On Income Inequality
By Mike Powell
Our economy is on the verge of collapsing because of the rising rate of inequality. Research by the Organization for Economic Co-operation and Development (OECD) found that countries with a higher degree of economic inequality, measured using what’s known as the Gini coefficient (which is scaled between 0-1 where 0 is total equality in a country’s economy and 1 is complete inequality), have a lower rate of GDP growth than countries with a Gini coefficient closer to 0. They state, “The (GDP) growth rate would have been more than one fifth higher had income disparities not widened…greater equality helped increase GDP per capita in Spain, France and Ireland.” What’s striking is that according to The World Economic Forum, although the GDP of the US doubled between the 1970s to 2015, the median household income only rose by about 20%. This begs the question, “Where is all of that growth going?”
The Congressional Budget Office reports that the top one percent of households in the U.S. have as much wealth as the bottom 40%. It’s difficult to even wrap your mind around that. Simply put, as the rich get richer, the poor get less and less. CEOs, corporate shareholders, and hedge fund managers make up a majority of the one percent. You can also think of the one percent as the owners of capital. Capital refers to the ownership of the factory, brand, machinery or software used to produce a product. Over the last 30 years, more income has shifted towards the owners of capital and away from laborers. Research by the OECD found that “…from 1990 to 2009 the share of labour compensation in national income declined in 26 out of 30 advanced countries…and the median (adjusted) labour share of national income across these countries fell from 66.1% to 61.7%.” Even though people are working just as much, sometimes more in some cases, they’re earning a smaller share of the income being generated, directly resulting in increased inequality.
Even though we know that inequality is a real and serious issue, understanding the cause is much more difficult. According to several researchers the advancement in technology has led to a severe decline in middle-class jobs leaving either high skill jobs with higher wages or lower skilled jobs with lower wages. In conjunction there has been a devaluation of labor as a whole. More low income earners also results in a loss of political power for everyday people. Corporations can limit the effectiveness of unions, deregulate markets and get rid of protections for employees by having the buying power to influence legislation.
One example of this is with Walmart. They employ 1.5 million Americans, which is more than the 921,046 people living in Erie County based on 2016 estimated Census data. At $9 per hour, if an employee is lucky enough to get full time hours, they can expect to make just over $18,000 a year. Meanwhile, the Walton family who own Walmart, or rather who own the capital that makes up Walmart, own more wealth than the bottom 30% of Americans.
This is what inequality looks like. A Walmart employee has limited access to health services, which exacerbates inequality, and does not have the resources to invest in themselves which limits their ability to seek new opportunities. Things like taking an unpaid internship, going back to school, opening a savings account, or creating an investment portfolio are simply not available options. It’s important to recognize that people of color are disproportionately the ones suffering from this inequality, with 25% of Black Americans living in poverty, according to 2011 Census data.
Some believe giving Walmart employees a livable wage would increase the cost of a shirt from $6 to $20. Because apparently the Waltons will suddenly go bankrupt if their profit margins are not as astronomically large. Fair wage laws and collective bargaining through unions are ways to get Walmart to do right by their employees. The International Monetary Fund found in a 2015 report that “…more lax hiring and firing regulations, lower minimum wages relative to the median wage, and less prevalent collective bargaining and trade unions are associated with higher market inequality.” Inequality will continue to become exacerbated unless something is done. It’s an issue that can be solved and the sooner that people understand exactly what’s causing it, the sooner we can reverse it.