Category: Income Inequality

Before I start my essay, I would like to introduce some abbreviations and special proper noun that appears in my essay. The first one is OECD. OECD is the abbreviation of the Organization for Economic Co-operation and Development. It is an intergovernmental economic organization with 36 member countries, promoting economic growth and world trade. The second one is the Gini coefficient, which stands for the inequality level, for example, the level of income. The Gini coefficient of zero is expressed as perfectly equal (e.g., everyone has the same income) and the Gini coefficient of 100 percent is expressed as a maximal inequality (e.g., one person has all the money). The third one is social mobility. The meaning is just as the name implies – the movement of people within the social stratification or, in other words, the social hierarchy.

Imagine you are one of the 800 million people who went to bed starving each and every night. At this very moment, countless people are forced to bear the pain of poverty and starvation, through no fault of their own, while millions of individuals in developed countries binge on excessive amounts of food. These same insatiable people waste enormous amounts of money and resources to maintain their exorbitant and disgustingly luxurious lifestyles. When five cents may seem absolutely insignificant, in certain parts of Africa it can actually feed a family of four for over a week; for us, five cents is nothing, for them, it is a matter of life and death. So, how would you feel if you were one of the 168 million children aged between 5 to 17 who has to work so that they can have money to survive and they cannot attend school because of that? In situations like that, the government must take into account reducing the gap to an advisable level to balance society.

To begin with, the wealth gap undermines the equality of opportunities. Picture in your mind you are parenting your child. What would you do when you are parenting your child? You would leave the children and let them explore the world themselves? What I mean explore is letting it grow freely as a great childhood. Or instead, you would spend the money to send your child to a study group or learn music or performing arts? So, here is the point: different opportunities. This sort of enrichment for the kids is designed to ensure the best possible start in life. It is kind of like starting a life-racing competition in which every parent wants a good start by providing financial support potential, and it seems like the rich people are winning.

One sign of this is richer families can give more financial support than the poor in the next generation, which can lead to an unequal status in opportunities. Different opportunities may affect them differently in their outcomes in their adult life. According to researchers Sabino Kornrich and Frank Furstenberg, they found a rising income inequality between the 1970s and 2007 in the U.S. They found that the poorest 10 percent of Americans spent on their child increased 23 percent, whereas the richest 10 percent of families spent on their child has increased about 132 percent during that period. So, what is the impact? According to Sean F. Reardon from Stanford University, he said that in the achievement gap between children from high- and low-income families is around 40 percent larger among children born in 2001 than in the early 1970s.

Here is another piece of information that shows the relationship between a child’s family income and the child’s income in the future. It has been established that the children’s income level is affected by the parents’ income level. If their parents have a low income, their children are also more likely to have a low income, and if their parents have a high income, their children are more likely to have a high income as well. It shows that children born into low-income families are more likely to stay poor, and children who were born into well-off families are more likely to stay well-off.

To conclude those data, the income level of the parents is increasingly and strongly linked with the achievement of their children, which leads to how well they will do in their life, and as Nicholas Lehman wrote last year, “Opportunity is increasingly tied to education, and educational performance is tied to income and wealth”. So, the government should reduce the wealth gap between rich and poor to give equal opportunities to the next generation and to make society fairer, equitable opportunities, and unbiased.

Secondly, inequality is bad for economic growth. Recent OECD researchers point out that the average increase in inequality of 3 points of Gini points is estimated to have cut GDP by 8.5 percent recorded in the last few decades, which in other words means it would decrease about 0.35 percent for economic growth per year by 25 years.

One of the main reasons cited by OECD researchers is that high inequality leads low-income families to invest less in education and skills. They found that the bottom 40 percent of children missed out on expensive educational opportunities, which can lead to less productive and skilled employees in the future, which means lower wages are provided and lower participation in the economy, which results in a bad economy. Thus, as inequality rises, there is not much impact on the numeracy skills of people from medium- and high-parent education backgrounds. In contrast, there is a huge decrease in the numeracy skills of people from low-parent education backgrounds.

Another reason is that inequality leads to economic instability. Rich people spend a smaller proportion of their income than poor people, so rich people save lots of spare money, but poor people do not have money to save. Those spare money is standing idle rather than flowing into the market. This leads to a reduction in demand and it can lead to assert bubbles Thus, the imbalance between supply and demand is likely to trigger an economic crisis and finally economic failure. So, it is important to reduce inequality to make sure this won’t happen again.

