sample essay about income inequality

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Income Inequality in America, Essay Example

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Income Inequality in America. Is it a problem and how can it be fixed?

The fact that income inequality is a problem in the United States is undeniable. Claims of the widened income gap between rich Americans and poor Americans, in addition to the diminishing middle class, is a cause for concern (Yates 1). The income inequality is one of the worse political and economic problems the United States faces (Piketty and Saez 1-3). It causes significant problems to social and political stability. It is also an indicator of national decline. Indeed, it is based on this premise that, this essay examines whether income inequality in America is a problem, as well as how it can be fixed.

Income inequality leads to political change. As Saez and Zucman (1-6) explain, loss of income by the middle class compared to the top-earners leads to political change. During the 2000s, many businesses emerged seeking political offices, as they catered for nearly 30 times more employees than the trade unions. Between the year 2000 and 2010, business interest groups spent $492 million on labor, and nearly $28.6 billion on sponsoring activism. This led to the rise of political setting the business groups dominated (Smith 3-5).

Income inequality has adverse effects on democracy. Some scholars have considered that income inequality is not compatible with real democracy (Milanovic 1). This is since creating a disparity between wealthy and poor is historically the main cause of most revolution. Indeed, it is commented that the political system in the United States faces serious threats of drifting towards a kind of oligarchy by influencing the affluent, corporations, and special interest groups. Even though, income inequality may not have impact on economic growth, the action by the government may reduce the current levels. This raises tax rates on the wealthy. It may also cause political dispute or friction – between the poor and the rich.

Income inequality contributes to national poverty. Greater income inequality is likely to encourage greater rates of poverty, as under such situations, income shifts from those in the lower income bracket to those in the upper-income bracket. Saez and Zucman (1-6) argue that when wealth remains in upper income bracket, it may lead to political revolutions and policy reforms to offset the impacts that induce poverty. This has been the trend over the decade (Economist 1). The gap in earnings has also increased over the past five years. Current statistics from the U.S. Census shows that in 2010, the wealthiest 20 percent of entire households was allocated 50.2 percent of the sum household-income, compared to the poorest 20 percent, which received 3.3 percent. In the 1980s, the income shares of the richest households received 44.1 percent. The poorest got 4.2 percent. This shows rising inequality and poverty. Further statistics indicates that individuals in the least-affluent households lost nearly 21.4 percent of their income share. On the other hand, the most-affluent households witnessed an income rise of nearly 13.8 percent. Conversely, the remaining two poorest quintiles lost income (Economist 1).

Income inequality leads to political polarization. As Political Research Quarterly establishes, income inequality is connected to the current political polarization in the United States. In its 2013 study, Political Research Quarterly established that officials who were elected tended respond to the whims of the officials within the upper-income bracket, as a result ignoring the needs of people within the lower income group. The analysis provided by Martin and Harris (1) show that, income inequality is connected to the extent to which the House of Representatives polarization has always voted.

Income inequality also leads to social stratification. Martin and Harris (1) show that class divisions have mainly resulted due to income inequality. This has led to class warfare where the rich rally around the rich and the poor rally around the poor to gain political emancipation. Hence, the rich tend to create an own virtual country, which in their perception should be a self-contained world that is complete with first-rate social services, separate economy, and infrastructure. Indeed, the gap between poor and the rich is widening more in the United States than most advanced country. A growing consensus, for that reason, is that Americans have placed emphasis on pursuing economic growth instead of income redistribution. This argument is supported by current economists, such as Corak (2013) in his analysis of theorist Alan Krueger’s “Great Gatsby Curve.” In his review, Corak (2013) indicates that nations with greater income inequalities also tend to have a greater proportion of economic advantages and disadvantages. The trend is passed on from parents to their offspring.

On the other hand, some political theorists have argued that income inequality is not a problem, and that the problems have been overstated.

Indeed, Saez and Zucman (1-6) perceive that despite the existence of income inequality, economic growth and equality in terms of getting opportunities should be what matters. Some commentators have also expressed that despite being an American problem, it is also a global problem. As a result, it should not trigger significant policy reforms. Others have also expressed that income inequality has some underlying advantages, leading to a well-functioning and competition-driven economy. Additionally, significant policy reforms to cut out income inequality may lead to policies that lessen the welfare of the more affluent individuals.

A section of researchers also argues that there is no basis in the argument that income inequality slows economic and socio-political growth. Responding to claims that income inequality slows economic and socio-political growth, Petryni (1) argues that inequality is healthy within a free market economy, as it promotes greater competition for economic and political opportunities.

At the same time, wealth inequalities tend to compensate for themselves where an extensive increase in wealth occurs. This also implies that since the income inequalities do not pose significant political or economic problems, forced wealth transfers through taxation may obliterate the income pools needed to create new ventures, leading to further political discord between the poor and the wealthy in the society. Indeed, some recent studies have established a link between high marginal tax rates on high-income earners and greater growth in employment (Petryni 1).

Some political and social theorists also perceived income inequality as valuable and natural characteristic of US economy. The American Enterprise Institute sees the growth of income inequality gap as linked to the growth of opportunities—including the motivation and desire to seek political and social emancipation.

Smith (1) further contends that inequality emanates from the growth of economic prosperity and leads to an improved standard of living of the entire US population. Such incomes, Milanovic (1) argues, are a way of rewarding certain actors in the economy for their maximal investment efforts in the future. Towards this end, therefore, suppressing inequality discourages output and pursuit of political emancipation.

Conclusion and recommendations

Largely, income inequality is a problem in the United States. Income inequality contributes to national poverty. It also has adverse effects on democracy. Further, it leads to political change. Income inequality also leads to political polarization and stratification.

Hence, there is a need for more advanced tax and transfer policies that can align the United States with the other developed nations. This requires tax reforms, such as enacting tax incidence adjustments, subsidizing healthcare and increasing the social security, heavy investment in infrastructure, fortifying labor influence and providing higher education at low costs.

Making education available to more Americans through policies that subsidize cost of education will mean that more Americans have an opportunity for better income. This is since individuals with high education qualification report lower unemployment rate. However, equal job opportunities are also crucial. Public expenditure on welfare should be increased to ensure social and economic security, where the government provides subsidized healthcare. The more affluent members of the society should also be taxed higher than, the poor Americans.

Works Cited

Corak, Miles. “Income Inequality, Equality of Opportunity, and Intergenerational Mobility.” Journal of Economic Perspectives 27.3(2013): 79–102

Economist, The. “The rich, the poor and the growing gap between them,” 2006. 11 April 2015, <http://www.economist.com/node/7055911>

Kenworthy, Lane. “Does More Equality Mean Less Economic Growth?” 2007, <http://lanekenworthy.net/2007/12/03/does-more-equality-mean-less-economic-growth/>

Martin, Jonathan and Harris, John. “President Obama, Republicans fight the class war.” Politico, 2012. <http://www.politico.com/story/2013/04/barack-obama-class-warrior-90052.html>

Milanovic, Branko. “More or Less.” International Monetary Fund, 2011.

Petryni, Matt. “Advantages & Disadvantages to Income Inequality.” n.d. 11 April 2015, <http://www.ehow.com/info_11415987_advantages-disadvantages-income-inequality.html>

Piketty, Thomas and Saez, Emmanuel. “Income Inequality In The United States, 1913–1998.” The Quarterly Journal Of Economics 28.1 (2003): 1-39

Saez, Emmanuel and Zucman, Gabriel. “Wealth and Inequality in the United States Since 1913: Evidence from Capitalised Income Tax Data.” National Bureau of Economic Research: Cambridge: 2013

Smith, Hedrick. “Who Stole the American Dream.” Random House: New York, 2012. < http://newshare.com/ruleschange/book-notes.pdf>

Todd, Michael. “The Benefits of Wealth Inequality (and Why We Should Not Fear It).” Pacific Standard , 2013. <http://www.psmag.com/business-economics/benefits-wealth-inequality-now-fear-67567>

Yates, Michael. “The Great Inequality.” Monthly Review 63.10 (2012)

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Page One Economics ®

Income and wealth inequality.

"For we, the people, understand that our country cannot succeed when a shrinking few do very well and a growing many barely make it. We believe that America's prosperity must rest upon the broad shoulders of a rising middle class." 

—President Barack Obama 1

Introduction

There are many different types of inequality among people: educational attainment, work experience, and health—to name a few. This essay discusses economic inequality: its causes, measurement, and the potential impact of its growth in the U.S. economy.

Economists directly link differences in educational attainment and work experience, also known as human capital, to differences in economic outcomes. That is, formal education and job skills determine how likely a person is to find and hold a stable job that pays good wages. The flow of money from wages is the most important source of income for most people. Over time, regular income from employment allows people to own assets such as a home or a retirement financial portfolio. That stock of assets is called wealth .

