Question

What is the impact of income inequality on the US from the past (about 1900s) until now and also link it to the schools of economics.

Please explain the reasons aswell instead of just presenting facts that can be found on google.

Answer 1

Fifty three years have passed since President Johnson in 1964 first declared a War on Poverty. During the War on Poverty the national poverty rate (from 1964 to 1973) fell 42 percent in U.S.. The rate of poverty has reduced from 26 percent in 1967 to 16 percent in 2012 however the social fabric and economy have changed significantly in these years. There has been a significant rise in income inequality. The disturbing trend emerged in the late 1970s when the benefits from growth n economy began concentrating at the very top of the income spectrum as wages remained constant and costs increased for the majority of Americans. Between 1979 and 2009 the bottom 20 percent of earners’ real income were reduced by 7.4 percent and real incomes of those in the top 5 percent were increased by 72.7 percent. In the years following the War on Poverty, the national income share going to the wealthiest 1 percent has more than doubled. By allowing the minimum wage to decline in real terms, enacting excessive tax cuts for the rich, and weakening ability of workers’ to join unions without retaliation, decision makers have increased inequality. Today our economy has accelerated pace where the maximum share of gains from growth in economy is concentrated at the top.

If we look more closely at growth in GDP per capita in the US over the recent decades, one fact looms large: growth has not benefitted the majority of individuals. In U.S. the Income inequality is exceptionally high and has been on the increase in the last four decades, with median household income growing much more slowly compared to the incomes for the top 10%. The three main causes for income inequality are:

-- Technology: Computerization and automation have altered the nature of work. It eliminated the employment upon which Americans have relied historically. The digital revolution has lead to an enormous wealth for those with the abilities and preparation to take benefit, however eliminates what economists terms "middle-skill" jobs

-- Globalization: Competition from booming economies such as China, combined with decline in trade barriers, have reduced further prospects for American workers without advanced knowledge

-- Decline of organized labor: The worker's share represented by labor unions has reduced by nearly 50% to just over 10%, over the last four decades. It has reduced their power to bargain for higher benefits and wages.