A Study of Income Inequality in the United States

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Table of Contents

Introduction
A General Look at Income Inequality
The Agenda in the U.S.
Exploring Key Causes
Consequences of Income Inequality
Conclusion
Works Cited

Introduction

Income inequality is still one of modern society’s urgent social and economic problems. The urgency of this topic is dictated by the attempts to eliminate poverty and reduce the global gap between different economic classes, in the long run leading to a serious national budget crisis. The observed income inequality at both national and global levels is primarily a consequence of unequal economic goods and resource distribution. As a result of such differentiation, benefits are concentrated in the more affluent part of the population, while the poorer segments of society find themselves socially and economically vulnerable. Intensification of such a gap has a destructive impact on the civilizational development of the state, generates problems associated with corruption and criminality, and negatively affects the overall economic system. This research paper will examine the phenomenon of income inequality as it relates to the United States and will assess the potential consequences of such inequality.

A General Look at Income Inequality

The classical reward system is based on the principle of compensating the worker for his or her time and effort in the form of monetary and other intangible rewards. By working for a company, the individual, in turn, contributes to the productive activities of the business. In this way, a mutually beneficial contract is built between organizations and employees, and monetary compensation is the form that seals this contract. From this point of view, there is a premise that would unequivocally affirm the necessity of income inequality. All working class members vary in experience and education, training, and talent — it is clear that the more highly skilled should receive more money for their labor. This creates conditions in which even the same position is paid differently, depending on what the employee can do (Przychodzen and Gómez-Bezares 1). Thus, from this perspective, income inequality is a necessary response to the different intensity and focus of work.

The concept described above can be dangerous because it encourages income differentiation, which in the end, only increases the gap between the rich and the poor. Lacking opportunities for a first-class education and lacking distinctive talent, the average worker is forced to work for minimum wage. This division intensifies social tension and increases the number of conflicts between people since the basis of this differentiation is perceived injustice (Sedik and Xu). Workers who receive less than others may go on strike and openly oppose the leadership of companies and the country, demonstrating their mistrust of them. Thus, the widening gap between the rich and the poor could, in theory, lead to civil uprisings and coups d’état.

The Agenda in the U.S.

It must be recognized that the U.S. is one of the most telling examples of countries that have severe income inequality among the population. The U.S., whose economic and political paths are based on the paradigm of sustainable capitalism, encourages the concentration of material wealth in the hands of a limited number of individuals. Therefore, the Gini coefficient reports that the degree of economic inequality in the U.S. reaches the 0.48 mark, a number that has increased by six percentage points over the past twenty-nine years (SRD). It should be emphasized that the Gini coefficient is a particular statistical model that shows how much economic inequality is developed for a particular community. The index ranges from 0 to 1, where 0 is a state of absolute income equality. Additional research from the OECD shows that among the G7 countries, the U.S. is the first country to quantify a measure of economic inequality (Schaeffer). Thus, for the U.S., it is true to say that the country balances roughly at an average level between total equality and absolute income inequality.

In a detailed study of income inequality in the United States, it becomes clear that this differentiation exists at different levels and under different criteria. The income gap between families with and without college degrees is illustrative. It is reported that families headed by individuals with at least a bachelor’s degree had about 77% wealth compared to less educated families by 2019 (Kent and Ricketts). Notably, the quantitative size of this gap is inconsistent over time and tends to both increase in specific years and shrink when the less educated class gets equal opportunity.

However, it is not only the criterion of education that becomes a predictor of income differentiation. Economic inequality is also characteristic of the age distribution of U.S. residents. It has been reported that older families tended to have higher total incomes than younger families (Kent and Ricketts). The reasons for this gap could be either the criterion of professional experience that justifies the wage differential or ageism as a social problem of prejudice (Donizzetti 1). Meanwhile, despite the gradual narrowing of the gap, U.S. black families still have much lower wages than white citizens. In terms of numbers, it has been shown that a black family earned only twelve cents for every dollar earned by a white family (Kent and Ricketts). This creates an almost eightfold wage gap that cannot find acceptable justification.

A statistical study of the U.S. labor market shows intriguing results in relation to the problem under study. In particular, it is reported that the most significant increases in earnings have been for wealthier people, which means that affluent families have become even richer (Horowitz et al.). A more nuanced analysis found that even among well-off people, the most significant income growth was true for those who ended up at the very top. In fact, this was causal because as resources were concentrated in the hands of the already affluent class, they were in short supply for less affluent families. This has led to the observed shrinkage of the middle class in the United States, seriously widening the gap between the rich and the poor. The wealth of middle and lower-class families are falling, which is a serious predictor of the development of socioeconomic tensions. All of the above leads to the conclusion that the income inequality gap in the U.S. is a pervasive phenomenon, which means that a considerable number of citizens suffer from low income and, consequently, low quality of life.

Exploring Key Causes

In examining the patterns that explain the development of income inequality in the United States, it is paramount to emphasize their multifaceted nature. There is no single, universal predictor of the development of such a gap, but only a unique synthesis of factors is responsible for economic inequality in the United States. Among the most apparent factors that have already been named are the differences in experience, education, and talent of employees. These reasons are the mildest since it may seem fair that a more professional person receives a larger salary. However, when additional reasons are examined, it becomes clear that not all of them can be seen as fair.