Data collected by federal organizations such as the Census Bureau and the Board of Governors of the Federal Reserve System (BOG) allow us to measure how unequal the distributions of income and wealth are in the United States. Those data show that, since the 1970s, some individuals and families are earning much more income and accumulating much larger amounts of wealth than the typical family does. 

Data reported by the World Bank allow us to compare the distribution of income across countries. As of 2018, the available data show large international differences in income inequality. Although not all countries in the world have data on income inequality, among those that do, the United States ranks among the top 25% most unequal.

What Causes Inequality?

The root cause of differences in income and wealth across individuals and households is a combination of personal and social factors. Personal factors are unique to individuals and include talent, effort, and luck. Such factors can be either nurtured or hindered by the family upbringing of the individual. Social factors affect groups of people and include education policies, labor market laws, tax codes, and financial regulations. At any moment in time, social factors can overpower personal factors to determine individual prosperity and increase inequality among people. 2

For example, as gradually more married women started working outside the home between 1960 and 2000, their family incomes increased and the differences in income between households became larger depending on whether they had one or two people earning wages. At the same time, differences in the types of jobs women and men tend to hold also contribute to income inequality between genders. 3

Because wealth is accumulated over time, older people are generally wealthier than younger people. For that reason, if there are many more young people than old people in the general population and the old hold more wealth than the young, overall wealth inequality will be high. 4

Finally, some people argue that the type of monetary policy used to ensure steady access to credit by households and businesses during recent economic contractions may contribute to higher levels of income inequality. However, that claim is hotly disputed. 5

How Is Income Inequality Measured?

There are different ways to measure how unequal income is in a country. The U.S. Census measures income inequality as the ratio of the mean, or average, income for the highest quintile (top 20 percent) of earners divided by the mean income of the lowest quintile (bottom 20 percent) of earners in a particular area. Let's say a small county has 500 people earning an income. To measure how unequal those incomes are, the Census surveys and sorts each person's income from highest to lowest, calculates the average income of the 100 people earning the most and the average income of the 100 people earning the least, and divides the first figure by the second figure. 

Figure 1 Income Inequality by County 

SOURCE: U.S. Census via FRED ® , Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/graph/?m=QRCJ , accessed June 23, 2021.

Figure 1 shows average county-level income inequality measured between 2016 and 2020. The Census considers the average income over a five-year period to account for the fact that peoples' income changes from year to year. Measured this way, income inequality can be as high as 130 or as low as 5. These measurements mean that the most affluent households in a particular county can earn as much as 130 times or as little as 5 times as much as the least affluent households do.

Another way to measure income inequality in a population is to calculate the Gini index . The World Bank uses that index to measure how much the distribution of income among households deviates from a perfectly equal distribution. The Gini index can take any value between 0 and 100. A value of 0 represents perfect equality: All households earn the same income. A value of 100 indicates perfect inequality: One household earns all the income, and all other households earn nothing.

Figure 2 Gini Index by Nation

SOURCE: World Bank via FRED ® , Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/graph/?m=QRFh , accessed April 6, 2021.

Figure 2 shows country-level income inequality measured with a Gini index in 2018. The highest value is 54, and the lowest value is 25. It is important to note that two countries can have very similar Gini indexes despite having very different distributions of income. For example, in 2018, the Gini index for the United States was 41.4 and for Bulgaria was 41.3, despite the fact that those two countries' economic and social histories are very different.

In the United States, since the 1970s, the Gini index has increased at a steady rate, indicating greater income inequality across families. 6 Some research suggests that this growing difference is related to the increased value of the stock market. Wealthier households hold more stocks than poorer households. So, when stock market prices rise, the income of wealthier households grows relatively more and overall income inequality increases. 7  

How Is Wealth Inequality Measured?

The BOG combines information from two different surveys to measure how wealth is distributed among households: It takes the value of a household's assets (e.g., the current market price of a home) and liabilities (e.g., the unpaid part of a mortgage for a home) and calculates the difference between the two, which is called net worth . Next, the BOG sorts household wealth from highest to lowest and reports the net worth of four different groups: the wealthiest 1% of the population, the next 9%, the next 40%, and the bottom 50%.

Figure 3 Share of Total Net Worth Held by Population Groups

SOURCE: Board of Governors of the Federal Reserve System via FRED ® , Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/graph/?g=O2Kq , accessed April 6, 2021.

Figure 3 shows the share of total net worth held by each of those four groups. In 2021, the wealthiest 1% of the population (about 3.3 million households) held about one-third of total net worth; the next 9% (almost 30 million households) held a little more than one-third; the next 40% (about 133 million households) and the bottom 50% (about 166 million households) together held the rest—less than one-third of total net worth.

The data from the BOG show increasing wealth concentration since 1989, when the data first became available. 8 It is important to note that, over time, some individual households can move up or down between wealth groups, depending on the changing value of their assets. Also, some research suggests the particular nature of some economic fluctuations impacts some households' net worth more than others. For example, the real estate crash associated with the 2007-09 recession resulted in large losses for the poorest 50% of the population. 9

Does Inequality Matter?

The economic impact of growing income and wealth inequality in the United States is an intensely studied question. Economists are debating how to answer that question by analyzing data and creating mathematical models to study it. Because this is ongoing work, there is no single answer.

Some research shows that, in richer countries, more unequal income makes economic fluctuations more pronounced. 10 That finding means that the changes in overall income and employment known as business cycles become more dramatic. Moreover, statistical evidence suggests increased income inequality undermines economic growth due to lower educational achievements (and human capital) among poorer individuals and households. 11 As discussed earlier, education builds a person's human capital and is rewarded with higher income from employment. Finally, research suggests the increasing income and wealth inequality can undermine the use of monetary policy (as we know it) to maximize employment and ensure price stability. 12  

Inequality in individual economic outcomes arises from a combination of personal traits and social conditions. The distributions of income and wealth in a society can be measured in multiple ways: comparing the highest to the lowest earners, calculating an index describing how unequal income is among all individuals, and assessing people's financial wellbeing according to the value of their wealth holdings. Regardless of how we measure income and wealth inequality, their distributions in the United States are becoming more unequal. This trend is likely to impact economic life as we know it. More research is needed to figure out precisely how that may happen.

1 Obama, Barack. "Inaugural Address." January 21, 2013; https://obamawhitehouse.archives.gov/the-press-office/2013/01/21/inaugural-address-president-barack-obama .

2 For an example of how the use of city maps to assess lending risk after the Great Depression influenced homeownership rates across population groups for decades afterward, see the following article: Mendez-Carbajo, Diego. "Neighborhood Redlining, Racial Segregation, and Homeownership." Federal Reserve Bank of St. Louis Page One Economics , September 2021; https://research.stlouisfed.org/publications/page1-econ/2021/09/01/neighborhood-redlining-racial-segregation-and-homeownership .

3 For more on gender and labor markets, see the following article: Mendez-Carbajo, Diego. "Gender and Labor Markets." Federal Reserve Bank of St. Louis Page One Economics , January 2022; https://research.stlouisfed.org/publications/page1-econ/2022/01/03/gender-and-labor-markets .

4 For more on aging and wealth inequality, see the following article: Vandenbroucke, Guillaume and Zhu, Heting. "Aging and Wealth Inequality." Federal Reserve Bank of St. Louis Economic Synopses , 2017, No. 2; https://research.stlouisfed.org/publications/economic-synopses/2017/02/24/aging-and-wealth-inequality/ .

5 For a contribution to the ongoing debate about the relationship between monetary policy and income inequality, see the following article: Bullard, James. "Income Inequality and Monetary Policy: A Framework with Answers to Three Questions." Presented at the C. Peter McColough Series on International Economics, Council on Foreign Relations, New York, June 26, 2014; http://research.stlouisfed.org/econ/bullard/pdf/Bullard_CFR_26June2014_Final.pdf .

6 The following FRED® graph shows the income Gini ratio of all families, reported by the U.S. Census Bureau since 1947: https://fred.stlouisfed.org/graph/?g=MKYg .

7 For more on income inequality and the stock market, see the following articles: 

Bennett, Julie and Chien, YiLi. "The Large Gap in Stock Market Participation Between Black and White Households." Federal Reserve Bank of St. Louis Economic Synopses , 2022, No. 7; https://research.stlouisfed.org/publications/economic-synopses/2022/03/28/the-large-gap-in-stock-market-participation-between-black-and-white-households/ . 

Owyang, Michael T. and Shell, Hannah G. "Taking Stock: Income Inequality and the Stock Market." Federal Reserve Bank of St. Louis Economic Synopses , 2016, No. 7; https://research.stlouisfed.org/publications/economic-synopses/2016/04/29/taking-stock-income-inequality-and-the-stock-market/ .

8 For more about the change in wealth distribution over time, see the following post: Federal Reserve Bank of St. Louis. "Comparing the Assets of the Rich, Poor, and Middle Class." FRED ® Blog , October 21, 2019; https://fredblog.stlouisfed.org/2019/10/comparing-the-assets-of-the-rich-poor-and-middle-class/ .

