Income inequality

For many years, income inequality has been a source of concern in the United States of America. Income includes revenue streams from salaries, wages, and dividends from stock shares, as well as interest from savings accounts and any other sources of money. Income inequality refers to the degree to which income and wealth are allocated unequally among citizens. Various studies on the growth of economic inequality show that inequality has risen dramatically over the last three decades. The gap between the rich and the poor has widened in the previous thirty years and is predicted to widen further if nothing is done. The issue is taken seriously in the US because it is affecting all sectors of economy as well as the politics of the country. So fundamental is the matter in America that politicians have been using as a campaign promise to win the votes of the low class citizens because they are the most affected by the issue. In 2013 general election, President Barack Obama pledged to do everything possible to reduce the level of inequality in the US. Despite the many promises by politicians, the issue is still a major issue of discussion by economists because the gap between the poor and the rich will expand radically in the coming decade. The point of interest in relation to the current economic inequality in the US is that the nation has the highest level of inequality among all developed economies. There is need to put in place right measures to curb the ever growing inequality in the country.

An assertion that economic inequality is growing at a threatening rate does not sound like a surprise among the American citizens because it is evident everywhere in the country. People of all economic and social status can attest to the fact that the rich are getting richer while the poor are getting poorer. The Americans mostly with low earnings are saddened by the reality that more than 40% of the American wealth is owned by 1% of the American citizens. The share of income earned by the top 1 percent of the population has grown by double digits, the share going to the top 0.1% has markedly gone up and has increased to nearly three times by 2013. The economic recession that hit America in the recent years has been attributed with making the situation worse. The ordinary Americans were the hard hit because majority of them lost their employment opportunities and some lost their houses. Prior to the occurrence of the recession, the concerns about the inequality had already raised fears about the fate of the ordinary members of the population. Some economic experts argued that the severity of the recession was augmented by the inequality that was already on the ground. In fact, some scholars were convinced that inequality in the economy contributed greatly in the occurrence of the recession (Stiglitz 426). Even announcing the end of the recession, the poor are not yet convinced because majority of them have never recovered. Their situations were worsened by the economic challenge and it might take more than a century to recover fully. After the recession, America has been referred to by economists within and outside America as a failed economy because it is unable to create benefits for most of its populace members. The consequences of the recession on the inequality of wealth were more devastating because the median wealth sank down to levels that had been experienced more than two decades ago. The impacts were so significant to the country because the wealth median went down by 40 percent compared to the period before the slump. The recovery from recession was marked by shooting up of property values, an occurrence that favored the rich as the stock market has surged over 230% since 2009 when it bottomed out (Nichols 08).

Among all the advanced economies across the globe, America experiences the highest level of inequality. It has also been noted that the level of equality of opportunities is at the lowest level in the US. When compared to nations like England and Germany, United States of America is characterized by extreme range of economic stability among the citizens. Research shows that if the trend is left to go on, the American citizens will be categorized in two groups; the rich and the poor. Unlike the US, the gap between the poor and the rich in the UK is not too wide. The United Kingdom has social classes categorized according to their incomes and what they own and has monetary value. Studies in the other developed countries have also revealed that it is easy to climb the economic and social ladder in countries like Germany and England than in the US. The case is unique in the US because the rich have remained at the top as they continue to amass more wealth. On the other hand, the poor continue to retain the position in the society as they continue to become poorer. The American dream was based on the hopes that America will have a society with a balanced distribution of wealth (Stiglitz 428). According to the American dream, there is supposed to be a very thin line between the rich and the poor. Basing on what is happening in the US in regard to distribution of wealth and equality in opportunities, the American Dream is basically a fairytale. The environment is not conducive for the achievement of the dream. Instead of promoting equality in income, wealth, and opportunities as it is required, what is happening is the contrary of what is supposed to happen. Instead reducing the gap through formulation of policies that will help in creation of wealth for all people, the gap is getting wider. The American situation in relation to realization of the American Dream is more complicated by the fact that the chances and future of the American young people is entirely dependent on the education and income of their parents. The dependence level on the economic status of parents to determine the future among the youths is high among American young persons as compared to other developed economies in the world. In the other developed nations, all persons have equal opportunities to rise from the bottom to the top and it is important for economic development of a country. Before the past three decades, America was seen by most of the developed countries in Europe as a country with great opportunities for its citizens. Countries like Germany, England, and France no longer recognize the economic power that America had more than three decades ago. The American situation is largely caused by the policies that were formulated by the political class. The strength of America was centered on a strong middle class. The increased inequality has come as a result of shrinking the middle class by the increased income at the top and reduced opportunities among the low class people. Since 1970, the incomes for the top 1 percent has augmented by 170%. The increase is associated with the increased productivity among American workers but their incomes have remained constant even with the increased cost of living. America has a chance of reversing its high level of income inequality and go back to the levels they were more than three decades ago. The reverse in some policies will help to change the situation.

