causes of inequalities and the timeline of how income inequality changed in America

causes of inequalities and the timeline of how income inequality changed in America

Introduction

World war II destroyed the infrastructure of many nations, especially in Europe. America was also hit, with loss of lives for their citizens and the amount used in war. Despite all this, America was able to rise to become an economic superpower with manufacturing that helped in rebuilding the European countries. Such economic activities contributed to a boom in jobs that paid well and improved the standards of living for the American working class, who could afford cars and telephones at that time. However, as years passed, things changed. Government change in policies on employment and labor, globalization, social factors, and capitalist market contributed to the increased gap in income inequality that was witnessed after the world war, with billionaire rising in number and company executive earning hundreds of times more than average American. This research paper discusses the causes of inequalities and the timeline of how income inequality changed in America.

Change in Rate of Inequality

After world war II, inequalities in both income and wealth existed but decreased due to manufacturing and exports to European countries, which had been damaged by the war. In the 1950s, the new deal was signed, taxing much of the income of the rich, making them poorer in their purchasing power (Watkins & Brook, 2016). Such measures made billionaires vanish, decreasing from 32 to 15 in 1957 and 13 by 1968 (Krugman, 2007).  In the 1950’s the income of most families had increased by a factor of 2 from their income in the late 1920s. Families also had other securities such as health insurance standing at 60% of the population, retirement plans, and unemployment insurance by federal government for the laid off workers and social security for retirees (Krugman, 2007). On the other hand, the economic elite were worse off. The economic difference among the working class had also narrowed, with unskilled and semiskilled workers having a pay closer to the skilled workers (Krugman, 2007). Even educated workers such as lawyers and engineers had little pay advantage over the manual laborers. Also in 1950’s majority of American families owned a car and 70% of homes had telephones.  From 1960’s the income of the average American stagnated and with inflation, oil crisis and sagging productivity of the 1970’s many people had less disposable income than before (Krugman, 2007). However, much of income started concentrating in a minority of the population. Between 1979 and 2007, 60% of income growth was gained by the top 1% of the population, while the bottom 90% had a 5% income growth (Piketty & Saez, 2003). The trend is there even today, in the second decade of 21^st century.

Factors Contributing to Income Inequality in America

Labor vs Capital. With technology, there is an increase in use of automation in manufacturing and production. Such changes decrease the money going to labor, decreasing the income of workers while increasing profit margins for the businesses and their owners, increasing the capital (Keely, 2015). The changes due to technology thus makes the owners of business grow richer, while job opportunities and thus incomes of workers decrease.

Globalization has affected employment opportunities for Americans. Many companies in America are now outsourcing labor to developing countries reducing their production cost. Such is the case with Nike company which had been accused of outsourcing labor to Indonesia and paying workers one dollar for a day’s work (Wilsey & Lichting, n.d.). At the same time, outsourcing the work to other companies reduces job prospects for the Americans. This makes company owners and shareholders have higher profit margins after the product is shipped back to America and other developed countries where it is sold at a premium.

Social factors such as marriage and divorce contributes to the inequality. In today’s world, people are marrying from the same social and economic background, with doctors and engineers marrying each other or from their own profession. In the past, there were scenarios of doctors marrying nurses, a rare occurrence nowadays. Also, the rich are marrying each other, case example being the Trump and Kushner families. This concentrates more money in fewer households. Divorce affects couple’s finances. With partners divorcing, the partners now have to support two families with the same income they were having, making them have lower spending power and standards of living (Watkins & Brook, 2016). Also, some families have single parents, which makes the family dependent on one paycheck. Also, most of single parent families are low-income workers.

Government’s role in inequality. During the 1950’s, the government came up with the New Deal act that was punitive to people earning higher salaries. This discouraged people from having salaries beyond a certain limit, were the taxes were much higher. A repeal of the law removed such tax brackets, giving companies the leeway to pay their top executives hundreds times more than the average worker. In America most of the higher income earners are company executives, who earn millions of dollars in salaries and shares. Tax is also punitive to the low income earners who have to give a considerable percentage of their income to tax. This reduces their net income considerably, while the rich are left with enough money to afford luxuries such as yacht, holiday homes and vacations in exotic places on earth.

The government contributes to the inequality in other aspects of people’s lives such as education. In the recent past, there has been less funding for higher education, making a college education expensive for majority of young adults. People from low income earners have to get loans to pursue higher education and with joblessness, the student is left with a higher student debt to repay. In contrast, children from rich and affluent families have the best of education. The children go to expensive schools where they are exposed to a breadth of subjects and later attend elite colleges preparing them for executive roles later in life. Also, the same student who attend the same elite universities establish networks with each other and also use their parents network to get high paying jobs in high ranking jobs. The education system has been structure to favor certain group of people, neglecting the low class, who are the ones who need it the most.

Conclusion

After world war II, the gap between different workers in America was so small that it had no difference to be skilled or unskilled worker. The standards of living were almost similar for many people. however, as years passed many factors caused the inequalities that America is currently witnessing, with the top one percent having hundreds of times more wealth than the ordinary American.