Unequal Income Distribution In USA Essay Research

Unequal Income Distribution In U.S.A. Essay, Research Paper

Unequal Income Distribution in the U.S.A.

In recent years, increasing inequality in the distribution of income has been a subject of considerable public concern, political attention, and academic research. Income inequality is a measure of how equally the income pie is divided among all members of society. The relative income, or gauge, can be defined how well the poor are doing economically compared to the rich. In other words inequality is a measure of how equally the income pie is divided among all members of society. According to Paul Ryscavage in Income Inequality in America, income is influenced by several social, economic, and demographic factors. Occupation, industry of employment and source of income represent the economic factors. The main social factors are household composition, education level, and education quality. Finally, age, sex, and race compose the demographic factors (15). Socio-economic diversity can be a clean representation of how well income is distributed among social groups.

In an ideal society the majority of households should have incomes above the cost of basic needs to create a well-balanced economy. Therefore, the foundation of economic success is based largely on this distribution providing a strong middle class that can support the economy and no extreme income gap between rich and poor guarantees economic stability. On the other hand inequitable income distribution may not only lead to economic problems, but also social problems. In Created Unequal, Peter Galbraith believes that income distribution analysis shows that the gap widens more and more between social groups and creates problems (3). These problems can damage the developing process of a society, thus finding solutions to create a well-balanced income distribution is essential for present governments.

Through the historical review of the background of the issue of income distribution one can present possible solutions to help maintain good economic development and stable society. The solutions presented are the reform of welfare system, progressive taxation and an increase in minimal wages.

John Borland points out in .Fear of Falling. that the income gap has been steadily increasing since the postwar era. Currently the income inequality is at its highest level ever (1). US Bureau of Census indicates that an increase of 4.7 % of the total income allocated at the top 5 %, while the lowest quintile had a decrease of 1.2% of the total income held between 1970 and 1996 (473).

Fig 1. U.S. Distribution of Income in 1997; rpt. in Rector and Hederman (2).

It is evident from the above graph that the most current data shows that top quintile holds 49.4% of the total income in the U.S.A. while the bottom quintile holds only 3.6%. The graph is somewhat misleading because the bottom and the top quintiles do not really represent the 20% of the population. Through research Rector and Hederman in .Income Inequality: How Census Data Misrepresent income distribution. state that .Indeed, in reality the top Census .quintile. contains not 20 percent of the population but 24.3 percent, while the bottom quintile contains only 14.8 percent of the population. (4-5).

The historical overview of income distribution from 1945 until today could be divided into three distinct periods: 1945-73, 1973-81, and 1981-89. The first period represents what is called the .good years., the great postwar boom generations. This period, from 1945-73 shows what real, broad-based prosperity looks like. One of the main reasons why income distribution decently increased for middle class during this period was the reconstruction of US after WW II, and rapid and constant economical growth. The employment rate reached peak during this period, where well educated people, high school and up, were earning very good wages. The government was keeping interest rates very low, and that encouraged many corporations and private businesses to invest money and strengthen the economy that way (Galbraith 10).

William Niskaken indicates in Reaganomics: An Insider.s Account of the Policies and the People that the second period, between 1973-79, showed a major slow down in income growth as the economy was battered by slow productivity growth and oil shocks (7). Basically the 1973 oil shock was the confluence of independent political and economic factors. Finally, a new pattern emerged after 1981: generally slower income growth, but in particular, a strong tilt in the growth pattern, with incomes rising much faster at the top end of the distribution than in the middle, and actually declining at the bottom. All these changes in economy did not happen by accident. As we know, this period is symbolized by Reagan.s presidency, so it.s called Reaganomics. Reagan proposed a recovery plan including budget reform plan, tax cuts, regulatory relief and currency stabilization program (Niskaken 4). Beside the fact that Reagan.s economical policy had significant influence on inflation, economical growth and defense development, lower classes were the ones that paid the cost. The upper class benefited the most from the political tools used by Reagan, separating itself even more from the neglected lower class (Niskanen 265).

There are many possible solutions for the income distribution problem that would change current situati