Digitalization is one reason the gap between rich and poor has continued to grow. In recent decades there has been an active trend worldwide to encourage technological progress. Substantial numbers of IT companies are springing up, and many people are being trained in programming and computer engineering. Social media, mobile apps, and web services are becoming an increasingly important part of society, so increasingly talented U.S. residents are turning to this industry. Working for multinational conglomerates allows people to make money, but those who are not properly educated or connected to the IT industry find themselves insulated from big salaries.

Meanwhile, the widening gap between rich and poor in the United States may have been stimulated by the growth of a migrant labor force. It has been shown that by 2019 the number of immigrants in the country reached 13.7 of the total population (Esterline and Batalova). Immigrants do not have equal opportunities for quality education and are forced into low-skilled labor. The continued growth of this foreign labor force further widens the economic gap and contributes to the social destruction of society.

Another factor contributing to rising income inequality is the destruction of trade union institutions. Trade unions should be understood as a voluntary social community of individuals bound together by professional interests and occupations. Functionally, unions protect the interests of employees vis-à-vis their employers and fight to improve their quality of life. Unions were particularly strong in the United States in the last century, but with the massive development of globalization and the emergence of transnational conglomerates, the importance of American union power has declined significantly (Gunnapr). The decline of unions, in turn, has had an impact on the ability of workers to fight for their rights, which contributes to increasing inequality.

Process automation’s detrimental role in job losses cannot be overlooked. Highly skilled labor performed decades ago is now often wholly robotic. Clinical, service, computing and engineering, and manufacturing occupations are rapidly becoming automated, resulting in employees losing their jobs (Hirschi 192). It is a fact that many professional roles cannot do without humans, but routine, life-threatening occupations can be replaced. Such conditions create a situation in which a trained, qualified employee is unable to find work in the new time and is forced to engage in low-wage labor. It is not difficult to understand that such a trend increases the gap between the poor and the rich.

Income inequality also has a historical justification since women have not always been able to do professional work outside the home. The United States was among those countries in which women were not perceived as a full-fledged labor force during the industrial era, and the leading professional workload was performed by men. However, the intense emancipation of women’s rights led to equal employment opportunities — American women could freely be employed at the same level as men. Despite this opportunity, historical echoes still remain, as women, on average, are paid less than men for the same work. It has been reported that by 2020, women earned only 84% of what men earned (Barroso and Brown). While it is impossible to quantify the value of the gender gap on the contribution to income inequality, it is clear that such differentiation on the basis of biological characteristics is not constructive for the national economy and leads to increased social tensions.

Consequences of Income Inequality

Income inequality in the United States is a frequent topic of public debate because the phenomenon raises issues related to fairness, economic utility, and initiative-taking government. The importance of income inequality is so significant that the fight against poverty has become the first theme of the UN General Assembly’s 2030 Sustainable Development Goals (UN SDGs). The implementation of these programs will promote human well-being and provide equal opportunities for all people. In the absence of a response, income inequality in the U.S. will continue to be cultivated and will have serious consequences.

First, among the significant consequences of income inequality is an increase in socioeconomic tensions. The lack of economic strength in the middle and lower classes leads to a sense of injustice and an erosion of trust in the government. In turn, vast masses of people united by a common goal can turn against the government in uprisings and coups, increasing the likelihood of mass deaths and political destabilization. Thus, the widening of the wage gap between segments of the population has long-lasting consequences for the political and social well-being of the country.

Second, the serious financial consequences of such inequality prove to be destructive for the whole country. Because of the increase in the number of unsecured people in the population, the overall level of GDP falls (Reese). This seems obvious because the poorer a family is, the fewer goods and services it can buy, which causes the GDP to fall. In turn, the inability to effectively manage GDP causes hyperinflation, in which prices rise sharply. Conditions are created in which the poor cannot afford to buy products, and the state is forced to create quotas on goods of social importance. The extreme financial consequences of such a gap become the default on the loans of the population and the general bankruptcy of the country.

Third, income inequality leads to a differentiation of the clinical capabilities of the population. Because of low wages, the poor cannot afford high-quality medicine, one of the consequences of which is a reduction in life expectancy in the country. In turn, although the affluent class makes extensive use of quality clinical services, due to the small number of such people in the overall U.S. population, this does not lead to an increase in life expectancy. Indeed, the U.S. has a system of health insurance in which insurance companies cover some or all of the costs of treatment. However, specific insurance packages depend on the employer, which means it can be assumed that low-skilled workers do not have as broad an insurance package as workers in large companies.

Fourth, because of rising social tensions and the need to survive, the crime rate in the country is rising substantially. Studies report that rising crime rates are associated with increasing economic inequality in the population (Anser et al. 11). Under conditions of income equality, people have no reason to feud and steal because everyone has similar economic opportunities. To put it another way, the U.S. capitalist system, which encourages competition and income differentiation, places increased crime as one of its pillars. This problem should also be looked at from another angle. In an environment of increased crime, the wealthier people can afford to have reliable security and property insurance, while the poor are forced to survive and fear for their lives. Thus, income inequality and increased crime at the local or national level are related phenomena.

