Income Inequality

Income inequality in the United States remained relatively stable for a period
of nearly forty years. Beginning in the 1970s, however, this period of
stability ended, as the first signs of widening income inequality became
apparent. Over the course of the 1970s and 1980s, an increasingly clear
trend toward greater income inequality emerged. By the end of the 1980s, the
top 20 percent of workers were receiving the largest share of income ever
recorded by government figures, and the bottom three fifths were receiving the
lowest shares ever recorded. This trend has continued into the 1990s and
currently shows no signs of decline. When the indicators of growing inequality
were first observed in the 1970s, some researchers argued that the effects
were merely temporary artifacts of short-term labor market disturbances. By the
end of the 1980s, however, a long-term trend towards increasing inequality
had clearly emerged, pointing instead to inflexible changes in the occupational
structure itself. The new occupational structure appeared to be one with an
increase of well-paid technical, scientific, and professional jobs at the top, a”sliding” middle class, and a growing poorly-paid service and retail jobs at
the bottom. Several important labor-force changes appeared to be contributing to
the shifting occupational structure. As occupational reconstructing and growing
income inequality became increasingly evident, a heated debated as to the causes
and magnitude of these changes arose. Two dominant bodies of thought emerged
around the issue: the “job-skill mismatch” thesis and the “polarization”
thesis. Mismatch theorists argue that there is an increasing distance between
the high skill requirements of post-industrial jobs and the inadequate training
and mediocre qualifications of workers. They see the post-industrial economy
leaving behind unskilled workers, especially women and minorities. For the
mismatch theorist, the trend toward greater inequality is temporary and will
dissipate once the supply of workers acquires the skills demanded by a
post-industrial economy. And they predict that the overall distribution of
workers will experience and upgrading in their wages over the long run.

Polarization theorists, on the other hand, believe that the rise in inequality
is permanent, a result of the shift to a service-based economy. This vision of
the post-industrial economy is characteristically polarized. The problem
according to these theorists, is the type of jobs being generated in the new
economy, not worker attributes. Because they believe the causes are structural
and permanent, polarization theorists would deny the efficacy of public policies
designed to educate and train unskilled workers. They predict a long-term
continuation of the trend towards increasing income inequality. Studies show
that the long run increase in income inequality is also related to changes in
the Nations labor market and its household composition. The wage distribution
has become considerable more unequal with more highly skilled, trained, and
educated workers at the top experiencing real wage gains and those at the bottom
real wage losses. One factor is the shift in employment from those
goods-producing industries that have disproportionately provided high-wage
opportunities for low-skilled workers, towards services that disproportionately
employ college graduates, and towards low-wage sectors such as retail trade. But
within industry shifts in labor demand away from less-educated workers are
perhaps a more important explanation of eroding wages than the shift out of
manufacturing. Also cited as putting downward pressure on the wages of
less-educated workers are intensifying global competition and immigration, the
decline of the proportion of workers belonging to unions, the decline in the
real value of the minimum wage, the increasing need for computer skills, and the
increasing use of temporary workers. At the same time, long-run changes in
living arrangements have taken place that tends to provoke differences in
household incomes. For example, divorces and separations, births out of wedlock,
and the increasing age at first marriage have led to a shift away from
married-couple households and toward single-parent and non-family households,
which typically have lower incomes. Also, the increasing tendency over the
period for men with higher-than-average earnings to marry women with
higher-than-average earnings has contributed to widening gap between high-income
and low-income households.

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