Income Inequality


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Income Inequality Essay, Research Paper

Income Inequality

Income inequality in the United States remained relatively stable for a period of nearly forty years. Beginning in the 1970?s, however, this period of stability ended, as the first signs of widening income inequality became apparent. Over the course of the 1970?s and 1980?s, an increasingly clear trend toward greater income inequality emerged. By the end of the 1980?s, the top 20 percent of workers were receiving the largest share of income ever recorded by government figures, and the bottom three fifths were receiving the lowest shares ever recorded. This trend has continued into the 1990?s and currently shows no signs of decline.

When the indicators of growing inequality were first observed in the 1970?s, some researchers argued that the effects were merely temporary artifacts of short-term labor market disturbances. By the end of the 1980?s, however, a long-term trend towards increasing inequality had clearly emerged, pointing instead to inflexible changes in the occupational structure itself.

The new occupational structure appeared to be one with an increase of well-paid technical, scientific, and professional jobs at the top, a ?sliding? middle class, and a growing poorly-paid service and retail jobs at the bottom. Several important labor-force changes appeared to be contributing to the shifting occupational structure. As occupational reconstructing and growing income inequality became increasingly evident, a heated debated as to the causes and magnitude of these changes arose.

Two dominant bodies of thought emerged around the issue: the ?job-skill mismatch? thesis and the ?polarization? thesis.

Mismatch theorists argue that there is an increasing distance between the high skill requirements of post-industrial jobs and the inadequate training and mediocre qualifications of workers. They see the post-industrial economy leaving behind unskilled workers, especially women and minorities. For the mismatch theorist, the trend toward greater inequality is temporary and will dissipate once the supply of workers acquires the skills demanded by a post-industrial economy. And they predict that the overall distribution of workers will experience and upgrading in their wages over the long run.

Polarization theorists, on the other hand, believe that the rise in inequality is permanent, a result of the shift to a service-based economy. This vision of the post-industrial economy is characteristically polarized. The problem according to these theorists, is the type of jobs being generated in the new economy, not worker attributes. Because they believe the causes are structural and permanent, polarization theorists would deny the efficacy of public policies designed to educate and train unskilled workers. They predict a long-term continuation of the trend towards increasing income inequality.

Studies show that the long run increase in income inequality is also related to changes in the Nation?s labor market and its household composition. The wage distribution has become considerable more unequal with more highly skilled, trained, and educated workers at the top experiencing real wage gains and those at the bottom real wage losses. One factor is the shift in employment from those goods-producing industries that have disproportionately provided high-wage opportunities for low-skilled workers, towards services that disproportionately employ college graduates, and towards low-wage sectors such as retail trade. But within industry shifts in labor demand away from less-educated workers are perhaps a more important explanation of eroding wages than the shift out of manufacturing. Also cited as putting downward pressure on the wages of less-educated workers are intensifying global competition and immigration, the decline of the proportion of workers belonging to unions, the decline in the real value of the minimum wage, the increasing need for computer skills, and the increasing use of temporary workers.

At the same time, long-run changes in living arrangements have taken place that tends to provoke differences in household incomes. For example, divorces and separations, births out of wedlock, and the increasing age at first marriage have led to a shift away from married-couple households and toward single-parent and non-family households, which typically have lower incomes. Also, the increasing tendency over the period for men with higher-than-average earnings to marry women with higher-than-average earnings has contributed to widening gap between high-income and low-income households.

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