Fifth, political lobbying and the destruction of democratic institutions are among the consequences of total income inequality. The population is known to be the primary source of power in democracies, including the United States. However, the abundance of money and the desire for enrichment among political elites can lead to political lobbying (Cao et al. 54). As a result of this shift in power, the interests of the population are substituted, and the enrichment of already wealthy companies or individuals is even more intense. People no longer have real power because political decisions are made in secret, and big lobbyists are crucial to the development of the country.

A sixth but non-obvious impact of economic inequality is the beneficial effect of poverty on the environment. The greater the number of people in the lower social class, the lower their daily carbon emissions (Liu et al. 386). Fewer products used, avoiding transportation due to high costs, and saving electricity and water have a positive effect on the environment but significantly understand the population’s quality of life. However, it is also reasonable to assume the opposite effect, in which an increase in the number of less affluent segments of society leads to the use of less environmentally friendly technologies on a daily basis. In discussing some of the benefits of income inequality, it should also be noted that the increased competition in society. For members of the lower or middle social classes, there is a motivation to learn new competencies and work harder to increase their income. In addition, the concentration of material goods in the hands of a limited elite is associated with the creation of businesses, which means more jobs are created for people. Thus, one cannot be unequivocal in discussing the consequences of economic inequality. For all the apparent disadvantages, some of the strengths of this economic phenomenon are also apparent.

Conclusion

To summarize, the distribution of wealth is the basis of the capitalist approach to economic development. Nevertheless, this distribution is never equitable, which means that more money will be concentrated in the hands of a limited number of individuals. This creates conditions for income inequality, in which the gap between the rich and the poor generally has a destructive effect on the political and socioeconomic stability of the state. The U.S. is among the world leaders in post-industrial countries that have a serious trend toward income inequality. A considerable number of people in the country live below the poverty line, and the middle class is shrinking rapidly. In the United States, wealth is concentrated in the hands of already poor elites. The consequences of such economic inequality are destabilization of the country’s political course, social discontent and uprisings, and a reduction in the quality of life. On the other hand, income inequality motivates people to learn new professions and work hard, creating new jobs and reducing pressure on the environment.

Works Cited

Anser, Muhammad Khalid, et al. “Dynamic Linkages Between Poverty, Inequality, Crime, and Social Expenditures in a Panel of 16 Countries: Two-Step GMM Estimates.” Journal of Economic Structures, vol. 9, no. 1, 2020, pp. 1-25.

Barroso, Amanda, and Brown, Anna. ” Gender Pay Gap in U.S. Held Steady in 2020.” Pew Research Center, Web.

Cao, Zhiyan, et al. “The Economics of Corporate Lobbying.” Journal of Corporate Finance, vol. 49, 2018, pp. 54-80.

Donizzetti, Anna Rosa. “Ageism in an Aging Society: The Role of Knowledge, Anxiety About Aging, and Stereotypes in Young People and Adults.” International Journal of Environmental Research and Public Health, vol. 16, no. 8, 2019, pp. 1-11.

Esterline, Cecilia, and Batalova, Jeanne. “Frequently Requested Statistics on Immigrants and Immigration in the United States.” MPI, Web.

Gunnapr, Dwyer. “What Caused the Decline of Unions in America?” Pacific Standard, Web.

Hirschi, Andreas. “The Fourth Industrial Revolution: Issues and Implications for Career Research and Practice.” The Career Development Quarterly, vol. 66, no. 3, 2018, pp. 192-204.

Horowitz, Juliana Menasce, Igielnik, Ruth, and Kochhar, Rakesh. ” Trends in Income and Wealth Inequality.” Pew Research Center, Web.

Kent, Ana Hernández, and Ricketts, Lowell. “Has Wealth Inequality in America Changed over Time? Here Are Key Statistics.” Federal Reserve Bank of St. Louis, Web.

Liu, Cenjie, Yong Jiang, and Rui Xie. “Does Income Inequality Facilitate Carbon Emission Reduction in the US?.” Journal of Cleaner Production, vol. 217, 2019, pp. 380-387.

Przychodzen, Wojciech, and Gómez-Bezares, Fernando. “CEO–Employee Pay Gap, Productivity and Value Creation.” Journal of Risk and Financial Management, vol. 14, no. 5, 2021, pp. 1-17.

Reese, Jillian. “The Link Between Poverty And Inflation.” Borden Project, Web.

Schaeffer, Katherine. “6 Facts About Economic Inequality in the U.S.” Pew Research Center, Web.

Sedik, Tahsin Saadim and Xu, Rui. ” When Inequality is High, Pandemics Can Fuel Social Unrest.” IMF, Web.

SRD. “Gini Index for Income Distribution Equality for U.S. Households 1990-2019.” Statista, Web.

UN. “The 17 Goals.” Department of Economic and Social Affairs, Web.

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