new jobs.
Domestic policies play a crucial role in shaping income inequality in the United States as they can either aggravate or mitigate income disparities. In the U.S., tax policy has become less and less progressive over time; this means that the top earners today pay lower tax income rates than they used to while everyone else continues to pay the same tax rates as before, increasing income inequality.
Trends:
The Gini index, also known as the Gini coefficient, is a widely used measure of income inequality within a country or region. It provides a numerical representation of income distribution ranging from 0 to 1; 0 represents perfect equality, everyone has the same income, and 1 represents perfect inequality, one person has all the income. This year, the United States was ranked as the country with the 47th-highest Gini coefficient out of the 195 countries in the world. The Gini coefficient of the U.S. is 0.415; Slovakia has the world’s lowest coefficient of 0.232 and South Africa has the world’s highest coefficient of 0.63. In 1974, the Gini coefficient of the United States was 0.353 and it has been trending upwards ever since.
On a national level, the incomes of the American upper, middle, and lower classes have been changing at drastically different rates over the years. Between 1983 and 2016, the median upper-class income increased by over $504,000 while the middle-class income only grew by $13,000 and the lower-class income decreased by $1,000.
Potential Solutions:
Although income inequality is a complex, multifaceted issue, there are ways to reduce the inequity.
- Implementing progressive tax systems can help redistribute wealth and reduce income disparities. This involves taxing higher-income individuals and households at higher rates while providing tax relief to lower-income groups. The additional revenue generated can be used to fund social welfare programs and public services that benefit the less affluent.
- Setting a fair and livable minimum wage that keeps pace with inflation and rising living costs can help lift workers out of poverty and reduce income disparities.
- To address the income inequality resulting from globalization, policies focused on worker retraining and upskilling can help mitigate its negative impacts and ensure more job opportunities.
There are many ways to reduce income inequality but implementing these solutions and policies can be tricky. Within the government, there are differing views on the redistribution of wealth and the impact of inequality on the economy, and these divisions can make it challenging to pass legislation targeting income inequality.
Even though reducing income inequality in the U.S. is tough, this inequity is a pressing issue that poses significant challenges to our society. The growing gap between the income levels of the upper and the lower classes has far-reaching consequences. However, it is not an insurmountable problem. By implementing a balanced set of policies and societal efforts, we can work towards reducing income inequality and creating a more equitable society.
Sources:
https://fred.stlouisfed.org/series/SIPOVGINIUSA
https://www.pewresearch.org/social-trends/2020/01/09/trends-in-income-and-wealth-inequality/
https://inequality.org/facts/income-inequality/
https://www.census.gov/library/stories/2022/09/income-inequality-increased.html
https://belonging.berkeley.edu/six-policies-reduce-economic-inequality
https://dwtyzx6upklss.cloudfront.net/Pictures/1024x536/5/7/5/5575_incomeinequality_349763.jpg
https://wisevoter.com/country-rankings/gini-coefficient-by-country/#united-states-of-america
https://www.piie.com/microsites/globalization/what-is-globalization
