What Are The Causes Of Income Inequality
Income inequality is a major concern in wealthy countries and especially the United States, where the gap between the rich and the poor is continuously increasing and the social effects can be seen on a larger scale. It may be true that some level of inequality does not harm nations, as it can provide people with incentives to become better by improving their skills. However, this phenomenon is out of control and puts the country into a stagnating growth phase which generates instability and social disparity.
Inequality can be measured in various ways, but the simplest one is to compare what people at the top 1% earn vs. what people in the typical middle class earn. The newest trends define the middle class as people who earn between …show more content…
Other types include pay inequality which measures strictly wages from employment and wealth inequality which measures both financial and physical assets. Studies tend to focus more on income inequality because income distribution directly affects the acquisition of wealth and other crucial economic factors such as spending and lending which are indicators of growth, prosperity or recession. Causes of Income Inequality
One of US’s comparative advantages, was the creation of a prosperous middle class in a period when most countries classified people as poor and wealthy. The issue with this middle class is that it is the one that keeps the economy stable. It may sound oxymoron, but the top 1% is not the one that supports the economy. In, fact it does not even generate enough economic activity and that is because this class does not spend enough and prefers to create assets that will add more to its net worth.
In the late 1970’s the US economy started to face a new period. It did not express all the characteristics of a recession, in fact some of them were signs of growth but they were not enough. Elevated growth rates and sustainability were replaced and this new era was characterized by high productivity, hyperbolic corporate profits, stagnating wages, increased costs and increased needs. This period is still in …show more content…
Alan Krueger introduced the Great Gatsby curve which shows that children coming from poor families in US are less likely to improve their financial position after becoming independent. There is something that keeps them from advancing. This is not the case in countries like Finland and Sweden where people tend to improve at higher rates than any other country.
A factor that proves this curve true is the unaffordable education costs which do not allow people to enter the skillful labor market and limit the opportunities available for individual growth. Even high school students to not complete their studies. Many teens decide to drop high school and search for jobs so that they can contribute to the family income. As a result, those people limit their labor options to low skill jobs that do not require knowledge and offer low wages which again are not enough for living under the normal living