Thirdly, the gap between rich and poor will cause lots of social problems. So, what is the relationship between inequality and social problems? On the one hand, inequality may affect people’s well-being. Many people fear that inequality undermines societies, making society a worse place to live, and I fear that as well. I think one of the reasons is that the disadvantaged group of society may feel injustice or hatred toward the rich because of inequality. What can happen is that can breed more crime. I think it is really easy to think of that because, for example, if you have a society that has a large division between winners and losers, probably the losers will think the game is not played to their benefit, and they are not going to play it by the social rules. That’s why it breeds more crime. It was also proved by the World Bank: “In some parts of Latin America, more equitable income distribution has contributed to reducing violence”.

On the other hand, countries with high-income inequality have low social mobility. According to the Great Gatsby Curve. It shows a negative correlation between social mobility and income inequality in some countries. And as mentioned before that children from rich families are more likely to stay rich and vice versa. What that means is that people are less likely to rise or fall in the system of social hierarchy as low social mobility, especially if you are really rich or really poor, you are more likely to stay that way, and the effect is that, according to the OECD report, “it can stifle upward social mobility, making it harder for talented and hard-working people to get the rewards they deserve”. Furthermore, social mobility will cause changes in social structure, which in this case, low social mobility will generate an unbalanced and unreasonable social structure – the pyramid-shaped social structure. In this pyramid-shaped social structure, a very small number of upper-rich people occupy an excessively high proportion of the total wealth of the society, which can cause social instability, as mentioned before. Therefore, from those two points, the government should reduce the gap to make a better society.

As I mentioned, inequality is bad for economic growth, so the government should reduce the gap between rich and poor. But it actually has a good side to it, which inequality is good for economic growth, for example, the most obvious way that inequality derives growth is that it allows entrepreneurs, for example, Apple’s Steve Jobs, to enjoy the rewards of their risk-taking. So, the government should not reduce the gap between the rich and the poor. However, there are two weaknesses, the first one is that economic growth is bad for the environment. For example, the London smog of the 1950s; it is caused by the increased consumption of fossil fuels, which can lead to poor air quality, and people’s well-being. The second one is that it is still bad for poor people, even though the economy is growing. For example, big companies like Nike and Adidas; they employ cheap labor and slave workers in India and Thailand, they only give a tiny bit of money, and they can only survive from that money, they are not going to be rich. And the company got heaps of money because of that, which promotes economic growth, but it is really bad for the poor, and they are not going to change from that. So, I think from the counterargument that the government shouldn’t reduce the gap because it is good for economic growth. Even though inequality is good for economic growth, I think the disadvantages are bigger than the advantages, so I think the government should reduce the gap between the rich and the poor.

In addition, the government should reduce the gap to an appropriate level, not too small like everyone is equal. The reason is really simple, just imagine if you are working so hard and I am sleeping while I am working, but we get the same amount of money. So, no one is going to work hard anymore and the productivity is going to be really low or zero, and there will be no development in the societies.

In conclusion, because of three reasons as previously stated, the first one is the inequality of opportunities, the second one is it is bad for economic growth, and the third one is it will cause lots of social problems. To sum up, I think the government should reduce the gap between the rich and the poor.

References

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Income inequality has been a growing issue within the U.S. for decades. People are becoming increasingly richer while the poor somehow becomes poorer. People are starting to see polarization and communities are becoming increasingly divided. Many would think if this was an ongoing issue, then why is this widening gap continuing to increase? First, it is important to understand what economic inequality means; economic inequality is defined as the difference in wealth split between groups within society. This ongoing issue is hard to resolve since there are several different factors attributing to the cause, but by recognizing these key factors Americans can find ways to help diminish the wealth gap.

A contributing factor that keeps the rich richer and the poor poorer, thus perpetuating income inequality, is the gender pay gap. There have been many different studies and articles written to prove and disprove that there is a difference in pay between genders, nevertheless, there have still been studies showing the difference in pay even though it may not be substantial. In an article by Abigail Hess of CNBC, in the U.S., “it is often estimated at around 80 cents earned by women for every dollar earned by a man” (cnbc.com). When looking at the income data in the U.S. there is a wage gap in each state, some are greater than others. In 2018, the American Association of University Women (AAUW) collected data from the median annual earnings ratio by state and gender; “the state with the largest gap was Louisiana, which had a gender pay ratio of 70%; the state with the smallest gap was California, with a gender pay ratio of 88%” (aauw.org). Rising inequality affects everyone and not just the growing urban areas. Other factors that contribute to women earning lower earnings are discrimination, lack of paid family leave, subsidized childcare, and more. Ways that can combat these issues are taking equal pay opportunities, fighting against stereotypes and segregation, and improving work benefits for families.

