Growing Income Inequalities: Economic Analyses


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Income inequality in the United States: What do we know and what does it mean?

Infrastructure projects, which are labor intensive, support for labor-intensive industries, rising salaries of government employees or even the controversial increase in minimum wages and various social programs in education and health could help reduce income inequality. But given the current extreme inequality in income, the impact of those programs would be insignificant. The widening gap in income should open our eyes to the failure of tax policies as an instrument of income distribution.

Tax compliance remains low and tax evasion among high earners is still common. This raises the question of equity; because the effective tax rate paid by the wealthy is lower than that paid by low earners.

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To let this situation prevail is fiscally irresponsible and morally unjustifiable. The simmering anger and resentment among various groups over government failure to achieve a more equitable distribution of income should not be taken lightly. It could threaten social peace and stability. The writer is a commissioner in a publicly listed oil and gas service company.

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The views expressed are his own. We are looking for information, opinions, and in-depth analysis from experts or scholars in a variety of fields. We choose articles based on facts or opinions about general news, as well as quality analysis and commentary about Indonesia or international events. Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.

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Growing Income Inequalities - Economic Analyses | J. Hellier | Palgrave Macmillan

Log in with your social account Facebook Google Linkedin. Academia Opinion. Behind the rise of income inequality in Indonesia. Subscribe now. The poor are able to afford goods like TVs and VCRs because these goods are now less expensive relative to other goods, like housing. As an economy grows, the prices of some goods fall relative to others-items that were once affordable only to the elite become commonplace. The fact that everyone, including the poor, can buy more of selected goods and services is not a very telling observation.

In fact, it is one that could be made at any time in our economic history, since as the economy grows, certain goods and services become affordable to all. The existence of downward mobility is another reason to question whether the durable goods ownership TVs, VCRs, etc. Some families observed in the bottom fifth were, in fact, previously middle-class families who have suffered a change in family circumstances death of an adult, divorce, or separation , a layoff, or a health emergency that has temporarily at least for a few years lowered their income.

In this light, durable goods ownership at the bottom is partially a reflection of the temporary drops in income that our social safety nets unemployment insurance, disability insurance are meant to offset. It seems strange to argue that safety net programs are not necessary anymore because low-income families may have TVs and VCRs. As Figure 1 shows, the relative shares of income spent on these three items combined has decreased since But who honestly doubted that the poor today are better off than they were 65 years ago in the middle of the Great Depression?

The relevant time period for comparison is the last 20 years.

Growing Income Inequalities

Health care and transportation expenditures have remained comparable over this time period. Focusing on durable goods ownership and the share of income spent on necessities does not answer the central question of whether the poor are able to meet their basic needs. In one of the richest countries in the world, there is evidence in this time of economic prosperity that the poor still face hardships. Below we further discuss difficulties low-income families face in meeting their basic needs.

This suggests that, while the cost of food relative to other goods has declined, families still often have to decide between paying other bills, such as rent or utilities, and purchasing food. Focusing on home ownership also ignores the crisis in affordable rental housing.

Both owners and renters face increased housing costs. Given the steep rise in housing costs since the mid s, it is likely that these conditions have worsened. Health care: Critics who argue that the prices of basic necessities have decreased relative to luxury goods downplay the rising cost of health care. Although recognizing that health care costs have increased dramatically, they dismiss this as the consequence of improved health care technology.

However, improvements in health care only benefit those who are able to afford them. The percentage of non-elderly uninsured Americans increased from Much of the increase in the uninsured stems from a decline in the number of employers offering health insurance benefits.

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Income Inequality Hurts Economic Growth

While there has been a downward trend in employer-provided health insurance coverage for all workers, this trend has been greatest among the bottom fifth of wage earners. In contrast, In fact, people without health insurance in at least one out of the past four months were twice as likely to live in households that had trouble meeting other basic needs as were families with continuous health care coverage Bauman Such a finding clearly demonstrates the burden health care costs place on the uninsured.