9 For more on how recessions impact household net worth, see the following article: Mendez-Carbajo, Diego. "How Recessions Have Affected Household Net Worth, 1990-2017: Uneven Experiences by Wealth Quantile." Federal Reserve Bank of St. Louis Economic Synopses , 2020, No. 38; https://research.stlouisfed.org/publications/economic-synopses/2020/08/07/how-recessions-have-affected-household-net-worth-1990-2017-uneven-experiences-by-wealth-quantile .

10 For more on the relationship between inequality and economic fluctuations, see the following article: Iyigun, Murat F. and Owen, Ann L. "Income Inequality and Macroeconomic Fluctuations." Board of Governors of the Federal Reserve System International Finance Discussion Papers , July 1997; https://www.federalreserve.gov/econres/ifdp/income-inequality-and-macroeconomic-fluctuations.htm .

11 For more on the relationship between income inequality and economic growth, see the following article: Cingano, Federico. "Trends in Income Inequality and its Impact on Economic Growth." Organisation for Economic Co-operation and Development OECD Social, Employment, and Migration Working Papers , 2014, No. 163; https://www.oecd.org/els/soc/trends-in-income-inequality-and-its-impact-on-economic-growth-sem-wp163.pdf .

12 For more on the relationship between income inequality and monetary policy, see the following article: Cairo, Isabel and Sim, Jae W. "Income Inequality, Financial Crises, and Monetary Policy." Board of Governors of the Federal Reserve System Finance and Economics Discussion Series , July 2018; https://www.federalreserve.gov/econres/feds/income-inequality-financial-crises-and-monetary-policy.htm .

© 2022, Federal Reserve Bank of St. Louis. The views expressed are those of the author(s) and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System.

Asset: A resource with economic value that an individual, corporation, or country owns with the expectation that it will provide future benefits.

Gini index: A statistical measure of income inequality in a population that ranges from 0 (indicating absolute income equality) to 100 (indicating a perfectly inequal income distribution).

Household: A group of people living in the same home, regardless of their relationship to one another.

Income: The payment people receive for providing resources in the marketplace. When people work, they provide human resources (labor) and in exchange they receive income in the form of wages or salaries. People also earn income in the forms of rent, profit, and interest.

Liability: A legal responsibility to pay back money from a loan or other type of debt.

Net worth: The value of a person's assets minus the value of his or her liabilities.

Quintile: Any of five equal groups into which a population can be divided according to the distribution of values of a particular variable.

Wealth: The value of a person's assets accumulated over time.

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Income Inequality 101: Causes, Facts, Examples, Ways to Take Action

Billionaires are increasing their fortunes by $2.7 billion every day . Meanwhile, at least 1.7 billion workers live in areas where inflation is higher than wages. Income inequality is a global problem. It has several consequences, including financial crises, fragile economies, high inflation, poorer health outcomes, and violence. In this article, we’ll explore what causes income inequality, what it looks like, the most important facts everyone should know, and how to address it.

Income inequality is a global issue with several causes, including historical racism, unequal land distribution, high inflation, and stagnant wages. As gaps increase thanks to crises like COVID-19, the world needs to take action in education, labor market policies, tax reforms, and higher wages.

What is income inequality?

When some people in society earn significantly more than others, it creates inequality. Inequality is more than just about the paychecks we take home, however. There’s also wealth inequality, which refers to uneven distributions of wealth. This includes the value of assets and possessions like stocks, property, boats, and so on. Someone may earn a lower income than a neighbor, but because they own stocks and land, they’re wealthier.

Income inequality is measured with factors like gender, ethnicity, location, historical income, and occupation. When identifying a country’s income inequality, there are measurements like the Gini index , which is also called the Gini coefficient. A score of 0 on the index means there’s no deviation; everyone is perfectly equal. A score of 100 means total inequality; a single person has all the country’s wealth. The index isn’t perfect . As Amanda Shendruck points out, Greece, Israel, Thailand, and the UK got the same score in 2015. However, poverty in these countries looks very different. The World Inequality Database avoids the index altogether. On its own, the Gini index may not be especially useful, but it can provide a quick snapshot that encourages more investigation.

The causes of income inequality: two case studies

There are global and country-specific factors that drive income inequality. To get a clearer idea of the causes, let’s look at two countries as examples: South Africa and the United States.

South Africa: The long shadow of apartheid and land ownership

Based on the Gini index, South Africa has the world’s highest income inequality at 63.0 . Apartheid is a big reason why. For almost 50 years, this formalized racial segregation restricted the activities and movements of Black South Africans, who made up most of the population. Black Africans couldn’t marry white people, travel without passbooks, or start businesses in white areas. Society was structured to uplift white people while trampling Black South Africans. When apartheid ended in the 1990s, inequality remained baked into the country’s foundation. South Africa has struggled to make progress on ending inequality. According to a 2022 World Bank report , the top 10% of South Africa’s population holds 71% of all income. Living in or near cities increases job opportunities, but South Africa’s growth has stalled and failed to create enough jobs. High unemployment is a significant driver of inequality, especially for young people.

Gender, race, and land ownership are three other main causes. In South Africa, women earn 38% less than men even when they have similar education levels. When race gets added to inequality analyses, it contributes 41% to income inequality. The World Bank report also studied land ownership, which is vital for addressing inequality among poor people in rural areas. Because of apartheid, there’s a long history of unequal land distribution which hasn’t been remedied yet. COVID-19 made all these factors worse.

The United States: The legacy of slavery and stagnant wages

The United States isn’t among the top most unequal countries in the world, but it has a much higher Gini coefficient when compared to similar economies. According to Statista , the top 10% of earners in the United States (in the third quarter of 2022) held 68% of the country’s total wealth. The lowest 50% held just 3.3.%. Like South Africa, the United States’ history of racial segregation plays a big role. Slavery made it impossible for Black people to build wealth, but even after emancipation, Jim Crow laws severely restricted economic opportunities. The effects resonate to this day. A 2018 analysis of incomes and wealth found that over the past 70 years, there’s been no progress in reducing income and wealth inequalities between Black and white households.

Inequality is also driven by the fact that wages haven’t kept pace with inflation. In June 2022, consumer prices hit 9.1% higher than the year before. This made it the largest annual increase since 1981. Wages have been going up, but they’ve been consistently at 4.5%. The federal minimum wage hasn’t increased since 2009: it’s just $7.25. A study found that in 91% of U.S. counties, a full-time minimum wage worker doesn’t make enough to afford a one-bedroom apartment rental.

What are the five main facts everyone should know about income equality?

There’s a lot to sift through when it comes to income and wealth inequality, but here are five of the most important facts to know:

#1. Inequalities within countries are getting worse

While global inequalities between countries are lowering, the gaps within countries are increasing. According to the World Inequality Database’s 2022 report , the gap between the average incomes of the bottom 50% and the top 10% of individuals has nearly doubled in the past two decades. The World Inequality Database frames it this way: “global inequalities seem to be about as great today as they were at the peak of Western imperialism in the early 20th century.”

#2. COVID-19 is erasing progress

According to groups like the IMF , COVID-19 is worsening inequalities within countries (the poor were hit harder than the rich), but also between countries. Wealthier countries had more resources to deal with the pandemic and could recover faster. According to the World Bank , progress was set back by about a decade.

#3. Inequality hits already-disenfranchised people the hardest

Income inequality is an intersectional issue. It affects disenfranchised groups like women, young people, informal industry workers, the elderly, and disabled people the most. As income inequality worsened in the UK , the disposable income for the poorest ⅕ of the population dropped by 3.8%. The average income for retired households also went down from £26,300 to £25,900.

#4. Over the last decade, the world’s richest 1% have gotten 54% of new wealth – and they’re getting richer

According to an Oxfam report , the world’s richest 1% captured $42 trillion of the new wealth created between December 2019-December 2021. $16 trillion got distributed to the bottom 99%. While the pandemic hit the poor the hardest, the world’s richest actually gained wealth. There was a slight dip in 2022, but in 2023, their wealth is increasing yet again.

#5. Income inequality is linked to climate change

Every year, humans emit around 6.6 tonnes of carbon dioxide equivalent per capita. However, the top 10% of emitters are releasing around 50% of all emissions. The bottom 50% are producing just 12%. Why does this matter to income inequality? The world’s biggest emitters are rich. While many of the world’s poorest countries emit significantly less CO2 , they’re enduring the worst climate change effects. Even within rich countries, the poorest half of the population have already met (or are close to meeting) the 2030 climate targets set by their nations. It’s the rich who need to change.

How to take action on income inequality

Income inequality is a deeply-entrenched, global problem that will take lots of work. Here are three ways countries can take action:

#1. Pay a living wage

Many countries are raising wages, but they’re not raising them enough to close income gaps. That’s why minimum wages need to be higher. In an article on the World Economic Forum about fair wages , the global director of human rights at Unilver emphasized the need for living wages. These are calculated based on what it takes to afford a decent standard of living. Currently, minimum wages in many countries don’t reflect reality. The United States is an example as its minimum wage won’t cover rent on a one-bedroom apartment.

