Income Inequality

One of the prerequisites of a successful class society is the presence of three classes: working class, middle class, and upper class. Most socialistic models argue that the achievement of the equality of the classes is inevitable for a prosperous society; however, the gap between the social strata has become more appreciable during last decades. The accumulation of wealth by the elite has caused a great shift in the classes, which led to the massive income inequality in the United States. This research paper is aimed at describing the main reasons and consequences of the income inequality in the United States of America.

Economic or income inequality is a difference in the level of income among different classes of the population. It is characterized with the disproportionality in a circulation of tangible and intangible assets on every level of the society. Income inequality often fosters an economic downfall leading any country to the point of no return and preventing its economic growth. It is safe to say that every even most democratic or socialistic society has a reasonable level of income inequality; however, when the inequality index is too high, the state will have a large number of poor citizens and a small but appreciable number of rich ones. A minute percentage of the rich, however, will most likely control more than 20 percent of the country’s assets. Highly differentiated incomes among the population are one of the main sources of political instability. At the same time, low levels of the income inequality have positive effects on the national economies.

Income inequality reflects the sum of the differences between the earnings of various households in a country. For instance, it shows the differences between rich and poor, or rich and middle, or middle and poor households. After summing up these values, the final inequality level is defined.

Income inequality is usually measured using a statistical marker called “Gini index.” The numbers fluctuate on the scale from 0 (absolute income equality) to 100 (absolute income inequality). The higher is the value the more wealth of a country own rich households.

The level of income inequality in the US is far higher than in most developed nations. Moreover, it is continuing to grow due to the economic crisis of 2008-2010 and its implications. The index growth has the biggest impact on the middle class. A large-scale downsizing the middle-class workers was common during the pre-crisis period; however, it reached new levels after the crisis abated. The representatives of this stratum started to receive smaller salaries and suffer from prolonged unemployment. The quality of workplaces has also lowered. From the middle of the XX century, Census Bureau has been studying the rates of the income fluctuation of the separate families, and the results were published with annual demographic reports. However, after 1970, with a growth of data demand, Census Bureau started to publish statistics on households in addition to families. It was at that time when a visible jump in the inequality level was noticed by the Bureau. The results indicate that from 1968 to 1994 the relative income of the rich, on the one hand, grew by 30 percent while the earnings of the middle class, on the other hand, increased only by 7 percent. One of the reasons for such deviation is a demand fluctuation on the Nation’s labor market. The need for low-skilled workers became scarce as the manufacturing was surpassed by the industry of services. The wages of the lower class have thus dropped due to the influence of new trends and harsh competition with the cheap foreign workers.

To understand the income inequality crisis, it is worth looking at its history. The first period of income inequality started after the end of the Civil War and lasted until 1937. However, during World War II, the earnings started to equate giving the poor a possibility to earn better salaries. The equality era lasted for three decades; however, with a rise in the number of cheap foreign workers, the competition on the labor market increased leading to a massive decline in jobs. This period, from 1979 – until now, is known as The Great Divergence. After 2007, however, the recession has begun leading to a slight decrease in the income of the wealthiest 1% of the population. The downturn, accompanied by the financial crisis, caused a loss of the assets as far as income of the rich depends mainly on the dividends and capital gains. However, when the economic crisis abated, the inequality escalated again with an increase of the income of the rich by 20% from the total amount.

Poverty, in its turn, has always been the case in the recent three centuries, although it varied depending on the period. For example, in the 18th century, 84% of the world’s population lived behind the poverty line, and the US citizens were not an exception. However, with creation of new factories due to the industrialization, people received what they were yearning for – jobs. They had prospects to escape poverty due to the hard work; a so-called “American dream” was on its rise. People were struggling for income; however, crafty entrepreneurs were able to make a fortune on their hard work and perseverance; they were the predecessors of today’s upper class. One distinct feature of poverty in the 18th century is its concentration in the certain areas of towns. The segregation became unprecedented because people were forced to live in the districts they worked in, thus, marking the beginning of separate neighborhoods for different races, such as ghetto. It was also a milestone in the growth of income inequality. However, the difference was in a gap between classes. As far as economy was at the stage of formation, the gap was small. Nowadays, however, with a decline of manufacturing, the gap of inequality has grown rapidly.

