Income Inequality In America

Income inequality is the uneven distribution of pay among the population. Income inequality is seen as the gap between the top ten percent and everyone else. In America income inequality has reached an historic high and is higher than any other rich, democratic country. (Heerwig) Though it’s at an historic high now it has not always been this way. Income inequality in the United States has varied over time and this variation is often called the great U-turn. Before World War I the top ten percent earned between forty and forty-five percent of all income earned in the United States. Then this number dropped to about thirty-three percent in the early 1940s. Then in the late 1970s and accelerating in the 80s the income share of top earners began

to increase. By the 1990s it reached forty percent and was at fifty percent by 2012. This fifty percent was higher than the previous peak of forty-nine percent in 1928. (Wright & Rogers: 276)
Though there has been an increase in the incomes of the bottom and middle quintiles in the United States it is very minimal.

At the bottom there was barely an increase and for the middle it was a modest increase from 1965 to 2012. (Heerwig) However for the top earners there was a significant spike in incomes. In 2012, over a fifth of all income earned in the United States went to the richest one percent. That is more than double of its share of national income in the early 1970s. (Wright & Rogers: 277)

Inequality in America is so much higher now than forty years ago for many reasons. Inequalities generated through exclusion from labor markets, which occurs through marginalization. Marginalization in the United States occurs when there is a mismatch between distribution of skills in the population and distribution of jobs in the economy. (Wright & Rogers: 286-287) Since the United States has deindustrialized there has been a lack of opportunity for people with “low or outmoded skills and low education.” (Wright & Rogers:

287)
Another cause for this higher inequality is inequalities generated within labor markets, which is described as inequality between well-paid and badly paid workers.

Since the 1970s there has been an increase in inequality at the top of the pay scale while a number of Americans are “working poor” which means that they only learn poverty-level wages. (Wright & Rogers: 287-288) Again deindustrialization plays a part in this inequality. Since the deindustrialization people with a higher education or technological skills have been more valuable to employers. This leads there to be a greater inequality between unskilled, less educated people and skilled, highly educated people. Though education and skills play a part in the growing inequality they’re not the only factor. Another factor of inequalities within labor markets is the decrease in government regulation and the increase in competition within labor markets, which leads to a further exacerbation in inequality in earnings. Intensified competition without regulation leads to a greater spread of wages over time and in certain labor markets competition takes the form of “winner-take-all competition,” a term coined by Robert Frank. (Wright & Rogers:

291)
And lastly as a cause of higher inequalities is inequalities generated through non-labor market income, which easily put is the difference between wealthy and non-wealthy people. First off, wealth inequality is even more unevenly distributed than income in America. (Heerwig) Inequality within labor markets make it possible for people with high earnings to invest in order to acquire wealth while people with lower earnings cannot do the same. Then with deregulation came new opportunities that only the wealthy had the ability to take part in. (Wright &Rogers: 293-294) This was pointed out to use by Nick Hanauer, a billionare pillow manufacturer, he makes billions but can only save and spend but so much so he invests the rest of his money. By investing he is accumulating further wealth. (Inequality for All) As pointed out by Robert Reich deregulation by the government has allowed extremely rich people to be taxed little to nothing on the billions they make or acquire. This leads the middle and lower earners to carry the tax burden. Hanauer himself said that he was only taxed about eleven percent meanwhile the middle earning family Reich spoke to was taxed about thirty-three percent. (Inequality for All)
Though it may seem as though inequality will continue to grow, there is hope if we change the way our economy works. As Reich points out, if we go back to the bottom of the U in the great U-turn there was less inequality and the economy was booming because the middle class was spending money and the top earners were being taxed accordingly. It put us in a virtuous cycle that helped everyone. (Inequality for All)