#2. Invest in good public education

Study after study shows the positive impact of good public education. According to a report from Oxfam , a good education can reduce poverty, increase opportunities, and encourage a more democratic society. Education also improves gender equality, which is key to closing income inequality gaps. To successfully address income inequality, education must be universal, free, and public. If it isn’t, education can make inequalities worse as it divides students by traits like race, gender, and wealth.

#3. Make tax systems more redistributive

According to the IMF , addressing inequality more redistributive tax systems. What is a redistributive tax system ? It’s a system where high-income people pay higher taxes (positive taxes) and lower-income people receive more subsidies. In places like the United States, where legislation has designed tax codes to benefit corporations and the wealthiest individuals , wider inequality has followed. The rich are also allowed to get away with more. In 2014-2016, the IRS – which is famously underfunded – didn’t pursue over 300,000 high-income individuals who failed to file tax returns. If countries want to tackle inequality, their tax systems should be designed to help rather than make things worse. That includes spending more on social sectors like education, health, and social protection.

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About the author, emmaline soken-huberty.

Emmaline Soken-Huberty is a freelance writer based in Portland, Oregon. She started to become interested in human rights while attending college, eventually getting a concentration in human rights and humanitarianism. LGBTQ+ rights, women’s rights, and climate change are of special concern to her. In her spare time, she can be found reading or enjoying Oregon’s natural beauty with her husband and dog.

Home — Essay Samples — Economics — Economic Issues — Income Inequality

Essays on Income Inequality

Income inequality is a pressing issue that affects societies globally. As such, it is an important topic for academic discussion and analysis. When selecting an income inequality essay topic, it is crucial to choose a subject that is both relevant and interesting. The chosen topic should also allow for in-depth research and analysis. This will ensure that the essay is engaging, informative, and thought-provoking.

Income inequality is a multifaceted issue that has far-reaching implications for individuals and society as a whole. By selecting the right essay topic, students can explore various aspects of income inequality and its impact on different facets of life, such as education, healthcare, and social mobility. This allows for a comprehensive understanding of the issue and encourages critical thinking and discussion.

When selecting an income inequality essay topic, it is important to consider the student's interests, the availability of research material, and the potential for original analysis. Students should also consider the relevance of the topic to current societal and economic trends. Additionally, choosing a topic that allows for the exploration of different perspectives and potential solutions can lead to a more engaging and impactful essay.

Recommended Income Inequality Essay Topics

Income inequality is a prominent issue in society, and writing an essay on this topic can help to raise awareness and spark important discussions. Here is a list of income inequality essay topics to consider:

Economic Impact

• The relationship between income inequality and economic growth
• The impact of income inequality on consumer spending
• Income inequality and its effect on poverty rates
• The role of income inequality in financial crises
• Globalization and its impact on income inequality

Social Impact

• Income inequality and access to quality education
• The effects of income inequality on healthcare disparities
• Income inequality and its influence on crime rates
• The relationship between income inequality and social mobility
• Income inequality and its impact on mental health

Policy and Solutions

• Strategies to reduce income inequality through tax reform
• The role of minimum wage policies in addressing income inequality
• Universal basic income as a solution to income inequality
• The impact of social welfare programs on income inequality
• The role of education and skill development in reducing income inequality

Gender and Income Inequality

• The gender wage gap and its contribution to income inequality
• Income inequality and women's access to leadership positions
• The intersection of race, gender, and income inequality
• Gender-based discrimination and its impact on income inequality
• Policies and initiatives to address gender-based income disparities

Geographical Disparities

• Rural vs. urban income inequality: A comparative analysis
• The impact of income inequality on regional economic development
• Income inequality and access to resources in developing countries
• Income inequality in specific regions (e.g., Appalachia, the Rust Belt)
• The role of infrastructure and public services in addressing geographical income disparities

By choosing a topic from the above list, students can delve into various aspects of income inequality and contribute to the ongoing dialogue on this critical issue. Each topic provides ample opportunities for in-depth research, analysis, and the exploration of potential solutions.

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Inequality in Society: Conflict and Functionalism Theories Essay

Introduction, conflict and functionalism theories, challenge to social equality.

There is no question that inequality is prevalent in all sorts of human society. No matter the level of human development, inequality seems to be existent. It is even present in simple cultures where there is minimal variation in wealth.

Some individuals in such cultures may have privilege because of their prowess in certain skills such as hunting, medicine or access to ancestral power. In modern societies, inequality manifests in social and economic classes, power, income, access to health facilities, academic, gender and other forms. Social economical classes are the most common in most societies and have attracted attention from many sociologists. Many societies try to address the class issue but with little success.

Even socialist and communist governments that try to eliminate social economic classes fail to achieve equality. In Canada today, inequality is evident in various forms. Social economic classes, income variation, health, academic, ethnic, gender and other forms of inequality are obvious in the country. In the essay, I will join other sociologists in trying to address the persistent question “why inequality exist?”

Inequality, also referred to as social stratification, has been a core subject to sociologists for many years (Macionis and Linda 2010). Sociologists try to understand, explain and prescribe solutions to the issue of inequality. Despite of major sociologists such as Max Weber, Karl Marx and others trying to prescribe solution to inequality, the issue continues to persist. Marx was critical of capitalism and accused it of existence of social classes.

On the other hand, Weber agreed with Marx that economic interests led to social classes but viewed social stratification in terms of class, prestige and power. There are mainly two schools of thought to the issue of inequality: conflict and functional theories. To understand why inequality exists, it is helpful to review the divergent positions presented by the two theories and try to come up with a reconciling position.

Conflict and functionalism theories are the main theories trying to provide answers to why inequality exists in the society. The two theories take fundamentally different approaches to explain the issue. Functionalism theory views inequality as unavoidable and important to the society while conflict theory considers inequality to result from conflict and coercion in the social system (Andersen and Taylor 2006).

To functionalism sociologists, society is a system of parts with each part having useful contribution to the system. According to the theory, society can be compared to human body where various parts such as lungs, hands, heart, and eyes contribute to functionality of the body as a whole.

The way the social system maintains itself is of more interest to functionalist sociologists than specific interactions between the different parts of the system. To functionalists, inequality is unavoidable and leads to some good to the society. The theory assumes that any pattern in social system has its good purposes. Considering occupations, functionalists justify inequality in rewards by asserting that the rewards reflect the importance of the different occupations to the system.

For instance, functionalists would explain the high rewards and respect given to some occupations such as doctors, scientists and judges as compared to other occupations such farming and garbage collections, by saying that the former occupations are more important to the society as a whole. In addition, they would claim that such occupations require much talent, effort and education. Therefore, the high reward is meant to encourage individuals to take the pain to occupy such important positions.

Conflict theory provides the other extreme explanation to inequality in society. Unlike functionalism theory, conflict theory compares society to war. Conflict theory sociologists consider the society to be held together by conflict and coercion among members of the society.

According to Ridney (2001), conflict theory likens society to battlefield where members compete for control of limited resources and power. Unlike functionalists that stratify the society to functional parts that cooperate for the good of the society, conflict theory views society as consisting of competing parts (Rigney 2001).

The theorists, led by Karl Marx, consider social classes to result from blocked opportunities rather than talent and effort. While functionalists justify unequal rewards for different occupations as a way to utilize important talents and abilities, conflict theorists consider stratification in the society to limit utilization of talents from lower class. To conflict theorists, stratification in the society does not have positive contribution to the society.

Conflict and functionality theories on inequality shed light into causes of social stratification but do not completely explain the situation. The society can be viewed both as functional parts and as competing parts. Doctors, lawyers, scientists, carpenters, farmers, garbage collectors, cooks and other occupations are important to the society.

As functionalists argue, some occupations such as medicine require more effort and many years of preparation. It is therefore reasonable to reward doctors, judges and other such occupations highly to motivate individuals to occupy them. It is also natural to give respect and honor to individuals with unique and important skills. For instance, if a country has a single neurosurgeon, the surgeon would be valued and respected without asking for it.

However, it should be appreciated that other occupations that are considered less important, such as farming, are vital to sustainability of a society. Functionalism therefore makes sense when the society is considered as a system without deep consideration of individual members of the system. For instance, the theory cannot provide a convincing explanation to why some individual strive for wealth and power, since amassing wealth and power is not always good for the society.

Conflict theory provides a more practical explanation to inequality. Competition is a central thing in the society. Individuals compete for scarce resource, recognition, power and prestige (Macionis 2001). Considering scenario of a school, students compete for attention from their teacher, to be included in their school’s base-ball team, to top their class academically, to win scholarship for high education and many other things.

