Manual Growing Income Inequalities: Economic Analyses

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Countries below this line saw a fall in the Gini index between the two dates; countries above saw an increase. The Gini index is just one of the many ways we can measure inequality, each with their own pros and cons. Posing the question in such a polarised way precludes a meaningful answer. Whether inequality is rising or falling depends on where, when and what aspect of inequality we have in mind. But this is very important to know in itself. It shows us that rising inequality is not just an inevitable outcome of global economic forces, completely beyond our control. Being attentive to the differences between countries is an important step in knowing what can be done to reduce inequality.

In this section we address a number of downsides to this approach. Our main reason for using the Gini index was the wide range of countries for which it is available. However, in order to have this coverage, we had to put together estimates relating to a very heterogenous mix of survey methodologies and concepts.

In particular, surveys of both household income and consumption are included. Incomes are, in general, distributed more unequally than is consumption expenditure and thus the Gini estimates are not entirely comparable. For instance, Latin American and Caribbean countries which generally use income surveys may appear more unequal in relation to Sub-Saharan African countries which generally use consumption surveys than they really are.

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. If anything, the end of the last decade revealed that faster growth is associated with less, not more, inequality growth.

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

The typical American family is working harder than ever and spending more hours in the labor market. Only over the past few years has it begun to see some returns from its effort and sacrifices. The repercussions of increasing income inequality are manifold.

Is growing inequality hurting our economies? - Equitable Growth

Finally, new medical research suggests a connection between increasing inequality and worse health outcomes Boston Review It is also wrongheaded to argue that increased consumption or the mobility of low-income families counteracts the growth of income inequality. If we want working Americans to have a stake in the economy, they must receive their fair share of its growth.

We are also grateful to The John D. For examples of this literature, see Danziger and Gottschalk , Karoly and Burtless , Ryscavage ; for an international perspective, see Gottschalk and Smeeding The Census Bureau has an additional measure that converts home equity into an income-equivalent annuity. We do not analyze this measure because it shifts from an income to a consumption measure.

Data with this definition go back only to Our analysis shows that government medical programs disproportionately help the bottom fifth but do not alter the trend in inequality relative to the comprehensive measure that includes medical programs. Since the poverty lines are adjusted for family size, this serves to adjust incomes for this same factor. In Census Bureau terminology, families are units of two or more persons related by blood, marriage, or adoption, while households include one-person units.

Our Pulling Apart study uses family income. Figure 1K of Mishel et al. Analysis using longitudinal data shows that only one-third of those who were poor in an average month in were poor throughout both that year and Naifeh Another group with low incomes and high assets are the elderly, a group that has accumulated durable goods but now have low incomes. Child care is not included in Figure 1 because only families with children in which all adults work outside the home face this expense. The Child and Dependent Care Tax Credit is non-refundable, and therefore low-income families with no tax burden cannot receive this credit.

Furthermore, many eligible families are turned away from assistance through the Child Care and Development Block Grant Greenberg The first two comments were in Cox and Alm , and the latter was made by John Weiker of the Hudson Institute during a debate on this topic with Jared Bernstein. As Schmitt and Mishel show, this would be true even if we adjusted the data to account for the greater unemployment in these other countries. For evidence of the slower growth in income inequality in these countries compared to the U. The fact that unemployment rates are higher in Europe than they are in the U.

There is, however, little evidence for this claim, and a number of recent articles have challenged this connection. Recent research has challenged the notion that the demand for college-educated workers accelerated in the s over the s see Card and Lemieux and Mishel et al.

  1. Census Bureau Alternative Income Definitions.
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  7. This work attributes the faster growth in the college premium to either a deceleration in the supply of college-educated workers or to the negative impact of structural changes discussed below in the text of the wages of non-college graduates. Of course, education differentials grow for reasons other than changes in skill demand. For instance, institutional changes in the labor markets, such as the decline in the real value of the minimum wage and the rate of unionization both of which disproportionately affect the wages of non-college-educated workers also led to higher education premiums over the s.

    While inequality continued to grow in the s, which was a period of accelerated computer investment, education differentials grew much more slowly than they did in the s. This pattern contradicts the technology argument, which closely associates increased computer usage with the increase in the college premium. Journal of Economic Literature. Baker, Dean, and John Schmitt. Bauman, Kurt J. Washington, D.

    Census Bureau. Bernstein, Jared, and Lawrence Mishel. Wage Inequality.


    New York: Plenum Publishing. Boston Review. Burtless, Gary. Widening U. Card, David, and Thomas Lemieux. A Cohort-Based Analysis. Citro, Constance, and Robert Michael. Measuring Poverty: A New Approach. Congressional Budget Office.

    C: CBO. Cox, Michael, and Richard Alm. Why Decry the Wealth Gap? New York Times. January Danziger, Sheldon, and Peter Gottschalk. America Unequal. Cambridge, Mass. Dewees, Sarah. Mississippi State, Miss. Gottschalk, Peter. Gottschalk, Peter, and Timothy Smeeding. Vol 35, No. Greenberg, Mark. Glyn, Andrew, and Wiemer Salverda. Kaiser Commission on Medicaid and the Uninsured. Uninsured Chartbook. Karoly, Lynn, and Gary Burtless. Lacombe, Annalyn. Tax compliance remains low and tax evasion among high earners is still common.

    Income Inequality Hurts Economic Growth

    This raises the question of equity; because the effective tax rate paid by the wealthy is lower than that paid by low earners. 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.

    1. Economic inequality - Wikipedia?
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    5. It could threaten social peace and stability. The writer is a commissioner in a publicly listed oil and gas service company. 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. TheJakartaPost Please Update your browser Your browser is out of date, and may not be compatible with our website.

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      Census Bureau Alternative Income Definitions

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