The labor market takes a huge role in the lack of income equality; with so many competitive fields and people applying for these jobs, there has been a shortage and more challenging requirements of job openings. Ben Bernanke, former federal reserve chair, states that “gross domestic product is expanding, but median income is not growing substantially” (shrm.org). With limited jobs and opportunities, it becomes harder for people to move up the ladder, this results in less wage growth and career opportunities. Another result of limited jobs leads to more people staying at their current jobs; this results in fewer opportunities for potential job seekers and less movement around the workforce. Job fluidity has declined in all 50 states and every major industry within the past five years. Wage growth is moving frustratingly slow right now, which is surprising because right now unemployment is very low; this is a result of low productivity. In the U.S. productivity has been declining. Professor Jake Rosenfeld of the University of Washington states that “labor productivity grew at an average of 2.1% from 1987 to 2004; since 2011, labor productivity growth has fallen to an average of 0.7%” (businessinsider.com). Giving more American to chance to showcase their skills, hard work, and new talents could help move the economy in the right direction.

The rich are becoming increasingly richer while the bottom percent continues to stay steady. A 2017 study by economist and UC Berkeley professor Emmanuel Saez claims that the “richest 1% take in 188 times as much as the bottom 90%” (inequality.org). It becomes increasingly difficult trying to fix this issue when the top percenters are doubling their income while most Americans are continuing to struggle to take care of basic needs like their home and families. In Saez’s study, he states that “an estimated 43.5 percent of the total U.S. population (140 million people) are either poor or low-income” (inequality.org). During financial crashes, such as the ones in 1929 as well as 2008, it is much easier for the rich to recover from economic catastrophes. This gap is expected to grow larger as a result of the tax cuts, which essentially benefit the wealthy. The top 1% are projected to collect 27% of benefits from the cuts in 2019.

The contributing factors showcase how negativity impacted the U.S. economy is becoming; they lead to not only one but many other harmful effects on the U.S. More economic inequality leads to greater levels of poverty. The wealthy citizens have more political power than then the poor, which results in neighborhood developments favored and geared towards the wealthy, otherwise known as gentrification. Besides the aesthetic appeal of opening trendy cafes and building new apartment buildings may seem like a good idea because it brings more money and people into these communities, but it is making it harder and almost impossible for people who lived in these areas before to even afford their current living situations. According to the American Community Survey, “poverty remains two-thirds higher in urban cores than in suburbs. Many longstanding middle- and working-class neighborhoods are disappearing” (city-journal.org). The people that matter the most in these communities are being driven out by upper-class individuals. “Teachers, firemen, and police officers are struggling to afford homes in many American cities” (city-journal.org). How do we expect our educators or nurses to do their best and put in their hard work if they are having to commute two hours to even get to work? We see Americans flocking to these big cities such as San Francisco, Los Angeles, and Portland which are all being flooded by homelessness now more than ever. An increase in homelessness can lead to an increase in crime in neighborhoods.

Economic inequality and crime are very closely correlated. In a study by researcher Nicholas Birdsong, he states that economically unequal societies have higher crime rates. That survey concludes that inequality is the single factor most closely and consistently related to crime. Most crime-related offenses by the homeless are due to petty theft as well as public disorder. Most individuals who commit these crimes have no resources to pay for bail or an attorney and eventually stay longer in jail than most who could afford those resources. Many individuals who go to prison and were not homeless at first end up becoming homeless. It is a never-ending cycle for these individuals; they aren’t given the right resources to escape these communities that they have always known as home. These underprivileged communities are unsafe because they are also known to have reduced law enforcement; wealthy areas can afford police, and more of them leave poorer areas with fewer officers. People living in these low-income communities also feel unsafe with police because they believe officers are biased toward them because of their gender, race, or sexual orientation. It almost seems impossible to combat these issues when there are so many all at once. Figuring out the root of these issues is the only way to save these communities. Some ways to improve underdeveloped communities are having a diverse range of people with different incomes, providing a better education system, and providing higher-wage jobs.

Low-income communities have a decrease in education. “In an economically unequal society, the society-wide average level of education decreases, while the number of educational elites increases” (sevenpillarsinstitute.org). A lack of proper education for many of the people living in these communities starts in childhood. When these children become adults, they usually do not have the funds to afford college and further their education; ultimately, they are unable to apply for higher-wage jobs and end up staying in their low-income communities. Schools in these communities also lack school supplies, ranging from laptops to even up-to-date textbooks. Teachers and parents end up having to pay for these supplies out of pocket, which can be very expensive. Without the proper educational system, the future of the economy cannot excel because of the lack of properly educated workers.

In conclusion, there are several effects on unequal income and wealth in the U.S. Most attributing factors are negatively affecting the economy and widening the gap between the rich and poor. There may not be a final solution to completely fix income inequality, but there are steps the government and people in their communities can take to help improve the unbalanced economy the U.S. is currently facing.