At individual lever, a student chooses an occupation mostly not by its contribution to the society but by reward and prestige that would come with it. In business, an individual is mostly motivated by the power and prestige that go along with wealth rather than importance of their service to the society. Conflict theory can explain competition in school, business, politics, and other occupation and social stratification that result. Bottom-line to stratified society, in fact, is the human propensity to gain dominion over others.

Attaining social equality is a major objective for human right bodies across the globe. However, that objective is not easy to achieve considering various manifestation of inequality in the world. In Canada, despite of various steps taken to ensure equality in various forms, inequality persists.

Social equality implies all people in a society having equal status. At minimum social equality implies equal rights to all individual in a society. The state however is not easy to achieve mostly because of historic inequality that already exist. For instance, although Canadian constitution guarantees equal rights to quality health and education, there is evident inequality in health and education.

Individuals in upper social economic classes have resources to access high standard of health services and afford quality education for themselves and for their children. Limited interaction between individuals from different social class makes it hard to achieve equality.

Individuals in upper social class tend to relate more with individuals in the same social class while individuals in other social classes do the same. Therefore, there is little chance for an individual to cross over from on social class to another (Horowitz 1997). In addition, individuals in privileged social class have resources, power and influence to maintain the status quo of inequality.

Division of labor has high contribution to inequality. Different occupations attract varying rewards and therefore contribute to inequality. Occupations such as medicine, engineering and law tend to attract high rewards as compared to other occupations as gardening. Even in occupations requiring relatively equal years of training, rewards seem to vary (Loseke 1999).

For example, despite of going through almost equal years of training, a teacher is likely to earn less as compared to an engineer. In addition, division of labor leads to some occupations being considered superior to others therefore promoting social stratification.

Individuals from different social economic classes may understand inequality differently. A wealthy individual can consider social inequality proportional to creativity and effort that an individual exerts in his endeavors. The rich may consider their fortune to result from their hard work and consider poverty to result from laziness and lack of initiative. On the other hand, a poor person can view social stratification to result from social injustice.

In conclusion, there is no obvious answer to why inequality exists in society. Inequality continues to exist even in countries with high level of human development as Canada. Functionalism and conflict theories can however help understand social stratification. To functionalists, social stratification is not necessarily evil but serves an important function in the society. On the other hand, conflict theory explains inequality to result from competition in society.

Without regard to how inequality comes about, it is obvious that high level of inequality is dehumanizing and can lead to social evils such as crime. It is therefore important to minimize inequality as much as possible. To promote social equality, an enabling environment that exposes all individuals to equal opportunities is necessary.

Andersen, Margaret and Howard Taylor. 2006. Sociology: the essentials . New York: Cengage Learning.

Horowitz, Ruth.1997. “Barriers and Bridges to Class Mobility and Formation: Ethnographies of Stratification”. Sociological Methods and Research 25 (1):495-538.

Loseke, Donileen. 1999. Thinking about Social Problems: An Introduction to Constructionist Perspectives . New York: Aldine de Gruyter.

Macionis, John and Linda Gerber. 2010. Sociology, 7 th Canadian edition. Toronto: Pearson Education Canada.

Macionis, John. 2001. Sociology , 8 th edition. Upper Saddle River, NJ: Prentice-Hall.

Rigney, Daniel. 2001. The Metaphorical Society: An Invitation to Social Theory . Lanham, MD: Rowman & Littlefield.

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U.S. Income Inequality

How it works

Throughout the history of capitalism, income inequalities between the upper and lower classes have caused many debates even revolutions in Russia, France, China, and others. The mass workers are subjected to the dominant ideology of elites, so the top ten percent earn a large amount of money while the lower class barely survives. The middle class came about which filled some of the disparity in income between the two classes. However, the middle-class today is losing some ground as job opportunities go overseas, and the requirement of college degrees for jobs increases.

In today’s society, education and a person’s social and economic background greatly influences his or her income. Income inequality also varies among different ethnic groups especially among Asians who have a one to ten ratio between the lower and upper classes. Also, female workers sometimes face lower incomes compared to male workers of the same position because of discrimination or a glass ceiling at work. In addition, the federal tax system to some people is a way to increase the income inequality among Americans, and Democrats and Republicans greatly vary in their views about the fairness of the tax system. Income inequality occurs in many societies, so it is an important to explore and find the reasons why it happens in different groups.

The American middle class is stable in size, but losing ground financially to upper-income families

[image: Share of adults living in middle-income households is unchanged since 2011]

https://www.pewresearch.org/fact-tank/2018/09/06/the-american-middle-class-is-stable-in-size-but-losing-ground-financially-to-upper-income-families/

According to the graph, the middle class is decreasing in size, while the upper and lower classes are increasing in size. In only forty-five years, the middle class has decreased by ten percent; however, the lower and upper classes grew four to five percent of the total adults in the workforce. Today, the middle class faces many issues that have caused its loss of size: disappearing opportunities for those with little education, global competition and rapid advance in technology, growing dependence on the temporary workforce, and the rise of growth industries and nonunion workplaces. Many middle-class jobs today require bachelor’s or higher degrees which limits the jobs available to those without college degrees. At the same time, companies send job opportunities overseas since foreign labors are much cheaper. Also, short term seasonal jobs do not have any retirement or health benefits, putting works with little financial security. Last of all, the fast-food industry is growing like never before; however, workers only earn minimal or low-level wages, which increases the number of people in the lower class. From the graph, the top class becomes richer as the lower class becomes poorer, reducing the middle class. One possible explanation is that the upper-middle class’ social network allows them to find higher level jobs since they have connections with CEOs and business owners. Their life chances, opportunities to provide material goods for themselves, are much higher than the lower class because they have successful families to support them in terms of money and education. On the other hand, people in the lower class may get trapped in their low-income status and not break free from their cycle of problems: the lack of education and financial security that passes on to the next generation. This chart shows the disparity between the upper and lower classes while the middle class loses ground.

For most U.S. worker, real wages have barely budged in decades

[image: Americans’ paychecks are bigger than 40 years ago, but their purchasing power has hardly budged]

https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/

Another issue that the working class face today is that their average hourly pay adjusted for inflation has barely increased after fifty-four years. The value of their hourly pay in 1964 is about the same compared to today which means that their average pay has increased while the buying powering of their income has not changed. For example, the amount of grocery a person could buy with two dollars and fifty cents in 1964 is the same amount a person could buy for about twenty dollars in 2018. If adjusted for inflation, wages only changed about two dollars. The value of U.S. workers’ hourly pay has hardly changed much over the years, but the top ten percentile’s income has significantly increased over the years. According to the conflict theory, few possible reasons for this inequality is that the rich elites control the economy and strongly influences the government, limiting the reforms to help the poor, and stratification separates the social classes and allows the rich to dominate over the poor. The rich becomes richer, while U.S. workers’ hourly pay stays the same. In contrast to the children of the lower class, the children of the top ten percent have a much greater chance of higher education which likely results in high paying jobs. Unfortunately, income inequality is not decreasing but expanding. Companies are not willing to increase their workers’ pay except to compensate for inflation that causes the gap between the upper and lower classes. To conclude, this graph generally shows the lack of wage increase of U.S. workers over the years since their wages’ actual buying power has barely increased over the years.

Key findings on the rise in income inequality within America’s racial and ethnic groups

[image: https://assets.pewresearch.org/wp-content/uploads/sites/3/2018/07/06152441/PSDT.07.12_economic_inequality-00-00-.png]

https://www.pewresearch.org/fact-tank/2018/07/12/key-findings-on-the-rise-in-income-inequality-within-americas-racial-and-ethnic-groups/

Although income inequality is increasing between social classes, some ethnic groups in America have greater income inequalities compared to others. As seen from the graph, the income difference between the upper and lower classes of Asians has grown significantly, but the income inequalities for other ethnic groups did not change as much. For Asian Americans during the 1970s, the upper class earned only six times more than the bottom ten did, while in 2016, the difference grew to 10.7 times more. The income inequality between the upper and lower classes for Asian Americans was the least in 1970 compared to other ethnic groups; however, the income disparity among Asian Americans has recently increased to a point higher than all other ethnic groups. They went from the least to the greatest with respect to income inequality. The top ten percent of Asian Americans earn about one hundred and thirty thousand dollars, while the bottom ten percent of Asians Americans only earn about twelve thousand dollars a year. Few possible explanations to this are that some Asians who immigrated over to the United States also brought their social status and wealth or came here for higher education. According to Max Weber, some Asian Americans might have greater life chances, the opportunities to gain material wealth. First, they might have business ties with their mother country which gives them opportunities to increase their wealth faster. Another possibility is that some Asian Americans have achieved a higher status through education which usually results in upper-levels incomes. On the other hand, the Asian Americans in the bottom ten percent might have come over through America’s generous immigration policy, but they might not have established a business or came from a good economic background. They get stuck in the bottom quintile and rely on social welfare. In the end, this graph represents the huge disparity in income between the upper and lower-class Asian Americans, and this may have been influenced by multiple factors like education, social background, and business connections.

