A number of statistical studies in regard to distribution of wealth and income in the United States show that the divide between the poor and the rich is widening steadily. The rising gap is attributed to a number of factors including poor planning and unequal access to education. The widening gap has exacerbated poverty among most Americans. Living standards of many people have dropped. Many people have been driven to poverty, homelessness and starvation. Available data show that income levels and security of individuals have declined, and the gap between the rich and the poor is on a steady increase. Economists caution that lack of permanent-income and life-cycle-saving models are the leading causes of poverty among the population. Furthermore, experts recommend that the economic paradigm must be altered to enhance wealth accumulation among people. The current system accounts for a fraction of actual wealth accumulation in turn fail to predict the observed levels of wealth inequality. This paper analyses the factors that have exacerbated the economic gap in the United States and argues that this situation hurts many Americans.
According to Simpson (2009), despite the glaring evidence and data indicating that the gap between the poor and the rich is widening among the population, most people still object to this findings. Previous statistical analyses reveal that the gap is expected to increase if measures are not taken to mitigate the situation. Last years statistics indicate that the rate poverty growth is the same as the as the rate of economic growth in the United States. This means that the gains made in growth of the countries gross domestic product risk being eroded by the widening gap between the poor and rich. Even, though, skilled, experienced and higher incomes workers have gained rapidly from the technological advancements, the same gains have been eroded by rich capitalists. This situation coupled by the weaknesses in the financial services sector directly leads to the widening gap between the poor and the rich. Just as advocated by the supporters occupy the solution to the rising inequality is boost and increase access to education.
Borders, (2012) Assert that capitalism benefits only a fraction of the population and drugs the rest in poverty. It benefits those who have invested in the system at the expense of the population. The rest of the population has continued to be exploited by rich corporate. This situation creates a few billionaires and rest of the population continues to slip into poverty. Research indicates that Access to education limits poverty. However, access to quality education is difficult for average Americans, unless there is a relative distribution of income in the society. This means that, even in the future, employment opportunities and other lucrative positions will remain a preserve of the minority.
Studies indicate that there is a relationship between monetary policy and income inequality. Empirically, it is evident that unexpected inflation acts in the redistribution of income by taxing the poor more heavily as they hold a large proportion of their wealth in cash. There is an alarming increase in inequality between the rich and the poor and the tax system must be enacted to balance the equation. Average Americans are not in a position to understand the complex code of taxation. Unlike the rich, average Americans cannot afford to exploit the loopholes in the financial system. Furthermore, average individuals do not have the financial muscle to lobby for tax cuts, as it is for the rich. In other words, the taxation system sets a firm foundation for economic disparity in the country. Therefore, the current divide between the poor and the rich should not come as a surprise. This trend is expected to increase if urgent measures are not implemented. According to Isaac, (2007), the upper class and the middle class and people with high paying jobs get attractive tax exclusions, while the working poor are left to fend for themselves in circumstances where insurance costs are not deductible from income in their individual market. It is against this back drop that I argue that the present anomalies in the tax system can be mitigated by accommodative monetary policies that promote economic inequality. Progressive tax policies have the potential to redistribute wealth and reducing the widening gap between the poor and rich. Authorities need to establish a better tax system that is well elaborated and taxes people based on the nature of their income. Income inequality
The disparity between the rich and poor people has been increasing dramatically since the 1970s. The real income share for individuals has changed creating a situation where the rich continues to be rich and the poor continues to be poor. Income has grown at a very high rate for individuals in the high income bracket. The increase in income inequality has a bearing on the people at the lower cadre. It is in this light seen that people have worked towards equalization of the voice of citizens, however, this has changed and voices are raised and heard unequally. Citizens with low incomes speak in whispers that are usually lost to unconcerned government officials while on the other hand the financially advantaged roar with all the clarity and consistency that are readily heard and routinely followed by policy makers. This income inequality shows public opinion as a bridge that connects income inequality and workings of democracy. The large and fast expanding gap between the rich and the poor will tend to undermine growth both directly and indirectly which is usually through the reduction of marginal propensity to consume and also by increasing the political rivalry that has already contributed to poor economic policy making and implementation.
