Saturday, April 25, 2020

What is Income Inequality?

Income Inequality in America

I want to take a few moments to discuss a pressing issue in the United States today. Income inequality has been and continues to be a growing problem in our country. This type of inequality is often associated with limited social mobility which means that a limited number of individuals or groups are able to move upward or downward in status based on wealth, occupation, education, or some other social variable. Income inequality is one of the main reasons that everyone is not on the same "playing field" economically. Also, there is a small amount of our population (the top 1%) that are significantly more wealthy than the remaining U.S. population (see chart below*). They are extremely privileged when it comes to their wealth, occupation, education, etc. because they have so much money. Those who are part of the top 1% in the U.S. are able to create more and more income for themselves by saving the income they have and even turning it into more wealth. This puts very rich people on an “upward trajectory” meaning they keep getting richer even though they might not need the wealth they create. Once this happens, the wealth gap increases further and it is even harder for the less fortunate to catch up with the rest of the world financially.

Income inequality is a serious issue that Americans are currently facing. I think there are so many hardworking Americans that deserve to have the ability to move upward socially and to be afforded the same economic opportunities as wealthy people. Society needs to pay attention to this issue and do more to help all Americans that are struggling economically. 

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This next graph shows us that the U.S. has a Gini coefficient of about 0.38. This is the highest among the ten richest economies in the world. By international standards, America has a very unequal economy.

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Key Terms to Know:

  • Income- money received, especially on a regular basis, for work or through investments
  • Income Inequality- an extreme disparity of income distributions among different groups of people
  • Wealth Gap- the unequal distribution of assets among residents of the United States.
  • Wealth- measures the value of all the assets of worth owned by a person, community, company, or country
  • Privilege- a special right, advantage, or immunity granted or available only to a particular person or group
  • Poverty- a state of not having enough material possessions or income for a person's need
  • The Top/Upper 1%- a group of people who hold the most wealth in a population
  • Working Class- the social group consisting of people who are employed for wages, especially in manual or industrial work
  • Social Mobility- the term used to describe the movement of individuals or groups upward or downward in status based on wealth, occupation, education, or some other social variable.
  • Stock Market- this is where investors connect to buy and sell investments — most commonly, stocks, which are shares of ownership in a public company
  • Gini Coefficient- a statistical measure of the degree of variation or inequality represented in a set of values (used especially in analyzing income inequality)

Key Facts: 

  • Income inequality refers to the fact that different people earn different amounts of money.
  • The wider people's earnings are dispersed, the more unequal these earnings are.
  • Many economists consider income inequality one of the biggest economic challenges facing us today.
  • Even as one of the wealthiest countries in the world, America has a long way to go in order to bridge the gap between the wealthy and the poor.

Why has income inequality been increasing?

  • Technological Advancements- these advancements or improvements raise incomes, but they do so unequally. Highly educated workers are compensated much more.
  • Decline of Labor Unions- the unions reduce inequality both by raising low wages and constraining the high ones.
  • Trade- the increasing international trade with lower-wage countries has reduced the wage share of overall national income (which results in increasing the incomes of people with large stock holdings)
  • Immigration- having low-skilled workers do low-paid jobs raises the measured income inequality.
  • Super Star Effects- the world is much larger and wealthier than ever before which means that being a famous athlete, performer, or author is much more profitable than it used to be.
  • Wall Street- the increased incomes for CEOs and people that work on Wall Street account for 58 percent of the top 1 percent of the income distribution in the U.S.
  • Minimum Wage- it is said that almost a third of the growth in inequality is due to the declining value of the minimum wage.
  • Capitalism- it is argued that high levels of inequality are the natural state of market economies.


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