The narrowing, but persistent, gender gap in pay

[image: The gender pay gap is narrower among young adults than among workers overall]

https://www.pewresearch.org/fact-tank/2019/03/22/gender-pay-gap-facts/

In addition to the income inequalities in different ethnic groups, women overall usually get paid lower than men in their particular field. According to the graph, female workers only receive eighty-five percent of what men get paid, while women ages twenty-five to thirty-six have a higher percentage of what men earn: eighty-nine percent. If a guy earned one-hundred thousand dollars at a corporation, a female worker in the same position might only earn eighty-five to eighty-nine thousand dollars. These graphs take into account all full time and part-time employees. In 2010, female workers ages twenty-five to thirty-six almost earned the same amount as men. This income inequality between men and women has decreased over the years, but their difference has not been resolved. Few key issues in the past were the level of education of women and their roles in the family. Ladies usually did not have college degrees and took care of the house. Recently, women have entered the workforce, and the income gap is closing because of their gain in educational levels. Higher education tends to increase opportunities to upper-level jobs; however, at some businesses, there is an invisible barrier called glass ceiling that still prevents the promotion of certain people because of their gender or race. Discrimination occurs at a company when a manager denies a promotion because of that person’s ascribed status. Some workers do not have a good work ethic which might result in lower pay, but women sometimes still find discrimination or a glass ceiling at work. The graph shows that female workers’ incomes still lag behind male workers, but income inequality is improving as time goes on.

Growing Partisan Divide Over Fairness of the Nation’s Tax System

[image: Widest partisan gap in views of fairness of tax system in at least two decades]

https://www.people-press.org/2019/04/04/growing-partisan-divide-over-fairness-of-the-nations-tax-system/

Last of all, the views of the federal tax system greatly vary among political party members. This graph shows the significant polarization of the two parties’ position on the tax system. Republicans usually feel that the tax system is fair, while Democrats find the tax system as unfair. Overall, fifty-two percent of the Americans surveyed think that the tax system is unfair, and forty-six percent of the them feel that it is fair. However, in 2019, the number of Republicans that think the tax system is fair shot up to sixty-four percent, while the percentage of Democrats who thought the system is fair dropped to thirty-two percent. Some Americans might feel that corporations or the upper class are not paying enough taxes or that heavily taxing the rich is a way to redistribute wealth. Democrats tend to view the tax system as favoring the top quintile and putting the weight of taxes on the poor or middle class. Republicans, on the other hand, prefer the current tax laws since they may benefit from the tax cuts. From the conflict perspective, the tax system today increases the disparity between incomes because the rich uses their power to influence tax laws which in turn will help lower their taxes. The federal tax system becomes a conflict between the rich and the poor as each class’ net income depends on how much they are taxed. A possible reason is that more low-income families are Democrats while higher income classes are Republicans. However, more research is needed to see why Democrats and Republicans vary in their views about the tax system. To conclude, this graph shows the sharp difference between Democrats and Republicans’ views of the tax system which may depend on their family background and income.

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Essay: Income Inequality

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Income Inequality

The Story Behind Income Inequality Income inequality is the financial gap between different income brackets, to put it into Lament’s terms. No matter what economic system a nation may partake in, economic or income inequality has always been a hot button issue. In recent history going back to the global economic collapse of 2008 and continuing recession through the current Obama administration, income inequality has not only become a fiery partisan battle but also a real life, day to day, issue with middle and working class Americans. The term, income inequality, is a purely statistical concept, however, meaning not just one individual distributes all the money. Income inequality comes from peoples’ decisions about their savings, employment, and investment as they work through the market fluctuations and tax fluctuations as well. During the 1990s and early 2000s people experienced an expanding body of work and understanding of how income distribution worked. This great body of work can be described in three main points. Point one suggests that the distribution of pretax income in the United States today is very unequal. Studies suggest that the top 10 percent of households, with the average income of about $200,000, received approximately 42 percent of all pretax money income in the late 1990s. The top one percent, which mainstream media suggests are taking all the money, averaging $800,000 received about 15 percent of all pretax money income. A second study suggests that the path of income inequality over the twentieth century is marked by two main events such as a dramatic decrease in inequality around the outbreak of World War II and an extended increase in inequality that began in the mid-1970s and continued increase in the 1980s. Today, income inequality is roughly the same amount as it was during the roaring 1920s. And the third main study suggests that over multiple years, family income fluctuates and so the distribution of multi-year income is approximately more equal than the distribution of single-year income.

In Controversies about the Rise of American Inequality: A Survey, authors Robert J. Gordon and Ian Dew-Becker provide a comprehensive survey of seven aspects of rising inequality that are usually discussed separately: changes in labor’s share of income; inequality at the bottom of the income distribution, including labor mobility; skill-biased technical change; inequality among high income groups; consumption inequality; geographical inequality; and international differences in the income distribution, particularly at the top. They conclude that changes in labor’s share of income play no role in rising inequality of labor income and by one measure, labor’s income share was almost the same in 2007 as it was back in 1950. However, there are gender differences in income inequality, between 1979 and 2005, for example, the income gap between women working for the median wage (the 50th percentile) and low-earning women (at the 10th percentile) grew much more than it did for men at those income levels during the same period. That suggests that the decline in the real value of the minimum wage over that time played a causal role, the authors argue. That’s not surprising, in one sense, since women are, roughly speaking, twice as likely to work for the minimum wage as men are. If women were more affected by the minimum wage, men bore the brunt of the decline in unionization over the least three decades, the survey finds. One study the authors cite suggests that the fall in organized labor’s share of the workforce can explain 14 percent of the rise in the variance among male wages between 1973 and 2001, but it had no apparent effect on the variance of female wages. There is little evidence on the effects of imports. And, the ambiguous literature on immigration implies a small overall impact on the wages of the average native-born American, a significant downward effect on the wages of high-school dropouts, and a potentially large impact on previous immigrants who work in occupations in which immigrants specialize. The authors introduce two new issues, disparities in the growth of price indexes and in life expectancy between the rich and the poor. "While the poor may do better when price indexes are corrected, they do much worse when their health outcomes are considered," the authors write. They cite evidence that between 1980 and 2000 the life expectancy of the bottom 10 percent of earners increased at only half the rate of the top 10 percent. "This may be the most important single source of the increase in inequality in the United States, and it combines not only unequal access to medical care services and insurance, but also to differences in personal habits and environment related to education and income," the authors conclude. The most controversial section of the survey looks at the question of why the rich have gotten so much richer. In a 2005 study, the authors found that the top 10 percent of earners saw their share of overall income rise from 27 percent in 1966 to 45 percent in 2001. But that study also documented that fully half of that increase came from the relative gains made at the very top of that spectrum – those at the 95th percentile and above. That study also distinguished between "superstars," whose incomes were market-driven, and CEOs, whose incomes were "chosen by their peers." In their new survey, the authors carve out a third group – high-income professionals, especially lawyers and investment bankers, whose pay is market-driven but who don’t enjoy the benefits of "audience magnification," whereby the superstars can fill entire arenas or sell recordings to millions of people. Their point: income inequality is growing even among the top 10 percent of earners as the superstars and CEOs increase their pay faster than lawyers and investment bankers. But at least the pay of the superstars, lawyers, and investment bankers is market-driven. The pay of CEOs is not. Their review of the CEO debate places equal emphasis on the market, in showering capital gains through stock options, and an arbitrary management-power hypothesis based on numerous non-market aspects of executive pay. "CEOs, through compensation committees and inbreeding of boards of directors, have a unique ability to control their own compensation," the authors write. "Furthermore, if a director approves a higher compensation package that may subsequently lead her to receive more compensation at her own firm." They cite one study of 1,500 firms that found that the compensation earned by the top five corporate officers in 1993-5 equaled 5 percent of their firms’ total profits during that period; by 2000-2, that ratio had more than doubled to 12.8 percent. The trend was caused in equal parts by arbitrary pay decisions by corporate boards and by the showering of stock options on CEOs, they conclude. Furthermore, the survey cites a study showing "ample evidence that firms work to disguise the magnitude of CEO pay," such as lifetime healthcare, below-market-rate loans, and above-market-rate loans when CEOs defer their compensation, to lessen shareholder outrage. Such research "is important because it tells shareholders what to expect and where their outrage constraint should be set," the authors write. This skewing of pay at the very top in the United States contrasts with other countries, especially Japan. There, the income share of the top 0.1 percent peaked at 9.2 percent in 1938, reached stability of close to 2.0 percent after 1947, and ended up at 1.7 percent in 1998. Initially, America also saw an initial peak (8.2 percent in 1928) fall to a low (1.9 percent in 1973). But then the income share of America’s top 0.1 percent rebounded (7.3 percent in 2000). Canada and the United Kingdom mimicked the U.S. pattern, though their most recent upturns were less dramatic. France, like Japan, has seen the income share of its very top earners stay quite stable since the mid-1940s. Since 1948, the March edition of the U.S. Census Bureau’s Current Population Survey or CPS, has been collecting household income information for the previous year and even their personal details such as the household members’ age, education, occupation, industry and other information that may help the CPS collect income data. Even though the CPS presents a lot of statistical information about income to the public, its great downside is the pretax money receipts excluding capital gains. The CPS also has a cap of $999,999 which exclude, obviously any income data past this income level. These problems means that the CPS estimates of inequality rid of the effects of taxes, non-money income such as government and private health insurance, and the portion of individual income that, as stated previously, exceeds the cap limit. Another source of income inequality statistics is the U.S. Treasury’s Statistics of Income or SOI, which summarizes income reported on federal income tax returns. SOI information doesn’t contain any personal data on taxpayers such as age, education, occupation, etc. and also cannot describe, precisely, the lower part of income distribution. The advantages of SOI data are their ability to give an accurate description of the upper part of the income distribution because SOI does not have a cap limit like CPS.

