Income Inequality Is The Great Problem Of Our Time

The American Dream, the idea that you can move up the social ladder through hard work. Americans like to think that America is the place this can happen the easiest, sadly this isn’t true.

So what’s going on? One place to look is income inequality, a report from the Economic Policy Institute (EPI) found that “the average income of the top 5 percent of households was 13.3 times the average income of the bottom fifth [quintile] in the late 2000s”. When you also learn that 40% of Americans are unable to pay for an unexpected expense of $400 or more without taking out loans, or selling possessions, according to a Fed study, it is apparent that this is a problem. It is also a problem for our economy at large, another EPI report estimates states that GDP has slowed by 2 - 4 percent in recent years, because of income inequality.

So if Americans are struggling, and our economy is hurting because of income inequality, what is going on, and what do we do?

A report from the Center for American Progress (CAP) says the problem lies in viewing the split between those who went to college, and those who didn’t. CAP says the solution isn’t in giving more people college degrees, but in increasing the demand for workers without 4 year degrees. CAP continues that increases global competition has been a factor. And although “trickle down economics” like those from the Reagan years, and Trump's newest tax cut may not have contributed to Income Inequality (a deeper dive into the Reagan years’ impact on inequality can be found in this Urban Institute article) they did not do anything to help alleviate inequality.

CAP also talks about the important role decreases in Union membership has played in increasing income inequality, along with the fragmentation of the workforce with the “gig economy” saying “freelance workers and independent contractors; part-time workers; and day laborers to supply an increasing share of their workforce … Independent contractors do not receive a host of protections afforded to traditional employees—such as coverage under federal minimum wage, overtime, and collective bargaining requirements—and are far less likely to receive company-provided benefits.”

Also instrumental to fixing income inequality are 5 areas of “investment” CAP names:

  1. Ensuring that all families have access to quality, affordable child care
  2. Building a 21st century infrastructure, including expanding the system and repairing and replacing aging highways, public transportation, passenger rail systems, and water infrastructure
  3. Rebuilding the K-12 schools essential to our children’s future
  4. Preparing homes and communities for the impacts of climate change and saving households money on their energy bills through a new Future-Ready Communities Corps
  5. Providing long-term services and supports so that more older people and people with disabilities can thrive in their communities

Income inequality is multi-faceted problem though. A report from the Brooking’s Institute talks about how certain regions, namely rural areas, are having a harder time bouncing back from the Great Recession. Having fewer options and resources than metropolitan areas is compounded by other “barriers to labor force activity due to opioid use and criminal records.” The extent of this shocking, stating that “the dependence of non-working adult men on painkillers (Krueger, 2017) is strikingly large, with 30-40 percent reporting daily use; and the prevalence of criminal records has grown dramatically as well. While we have long known that ex-offender status among African-American men is a major barrier to their employment, Looney and Turner (2018) find as many as a third of all non-working 30-year old men hold such records.”

The same Brookings report mentions that although there is some evidence that raising minimum wage could limit employment in the long run, expanding the Earned Income Tax Credit could be a good incentive to get people working. The majority or their focus though is in making it easier to get a job by helping economically depressed areas, increasing training for workers without a 4 year college degree, and alleviating problems arising from the opioid crisis, and having been convicted of using/possessing drugs.

The Economic Policy Institute looks to a jobs guarantee (similar to what I talked about in a recent article) along with strengthening labor standards (supporting unions and a higher minimum wage) and also regulating banks to prevent another housing crisis, and higher taxes on the 1%.

All and all it’s clear that income inequality is a challenge which will take many different approaches to solve. I think looking into helping out communities which have had a harder time recovering, especially rural communities, with better infrastructure, and resolving the opioid crisis are two areas we can all agree to work on to begin reducing income inequality, especially since improving infrastructure (which will mean more jobs in of itself) and ending the opioid crisis are issues most people support anyway.

Another undeniable takeaway is that the average worker needs to be better supported. Whether it is through our tax code, or in negotiating trade deals one thing all of these reports have in common is the running theme that the American worker is not being helped by their country.

This is a real problem, but it is one with solutions, and as long as America seeks to be the “Land of Opportunity” I believe we can overcome this problem, and make the American Dream a reality.

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