Labor markets bring forward three aspects .One is the distribution of the labor force across the sectors. Some sectors, for instance, agriculture is associated with low income inequality where the larger the sector is the lower is the overall inequality. Secondly there is the changing role of women in the society where two arguments are taken into consideration. One shows the implication of increased female labor force participation on the distribution while the other focuses on the increased proportion of households headed by women. In relation to lowered average earnings by women either of the two factors are expected to be related to a greater disparity in income. Thirdly, income disparity caused by unemployment is considered. Turnovers in the labor market are well known to cause a change in the economic well-being of the workforce which leads to the relocation of household income.
Two variables are looked at in studying the shift in the age distribution of labor force. Natural rate of population increase in the first and it focuses on the young workers while the other is the seniority ratio of the population, measured by the percentage of people whose age is above 65. Youths and seniors are usually at the bottom of the earnings scale as shown by the life-time profile for an average worker. The young are expected to be saving and at the same time consuming while the old age are only consuming from their earlier savings and current income.
Accounting for the rising income inequality in the recent years, globalization role cannot be ignored. Rapid change in the technology itself is driving globalization, pushing income inequality where people end up requiring more skills to be able to operate in a challenging economy. There are mixed distributional impact of globalization as seen in previous literatures. It is associated with creation of a need for premium not only on computer skills but also on skills such as managerial and organizational. Trade balance as an indicator is embedded into the framework in provision of a well-round study of the distributional impact of globalization.
Research on increased economic gap has, basically, entered into the mainstream development policy agenda by the World Bank since 2000. The debate on how economic inequality arises, persists and greatly increases is a frequently discussed issue among economist. The appropriate income measure of economic inequality is also a major issue as various methods exist where no definite one is agreed upon. According to Isaac, (2007), There is need to encourage government to pursue social policies along other dimensions. With expectation of economic interdependence among countries in the future, empirical results are seen as consistent with the classical theory of international trade. Due to specialization and differentiation of products in globalized markets overall trade is bound to increase.
Government needs to encourage a more flexible and mobile labor force so as to increase the number of people who are able to win from globalization. Trade makes labor cheap; this is done by exporting low-skilled jobs. If shifting to more productive tasks does not happen in service or manufacturing for the low-skilled laborers they end up losing because such international relocations leads to a rising income disparity. For this reason, government should invest more heavily in education and more training. Easier and better access to higher education provides more opportunities to a greater share of population, which in turn helps people, engage in high-skill activities. Also the government should engage in the provision of a more effective protection to the female labor force in order to strengthen their social competence. This could also help in narrowing the gap in terms of income as better child care will help increase women’s working hours, therefore, increase in their average earnings. Lastly more priority should be given to the seniors with packages such as better health care and retirement benefits. Either way, it always appears that the media allows income inequality as a topic to rise to the forefront of the political discussion thereby bringing the issue of the average people. As such, one is made to wonder what the future holds in regard to the question of income inequality.
Economic inequality is not only economically superior to imposition of economic equality, but also morally superior. In the attempts to reduce inequality levels by use of by passing laws that redistribute income, will lead to a lower productive capability and standard of living. Policies by the government that seek redistribution of incomes should be opposed for both economical and ethical reasons, while those that seek to protect individuals rights in keeping their earned wealth and income should be supported economically and ethically.
Findings strongly support that the current level of state income inequality affects individual’s perception of rising income inequality directly. The most neglected reason for risen inequality is the aging of the U.S. population. This is so because the incomes from the young and the middle aged that are mostly looked at are mostly saved as before-tax income. The main reason or driver of compensation to wealth is the ratio of GDP to wealth. This is seen as an indicator of the rate of return to capital in the economy. In the recent years this ratio has shown a declining trend and accounts for wealth gap. Ratio of GDP to wealth is very closely related to real rate of interest thus a conclusion can be made that it is the declining rate of interest that accounts for the so-called wealth gap and not some weakness in the compensation.