Causes Of Wealth Inequality In The United States

Income/wealth inequality in the U.S has grown rapidly over the last few decades. “Today the richest 1% own 34% of the wealth and top 10% own 74%” (Hodges). The main causes of this discrepancy are attributed to the technology boom, the need for companies to outsource production and inherence of wealth as well as company differences. Though the growing gap is alarming to Americans, it is important to remember that income and wealth inequality is an accepted result of a capitalistic economy. The whole idea of capitalism is the ability for any individual to freely develop, trade, and in turn increase their social status without government interference. By adhering to these base principles it allows us as Americans the freedoms not seen in
a more socialistic structure. With the increase in technology over the last couple decades, those individual without any higher education or a specific skill are finding themselves out of a job, replaced by machines and computer that can accomplish the same amount of work at a faster and cheaper rate. Thereby decreasing the reliance of companies on lower level employees and increasing their profit margins. The incorporation of machinery and other forms of information technology has changed the landscape of what employers are looking for in their employees. Instead of hiring individuals for menial labor tasks, that are now being accomplished at a much faster and efficient manner, they are looking for higher educated and skilled employees to manage those systems. In addition to the increase in technology, companies started going public allowing people to purchase stock in there company. This now adds additional pressure for companies to make more money in attempt to keep their stockholder happy, leading to outsourcing. Globalization and free trade has now forced U.S companies to compete with other countries, countries that do not follow the same labor laws present in the United States. Therefore, countries can manufacture the same product at a lower rate, causing competition. For this reason, Manufacturing companies have resulted to outsourcing jobs to other countries, further decreasing the amount of jobs available for U.S citizens. “Since 2000, 20% of factory jobs have been lost to overseas production, These manufacturing jobs are typically your better paying, unionized jobs, though service jobs have increased, these types of jobs are usually less paying and inherent no real employee benefits” ( Amadeo). Let’s look at General Electric, an American company that demonstrates these two effects on inequality.
Nicholas Bloom writes in an article for Harvard Business Review that “in the 1960’s GE employed manufacturing workers, line managers, executives, janitors, and administrative staff to do a wide range of functions and at different skill levels. Yet over the past several decades it had automated or outsourced most of those functions, however there total number of employees has stayed relatively the same. Meaning they have hired more engineers and it specialists while paying other companies to handle the more medial tasks” (Bloom). It is also worth mentioning and pointing out that the same job within different companies are not paid the same. Companies that conduct the same core aspects, compete against one another. This competition is what makes a competitive market leading to new ideas and technology; however, this competition also has a major impact on income inequality. Companies that are able to attract the best of the best are able to offer better wages and more benefits to their employees, in comparison those companies that are failing to compete often have to lower these benefits in order to save money. These higher sought after companies are
thereby contributing to the income inequality and those workers regardless of the job being performed are better paid. Finally the last reason for income/wealth inequality “the rich are getting richer”. This statement is not based on the fact that the rich are amassing this wealth because of the job they perform, rather they are making money because they have money. Capitalists are able to use their property as collateral to borrow money, that money is used to invest and make a profit on the returns. Since paid laborers are not slaves, they are unable to use their labor as collateral and are therefore unable to obtain these types of loans (Hodges). This demonstrates how the rich get rich and because they pass it down from generation to generation wealth is cumulative in a single family. Now that we have looked at the causes of this increasing inequality gap, why should we be concerned?
Countries with a large income inequality gap inherently develop much of the same social issues. High crime rates, lower life expectancy due to medical costs, loss of faith in democracy and higher unemployment rate leading to recessions are all major issues associated with a large income gap. Studies have shown a positive relationship between income inequality and crime, saying that inequality is “the single factor most closely and consistently related to crime” (qtd. in Birdsong). It’s not hard to understand why this correlation is so prevalent. Lowered self-esteem and depression lead to resentment of those that are well off, often presenting itself in a hostile manner. This mixed with the need to provide for their families will push people into committing crime, with the benefits outweighing the legal ramifications of their actions. Not to mention, police forces are less funded in those areas of the country that are poor. All of this interacts together leading to a powder keg of crime as desperate people try to provide and react to the injustice they perceive has been committed against them. Mixed with crime is the lower life expectancy for citizens. Dr. Singh from the department of health and human services states “that from 1980-1982 those individuals in the higher income bracket could expect to live 2.8 years longer than the most deprived group, by 2000 that
life expectancy has grown to 4.5 years and continues to grow” (qtd. in Pear). One of the main reasons for this rising difference is due to the types of jobs that most un-educated individuals can obtain. These service type jobs, usually do not offer any form of health insurance, resulting in less check-ups and annual screening than those with health insurance. That mixed with the rising costs of medical care is leading to increased medical problems due to potential unsafe lifestyles and eating habits. The next major issue presented is that of the economy, in general those that are well off tend to spend less money on the economy. “Research shows that middle-class people tend to spend more of their income than rich people” (Hargraves). The reason for this is the need to feel successful. Middle-class Americans are trying to fit in a society that is based on demonstrated wealth. In our current society your value is based on how much you own and therefore much of the middle-class lives outside their means, putting them into debt. As more middle-class Americans enter debt and are unable to find good paying jobs, they have less money to put into the economy. This lack of money flow to the economy can lead to an inevitable recession. Nobel Prize winning professor Joseph Stiglitz wrote in an editorial that "Our middle class is too weak to support the consumer spending that has historically driven our economic growth” (qtd. in Hargraves). When all of these issues reach the boiling point the biggest and most detrimental outcome for our society can happen. The fall of democracy, as more and more individuals lose faith in our elected leaders, they become less likely to participate in democratic process. Democratic societies lack public funding, this requires those to obtain campaign funding from other sources. In 2010, candidates combined for six billion dollars in private funding (Birdsong). With the belief that our politicians are funded by the rich and the policies presented are not for the welfare of all but for the continued income growth for them, they will begin to riot and push us to a more socialistic or worse communistic culture.