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Income Inequality

Introduction.

Income inequality is the uneven distribution of income among people or households. Economists, politicians, and social scientists have focused on it as it has grown in many wealthy and developing nations. Income disparity has several factors, which vary by circumstance. Education, skills, and job experience may cause income disparity (Lee & Lee, 2018). Technological progress, globalization, and labor market changes may increase income disparity by producing winners and losers. Income disparity affects society regardless of its source. It may worsen social and economic divides, poverty, social exclusion, and social cohesiveness. Thus, many governments worldwide focus on income disparity to promote inclusive development and reduce poverty and inequality. Measures should be established to reduce income disparities while embracing technological changes, globalization, and labor market changes.

Technological changes

The utilization of technology has been a pivotal factor in influencing the economic terrain in recent decades. The advent of technological progress has yielded considerable advantages to the populace, yet it has concurrently played a role in the escalation of income disparity. This phenomenon is attributed to the impact of technological advancements on the labor market, whereby automated systems and machinery are substituting certain occupations. In contrast, others necessitate specialized knowledge and training. The current situation has led to an increasing disparity between individuals with the requisite competencies and qualifications to thrive in the contemporary economic landscape and those needing them.

Position 1: The impact of technological advancements on income inequality is a significant concern.

One contention posits that technological advancements have considerably exacerbated income inequality. Individuals with specialized technical expertise, including software engineers, data analysts, and robotics engineers, are currently experiencing significant demand and can negotiate competitive compensation packages (Eberhard et al., 2017). Simultaneously, occupations susceptible to automation, such as manufacturing, clerical duties, and certain types of service-oriented work, have been vanishing, resulting in many unemployed or employed in positions with meager remuneration. The phenomenon results in a scenario where individuals possessing appropriate competencies and academic qualifications are remunerated with lucrative employment opportunities (Lauder & Mayhew, 2020). The above phenomenon can potentially incite societal upheaval and compromise the general equilibrium.

Position 2: Implementing technological advancements yields benefits to the entirety of society.

An alternative perspective posits that the impact of technological advancements on society has been predominantly favorable and that the advantages surpass any adverse consequences on income distribution. The implementation of automation has resulted in increased accessibility of goods and services, while advancements in technology have yielded enhancements in healthcare, communication, transportation, and various other domains (Georgios et al., 2019). The phenomenon above has resulted in a high quality of life for numerous individuals, even those who lack the requisite expertise to secure lucrative employment opportunities engendered by technological advancements. In addition, novel employment opportunities have emerged in domains such as software engineering, data analytics, and online marketing, presenting prospects for individuals possessing the requisite expertise.

Globalization

The globalization of economies, civilizations, and cultures characterizes globalization. Globalization has improved commerce, investment, and cross-cultural interchange. Technology has also contributed to economic inequality, both domestically and internationally.

Position 1: Globalization is said to have caused and maintained economic inequalities.

Globalization has contributed to the widening socioeconomic disparity between the wealthy and the poor nationally and internationally. It can be argued that globalization has primarily benefited the privileged and influential segments of society, while the disadvantaged and vulnerable cohorts have borne the burden of its consequences. The assertion contends that globalization has facilitated the simplicity with which multinational corporations can circumvent taxes and regulatory frameworks, resulting in the concentration of wealth and power among the upper strata of society (Zhang, 2019). The phenomenon of globalization has created a competitive environment in which businesses endeavor to optimize profits by minimizing expenditures, resulting in a decline in compensation and labor standards.

Position 2: Globalization may reduce wealth disparities.

According to this viewpoint, globalization may boost economic development, particularly in developing nations. Increased trade and investment may create jobs and raise salaries, particularly in emerging countries with lower labor costs. Globalization may boost markets, technology, and information, making it simpler for individuals and enterprises to enhance productivity and competitiveness (Prasanna et al., 2019). Globalization also promotes cultural exchange and understanding, reducing inequalities and fostering societal harmony. Both options might benefit globalization.

Labor market changes

The enduring problem of income inequality has a pervasive impact on numerous societies across the globe, with alterations in the labor market representing a significant contributor to this phenomenon. Labor market changes pertain to alterations in the configuration and constitution of the labor market throughout a period, encompassing modifications in the allocation of jobs across industries, variations in the proficiency prerequisites of jobs, and progressions in technology that could potentially mechanize jobs. The alterations above carry important ramifications regarding the allocation of earnings and the degree of economic disparity.

Position 1: The alterations in the labor market can potentially intensify the existing income disparity.

From a particular viewpoint, alterations in the labor market have played a role in the expansion of the disparity in earnings between individuals with high and low incomes. Proponents of this stance contend that the proliferation of technology and globalization has engendered the emergence of novel, lucrative employment opportunities that necessitate sophisticated expertise and erudition. Consequently, individuals with comparatively lower education and skills need more employment prospects that remunerate inadequately, thereby exacerbating income disparities (Lawrence et al., 2017). Moreover, this stance posits that the waning influence of labor unions and their ability to collectively bargain has undermined the leverage of employees, resulting in a lack of growth in wages and a worsening of the unequal distribution of wealth, favoring a select few individuals with high incomes. The exacerbation of income inequality can be attributed to reduced government regulations on businesses and taxes for the wealthy. This policy benefits the already affluent and influential members of society while leaving those with lower incomes with fewer resources and opportunities.

Position 2: Alterations in the labor market have the potential to diminish income inequality.

An alternative viewpoint posits that alterations in the labor market can mitigate income inequality through the facilitation of educational and training opportunities and the provision of lucrative employment prospects. Advocates of this stance contend that alterations in the labor market can lead to new industries and employment prospects that necessitate specialized expertise and education, thereby generating novel avenues for upward socioeconomic advancement and financial progress (Comyn, 2018). In addition, technological progressions possess the capability to enhance efficiency, reduce the expenses of commodities and amenities, and establish novel enterprises that can advantage a wider populace (Malecki, 2018). Consequently, it may result in increased remuneration, enhanced productivity, and novel prospects for individuals possessing the requisite competencies and knowledge. This role highlights the potential for labor market transformations to be accompanied by measures aimed at mitigating income inequality, such as the implementation of progressive taxation, the expansion of educational opportunities, and the provision of safeguards for workers. The implementation of such policies can potentially alleviate the adverse effects of labor market fluctuations and promote a more equitable distribution of the advantages stemming from economic expansion.

Policies that help those harmed by technology are one compromise. It might entail educating and retraining individuals whose occupations are in danger of automation and incentivizing corporations to do so. It would allow them to learn new skills and get jobs in burgeoning sectors (Georgios et al., 2019). Additionally, technological improvements should benefit society equally. It might entail enacting laws restricting wealth and power concentration and spreading the advantages of technological breakthroughs. Progressive taxation or a universal basic income might guarantee that those who cannot find high-paying employment in new sectors have a basic quality of life (Eberhard et al., 2017). Finally, technological advances may help reduce economic disparity. We can build an equal society that benefits everyone by supporting labor and sharing technological advances.

A reasonable resolution may entail recognizing the adverse impacts of globalization on underprivileged societies and enacting measures to redress these concerns. Possible academic rewrite: One potential strategy to mitigate the concentration of wealth among the elite is to implement measures to promote tax fairness and labor compliance by multinational corporations (Zhang, 2019). It has the potential to mitigate the economic inequalities resulting from globalization. Simultaneously, endeavors could be undertaken to advocate for the favorable facets of globalization, such as heightened commerce and capital infusion, that have the potential to engender economic expansion and employment opportunities. The proposed initiative entails extending assistance to small enterprises and innovators in emerging economies alongside fostering intercultural communication and comprehension (Prasanna et al., 2019).