There have been several proposals by economists to assist in the efforts to reverse the level of inequality in the US and bring it to same level as other developed nations within Europe. It seems the chances of reversing the situation are very low because the disparity keeps getting uglier. If the current trend and policies are anything to go by, the probability of changing the inequality levels is very low. Comparison of the contemporary degree of income disparity and that of the 1980s is a clear indication of how the future of low income earners in the US is uncertain. As it was mentioned earlier, the top 1 percent earn averagely $1.3 million annually. The figure is more than three times of what the rich people earned in the 1980s. In the past three decades, the rich earned an average of $428,000. As it is at the moment, the income for the richest faction of the population will increase further. The persons born within last thirty years only have a coin toss chance of having a higher income that what their parents had. The situation was not always that way particularly in the 1940s because every individual in America grew up to be better off financially as compared to their parents. Despite that money is not the only description of success in America, more wealth is responsible for improving the living conditions of people for instance affording a better house as well as increasing the opportunities to advance. It might reach a level when the probability of the young Americans to get higher incomes than their parents will no longer be 50%. The young faction of the US population have tougher days ahead because even earning as their parents did will be very hard for them. Over the past half century, the American Dream of children earning more than their parents has dropped by 40%. Initially, the possibilities stood at 90% and the figure has fallen to 50% (Attanasio, et al. 112). An interesting fact is that America has similar economic policies as other European nations with comparable economies but what happens in America in relation to inequality is not experienced in the other countries. The policy analysis by the Luxembourg Income Study (LIS) between America and other countries like Canada, Belgium, United Kingdom, Italy, and the Netherlands suggest that the nations have similar economic guidelines and that most of the countries copied from the US. In spite of the countries having analogous economic principles, the degree of inequality in the US is not comparable to any of the other states (Smeeding 70). As countries like Belgium are nearing their target of closing the gap between the rich and the poor by strengthening the middle class, America is still experiencing the contrary. The analysis suggests that the economic policy makers are not to blame for the disparities in the country because the problem lies with the implementers of the policies. The implementation of economic plans has been interfered with by the politics of the country. The political class have introduced some changes in the policy implementation process that has highly affected the efforts to close the ever widening gap. Most of the changes aim at increasing productivity from American workers but their earnings remain constant (Stiglitz 430).

Many economists have attributed the growing inequality in the US to the decline of workers’ unions. The unions played a central role in ensuring better pays for workers. In the 1960s, more than a third of the US employees belonged to unions but the percentage is less than 10 in the present days. The lack of collective bargaining through is the single major factor suppressing wage growth amongst middle wage workers. Lack of income growth seem to be the main aspect for the growing disparities because as the rich continue to earn more money from their business organizations as a result of increased productivity by their employees who have been earning same wage for long. The main function of the trade unions was to address such issues through bargaining for improved payments for their members. The political involvement in the formation and operations of unions has completely sabotaged the efforts by unions to come up with proposals for payment formulas for workers. The lack of bargaining for improved incomes for US workers will continue to expand the income disparities in America (Yalnizyan 73).

Inter-country comparison of inequality has been complicated by various factors for instance, lack of official measure of poverty. There are very few developed nations that have consistent official poverty sequences. Measures of poverty are the most reliable ways of comparing inequality between countries. It is only America and the United Kingdom that produce regular reports on poverty situations in their countries every year. Some countries like Canada only produce estimated number of people living below the poverty line but Australia does not do it on a regular basis as it is required. Most nations from the northern part of Europe do not calculate official levels of poverty or low income. The level of poverty can be determined through measuring the comparative terms by comparing to median income. The level can as well be measured in absolute terms by comparing to the purchasing of basic necessities. In comparisons between countries, poverty ought to be treated generally as a relative concept because in analyzing poverty in different countries that have dissimilar levels of per capita GDP, an absolute standard of poverty will either exceedingly low rates in some nations and high rates in some or both. Another problem encountered for inequality comparisons between countries is that countries lack standardized procedures of determining income inequality and comparing results produced by varied procedures is not possible (Smeeding 71).

Income inequality in the United States of America is a critical issue that need to be addressed with seriousness. Inequality has been on the rise within the last three decades and the gap between the poor and the rich is expected to grow further if the same trend continues. America has the highest level of inequality compared to other European nations despite the countries having similar economic policies like the US. Reversing the level of inequality to achieve low levels experienced in other developed countries will be a major challenge for US. There will be need to change several aspects related to policy formation, as well as implementation of policies. The level of inequality in the US has turned the American Dream into a myth because the situation cannot permit the attainment of equal opportunities for all Americans.





Works Cited

Attanasio, Orazio, et al. "The Evolution of Income, Consumption, and Leisure Inequality in The US, 1980-2010." 2012.

Nichols, Austin. "Income inequality, volatility, and mobility risk in China and the US." China Economic Review, vol. 21, 2010, pp. S3-S11.

Smeeding, Timothy. "Poor People in Rich Nations: The United States in Comparative Perspective."Journal of Economic Perspectives, vol. 20, no. 1, 2006, pp. 69-90.

Stiglitz, Joseph E. "The Origins of Inequality, and Policies to Contain It." National Tax Journal, vol. 68, no. 2, 2015, pp. 425-448.

Yalnizyan, Armine. "8. How Growing Income Inequality Affects Us All." Democratic Equality, 2001.