Child care: The cost of child care is completely ignored by many of those who claim that the poor are better off. While more child care subsidies and tax credits are becoming available, many working families are not helped by these programs. The spatial mismatch between poor urban workers and suburban jobs that are not accessible by public transportation has been well documented Lacombe Higher education: While not necessary for basic survival, access to higher education is important for an equitable and economically mobile society.

And since those at the bottom of the income scale have lost ground in real terms, the share of income required to pay college costs has increased faster among these lower-income families. Financial aid has not kept pace with increased tuition levels during this time period, and between and , there has been an increased reliance on loans versus need-based grants as a means of financing college College Board But in relative terms, the consumption gap mirrors the income and wealth gaps.

And even in absolute terms, many poor families continue to face difficulties meeting their basic needs. Unlike the critiques discussed thus far, the final critique we examine takes the increase in inequality as a given, arguing that it is simply the inevitable outcome of economic progress, the natural result of a free market economy. According to this view, the faster growth of inequality over the past few decades is due to the fact that markets became less regulated, more global, and more technologically advanced over this period.

First of all, the argument that free markets generate ever-increasing inequality growth is belied by both historical evidence and by comparing the U. In the s through the early s, the U. True, the structure of employment was very different then, with a much larger share of the blue-collar workforce in the expanding manufacturing sector, and fewer workers in the lower-paying services. Cash-transfer programs also became more generous over this era.

Due to these and other trends e. Since the late s-as we stressed in the earlier inequality report, Pulling Apart -income growth has been highly unequal, with the bottom fifth actually losing ground in real terms, the middle remaining relatively flat, and the top growing consistently. History clearly demonstrates that a fast-growing economy does not have to result in increased wage inequality. Furthermore, the current economy also challenges the connection between growth and inequality.

Over the last few years of the s, when unemployment finally began to fall to the range typical of the late s, the growth of inequality attenuated significantly.


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If anything, the end of the last decade revealed that faster growth is associated with less, not more, inequality growth. We can also turn to other countries, such as those in Europe, to investigate whether growth and inequality should be expected to accompany one another in advanced market economies. In fact, this comparison has some advantages over the historical one just made because these economies face essentially the same global and technological environments as the U.

As recent research on a number of OECD countries by Schmitt and Mishel shows, although the growth rates of GDP per capita and productivity were faster in OECD countries in the s and s, the levels and growth rates of earnings inequality in these countries were almost all lower than those of the U. Over the s, the pay premium for college-educated workers relative to those with less education grew steeply, and this certainly contributed to the growth in inequality.

This trend led many commentators to fully attribute the growth of inequality to what appeared to be increased demand for college graduates relative to those with less education. This pattern is most apparent in the s, when the education pay premium has hardly grown, yet wage and income inequality continued to grow in the s even if at a slower rate.

If educational pay differences fully explained growing inequality, the growth should have ceased in the s. But as numerous analysts have shown, technological change did not arrive in the economy with the personal computer. In Pulling Apart , we go through the factors we think are most responsible for the growth in inequality. We will not review them here other than to say that they mostly relate to structural changes in the U.

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We also provide a thorough analysis of these points in The State of Working America Mishel et al.

Growing Income Inequalities: Economic Analyses Growing Income Inequalities: Economic Analyses
Growing Income Inequalities: Economic Analyses Growing Income Inequalities: Economic Analyses
Growing Income Inequalities: Economic Analyses Growing Income Inequalities: Economic Analyses
Growing Income Inequalities: Economic Analyses Growing Income Inequalities: Economic Analyses
Growing Income Inequalities: Economic Analyses Growing Income Inequalities: Economic Analyses
Growing Income Inequalities: Economic Analyses Growing Income Inequalities: Economic Analyses
Growing Income Inequalities: Economic Analyses Growing Income Inequalities: Economic Analyses

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