One potential resolution that could reconcile the divergent stances is to recognize that modifications in the job market can amplify and alleviate disparities in earnings, contingent upon their administration and execution. Globalization and technological development have created new, lucrative career opportunities requiring specific training and expertise (Lawrence et al., 2017). However, it has also resulted in the outsourcing and automation of low-skilled occupations, limiting the employment options open to those with less education and training. Along with tax laws that benefit the wealthy, the decreasing influence of labor unions and government controls on businesses has contributed to the growth in income disparities. It is imperative to implement strategies that focus on enhancing educational and training prospects while guaranteeing the availability of protective measures for employees, such as regulations about minimum wage and labor norms (Comyn, 2018). Furthermore, adopting progressive taxation can mitigate the imbalanced dispersion of riches, which tends to benefit a privileged minority with substantial earnings and foster a fairer allocation of the benefits arising from economic growth. Nonetheless, it is imperative to recognize that achieving a harmonious implementation of said policies is essential so as not to impede the inventive and enterprising nature of the economy (Malecki, 2018). Worker protection measures and executing taxation policies that foster a fairer allocation of resources.

Income inequality is the uneven distribution of income among people or households. The utilization of technology has been a pivotal factor in influencing the economic terrain in recent decades. The advent of technological progress has yielded considerable advantages to the populace, yet it has concurrently played a role in the escalation of income disparity. Globalization has contributed to the widening socioeconomic disparity between the wealthy and the poor nationally and internationally. Globalization may boost markets, technology, and information, making it simpler for individuals and enterprises to enhance productivity and competitiveness. Alterations in the labor market have expanded the disparity in earnings between individuals with high and low incomes. Alterations in the labor market can lead to new industries and employment prospects that necessitate specialized expertise and education, thereby generating novel avenues for upward socioeconomic advancement and financial progress. Therefore, measures should be established to reduce income disparities while embracing technological changes, globalization and labour market changes.

Comyn, P. J. (2018). Skills, employability and lifelong learning in the Sustainable Development Goals and the 2030 labour market.  International Journal of Training Research, 16 (3), 200-217. https://www.tandfonline.com/doi/abs/10.1080/14480220.2018.1576311

Eberhard, B., Podio, M., Alonso, A. P., Radovica, E., Avotina, L., Peiseniece, L., & Solé-Pla, J. (2017). Smart work: The transformation of the labour market due to the fourth industrial revolution (I4. 0).  International Journal of Business & Economic Sciences Applied Research, 10 (3). https://www.ceeol.com/search/article-detail?id=588654

Georgios, L., Kerstin, S., & Theofylaktos, A. (2019). Internet of things in the context of industry 4.0: An overview. http://dspace.vsp.cz/handle/ijek/103

Lauder, H., & Mayhew, K. (2020). Higher education and the labour market: an introduction.  Oxford Review of Education, 46 (1), 1-9. https://www.tandfonline.com/doi/full/10.1080/03054985.2019.1699714

Lawrence, M., Roberts, C., & King, L. (2017). Managing automation: Employment, inequality and ethics in the digital age. https://apo.org.au/sites/default/files/resource-files/2017-12/apo-nid126336.pdf

Lee, J. W., & Lee, H. (2018). Human capital and income inequality.  Journal of the Asia Pacific Economy, 23 (4), 554-583. https://www.tandfonline.com/doi/abs/10.1080/13547860.2018.1515002

Malecki, E. J. (2018). Entrepreneurs, networks, and economic development: A review of recent research.  Reflections and extensions on key papers of the first twenty-five years of advances, 20 , 71-116. https://www.emerald.com/insight/content/doi/10.1108/S1074-754020180000020010/full/html

Prasanna, R. P. I. R., Jayasundara, J. M. S. B., Gamage, S. K. N., Ekanayake, E. M. S., Rajapakshe, P. S. K., & Abeyrathne, G. A. K. N. J. (2019). Sustainability of SMEs in the competition: A systemic review on technological challenges and SME performance.  Journal of Open Innovation: Technology, Market, and Complexity, 5 (4), 100. https://www.sciencedirect.com/science/article/pii/S2199853122002189

Zhang, K. (2019).  To What Extent Transnational Corporations’ Tax Administration and Tax-Laws Are Legitimate and Authoritative in the Globalized World  (Doctoral dissertation, University of Essex). https://repository.essex.ac.uk/26966/1/1802638_Dissertation.pdf

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Income disparities between white and Hispanic and Black Texans seen from 2005 to 2019

May 23, 2024

In the United States, a great deal of research has documented income disparities across racial and ethnic groups over time. If left unaddressed, those disparities could act as a headwind to future economic growth, especially given the country’s increasingly diverse population. To explain these disparities, scholars point to the legacy of discriminatory laws and practices . Researchers also point to ongoing differences in educational attainment and occupations as contributing to, and being influenced by, income gaps. [1]

In the first of this two-part series, we look at relative earnings within our four income groups to investigate how income disparities by race and ethnicity might play out differently in these various contexts within our state. Could it be that these disparities disappear once we look at the highest-income Texans? Or could very-low-income Texans of all races and ethnicities be in the same metaphorical boat when it comes to annual earnings? Exploring the circumstances in which these disparities shrink and widen can shed light on how different demographics within discrete socioeconomic groups experience Texas’ economy.

Comparing relative earnings by race and ethnicity

Chart 1A shows the racial and ethnic income gap among very-low-income Texans. “Very low income” in this study refers to earners in the 10th percentile, or lowest-earning one-tenth, of Texans for each demographic. The data are available from 2005 to 2019.

In this income group, the relative earnings for Hispanic Texans have barely budged since 2005. Very-low-income Black and AIAN Texans saw their relative earnings increase, while very-low-income Asian and NHOPI Texans saw their relative earnings decline. It is worth emphasizing that even increases in relative earnings among this income group result in very low annual earnings, which ranged from $3,245 for Black Texans to $6,075 for Asian Texans in 2019. [4]

Chart 1B looks at relative earnings for low-income Texans who are in the 25th percentile, or lowest-earning quarter, for each demographic group. Relative to low-income white Texans, earnings for low-income Blacks and Hispanics have hardly changed since 2005. Low-income AIAN Texans saw their relative earnings increase modestly, while low-income NHOPI Texans’ relative earnings fell somewhat. Low-income Asians saw their relative earnings rise a fair amount, especially after 2009.

Chart 1C shows relative earnings among low-to-middle-income Texans, whose income is in the 50th percentile, or bottom half of all earnings. Black and NHOPI Texans saw virtually no change in this income group, while Hispanic and AIAN Texans saw modest growth. Asian Texans again saw high growth in their relative earnings.

While this series focuses on the outcomes for low-earning individuals, it is worth demonstrating that these racial and ethnic disparities persist, and in some cases even worsen, in the highest-income group. Chart 1D shows relative earnings for the top 5 percent of earners, or the 95th percentile. Even among the highest-income group, Black Texans’ relative earnings actually declined, while Hispanic, AIAN and NHOPI Texans saw little-to-modest growth. Once again, Asian Texans experienced high growth in their relative earnings.

Relative earnings have only increased for some

Within each income group, we see how people within different demographics experience disparate trends in their relative income from 2005 to 2019:

• Low-income and low-to-middle-income Black Texans experienced hardly any increase in relative earnings, while high-income Black Texans actually experienced a decline.
• Hispanic Texans saw little to no difference in relative earnings in any income category, except for low-to-middle-income Hispanics, who saw a slight bump.
• Asian Texans saw high growth in their relative earnings in all income groups except very-low-income Asians, who saw a decline.
• Native Hawaiian or Pacific Islander Texans saw their overall relative earnings ratio decline with each higher-earning income group.
• Despite seeing modest-to-high growth in relative earnings within each income group, American Indian and Alaska Native Texans still saw low relative earnings compared with white Texans.

These data show that within each income cohort, income inequality largely persists across race and ethnicity. The next article in the series will examine how frequently people are able to move across income cohorts and the resulting impact on income inequality.

• It is worth noting that racial disparities in income persist within similarly educated groups. For example, in 2016, the median annual income of young Black and Hispanic workers with a bachelor’s degree was about $5,300 less than the median annual income of a young white worker with a bachelor’s degree.
• One of the advantages of this dataset is its large sample of comparatively small racial and ethnic groups such as Asians, Native Hawaiians or Other Pacific Islanders (NHOPI), and American Indians or Alaska Natives (AIAN). Given their relatively small size, members of these groups are often lumped together in a single “Other” racial and ethnic category, but these data allow us to confidently capture each group’s income in addition to other larger demographic groups.
• In this study, the Hispanic demographic group includes members of various racial groups. Other racial groups in this study consist of non-Hispanic individuals. For simplicity, we simply refer to these groups as white, Black, Asian, AIAN and NHOPI.
• Adjusted for inflation to 2019 dollars.

About the author

Anna Crockett is an advisor in Community Development at the Federal Reserve Bank of Dallas.

About the authors

Anna Crockett is a community development advisor at the Federal Reserve Bank of Dallas.

Emily Ryder Perlmeter is a senior community development advisor at the Federal Reserve Bank of Dallas.

Xiaohan Zhang is a senior economist at the Federal Reserve Bank of Dallas.

The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.

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