The reasons for the income inequality may vary; however, one distinctive cause is the fall in the number of labor unions. A trade or a labor union is an organization which aims to protect the interests of its members. It is no wonder that after the cutback in the percentage of unions from 34 to 8 percent in the period from 1972 to 2007, the quality and working conditions of people have deteriorated. The correlation between the period of inequality growth and union decline is obvious. Therefore, as unions started to disappear, no one was there for workers to protect their rights and demand salary increase.

As it was already mentioned, another reason of inequality is immigration that provided cheap working force. Therefore, the competition on the labor market increased as far as it was more lucrative for the employers to hire low-wage workers. The inequality growth was also influenced by a higher demand for educated workforce. With a development of service-producing corporations, the demand for skilled workers has grown. Therefore, highly skilled employees were receiving bigger salaries creating an income gap.

One of the main indicators of a prosperous country is relative income equality. Therefore, the inference is that the economy of any income-torn state is in danger, which is a consequence of inequality. One of the signs of the economic decay is a reduction of the consumption rate. Due to the accumulation of most assets by one group of people, the consumption on the country level has fallen. Although the rich spend huge amounts on the high-class items, they do not compensate for a loss in the general market.

Certainly, the wages can be low, but it does not mean that services that people use cost little as well. Humans require money to pay for rent, nutrition, and health. Therefore, whether they want it or not, they should take a loan at some point in their lives. The payday loan industry is, therefore, proliferating, putting borrowers in a danger of bigger debts due to the inability to liquidate a loan in time. It is a multi-billion business that creates even bigger income gap due to the high interests and immediate defrayal.

Another effect of the inequality is poor education or simply inability to get a proper education. Its benefits are appreciable; however, its accessibility can fluctuate depending on the available resources. In order to have proper education, one should make a profound investment into it, which often proves to be impossible for most people. Moreover, the chances to get into college are slim for those children who are born to parents without a higher education. The vicious cycle is thus created when people cannot make more money because they have no money to apply for a degree.

Poverty is considered to be a marginal shortage of the resources that are required for the well-being of a person. It remains one of the biggest hard-to-solve problems for the international society. As a phenomenon, poverty originated at the time of the primitive communal system and was accompanying humanity throughout its existence. It includes social and economic dangers as far as it goes hand in hand with crime, death rate growth, and social instability.

The income inequality is closely associated with poverty. Naturally, the rich often find new ways of multiplying their assets; however, it is often done at the expense of the underprivileged classes. It is said that to make big money one needs to have big money. However, when people have no money exactly the opposite comes in action – they start to spend more money. The lack of money makes life more expensive. Moreover, with the growth of the income inequality, the cost of living grows as well.

Fists of all, the lack of money has an impact on transportation. The underprivileged have no resources to buy a reliable vehicle; therefore, they are forced to use expensive public transport or to buy a used car that consumes too much gas. When it is down, one should use a lot of working time and money to repair it. Therefore, the expenditures on the transportation are rising for the poor.

A place of living also takes a large share of the income spending. The rent of a typical apartment includes payment for the first month and a security deposit. One must also provide a certificate of credit history. Oftentimes, the poor do not have the required certificates or a needed amount of money. Therefore, most families are forced to live in expensive motels where they have to pay a weekly rent with interests.

The nutrition also poses a problem with a growth of income inequality. Usually, when people have no money for good food, they choose products of low quality, which can lead to health problems. Poor individuals often have no other choice than to eat unhealthy fast food. The risk of cholesterol-related problems also rises. Therefore, the inequality costs too much. Poverty is a trap where one has to pay a high price for daily things. One of the resolutions can be fixing of minimum wages, which can turn the underprivileged and middle class people back on their feet.

Nowadays, the income gap increased to such an extent that only a small number of Americans can purchase real estate property. The home ownership rate has fallen from 69.2% to 64%. Therefore, most Americans have a low income due to the high tax rates and expensive mortgages. For the rich, however, the situation is quite the opposite. In the following years after recuperation from the financial crisis, the stock market has reached its historical heights.

From the perspective of the income inequality, the beliefs of Karl Marks seem to be correct – the Capitalistic society will experience massive accumulation of income and assets by a small number of people, leading to a greater gap between the classes. The level of the economic inequality does not seem to be lower in the future. The only way to alleviate the state and reduce the gap is to adopt a tax policy, which will allow creating the strong middle class. Nowadays, however, the middle and the lower classes are struggling with enduring unemployment that grows day by day.