Income Inequality in the United States - Example

INTERNATIONAL LABOUR MARKETS: INCOME INEQUALITY IN THE UNITED S By and State Introduction There have been general increases in the wage inequalities globally among the developed as well as the developing economies. This has resulted to widening gap between employees with high real wage incomes and those earning the least. This trend raises concerns especially for the developed economies that are expected to have policies and structures of attaining minimal inequalities. A notable concern faces the United States has experienced increasing inequalities in wage income distribution over the years and ranks poorly as compared to other developed economies (OECD. 2014b 110). In fact, CEP indicates that America has the highest inequalities in the incomes of her population when compared to other developed countries. America has a low average real wage index compared to Australia, Canada, France and Germany (ILO, 2015 p.7). This has triggered debates for the effectiveness of her structures and polices that influence wage distribution. Improvements would be necessary to reduce the wage gaps to match or surpass those in other countries. This paper will discuss the growth of wage inequality in the United States as compared to other similar economies. In addition, it will provide a critical analysis for possible policy responses and likely impact in reversing these trends in income inequality. America Reasons for the Growth in Income Inequality in the US There are several reasons that would explain the increased wage inequalities in the United States. Machin & Van Reenan (2012 p. 5) have indicated that the social mobility in America is lower compared to most other nations. This has influence in the distribution of wage incomes for people through by creating inequality in the opportunities available in the labour market. This study urges that the differences in the job opportunities available to different levels of labourers would cause increasing gap in their incomes. Due to low social mobility, the workers in the different ladders of income would experience varied mobility leading to large disparities real wages earned. Mobility is higher among the workers with high wages and this leads to larger wage increases compared to those in the low levels. Also based on the social mobility, income earnings would vary across generations due to varied levels of mobility. An example is the difference between a son’s incomes with that of his father. America has higher levels of inequality across different generations when compared to other developed countries. Countries that have higher coefficient in cross sectional nobilities than the U.S are middle income economies such as Mexico and Turkey (p.6). On the other hand, countries in Europe have higher cross-generational mobility that has impact in reducing differences in wage earnings. Another cause of increasing wage inequality is attributed to changes in technology that has direct influence in the demand for skilled employees. Advancements in technology require support for people with high skills (Furman, 2014p. 12). America has experienced tremendous technological transformations when compared to other developed countries. This has led to high demand for professionals compared to the unskilled workers. The workers working in job positions applying advanced technologies are highly paid and exposed to rapid wage increases compared to those in unskilled jobs (OECD, 2014a). As a consequence to this, the people the skilled workers have earned increasing wages compare to the unskilled which leads to widened wage inequalities. This has worsened by the drop in population that attend schools before entering the job market. This reduced the supply for the skilled people in the market which led to high demand for those with high skills. This led to general wage rises for skilled labourers leading to increasing wage inequalities. Another possible cause for increasing wage inequalities in America would be due to fall in the emphasis for minimum wage rates alongside reduced influence of the trade unions. The politics of the minimum wage in America have decreased over the years as more emphasis is shifted to other issues of the economy (ILO, 2014). The minimum wage level is now less valued than in the past and this exposes to people with low wages to low wage increments that would help bridge the gap with people earning high wages. The contribution of the trade unions in pushing for wage increments has also vanished gradually. In the past trade unions were powerful in pushing for employee rights such as pay increases than in the present day. This has had effect of exposing union workers to low pays because unions are largely made of employees with low wages such as the unskilled or semi-skilled employees. Weak regulations might also have influenced the increasing disparities in the wage distribution. America has experienced increased deregulations as some of the methods of according businesses power to thrive in a free and more favourable economic environment compared to most developed countries (Boehm, 2013p. 8). Following this, there have been reduced regulations in governing the top officials and employees in upper levels of employment such as management positions. These top officials have influenced their wages to receive increments whereas employees in the low levels struggle with low wages. As an example, financial officers would exploit the organizations and government agencies to receive commissions, bonuses and other bailouts that lead to increased net wages. This practice has played may have played role in causing increasing wage disparities. Possible Policy Responses and their Likely Impact on Reversing the Trends in Income Inequality There are opportunities for America to reverse the present wage distribution to attain more equitable incomes among the employees. This would require development or improvements of the existing policies to respond to this issue. Inadequacies in the present structures have been shown to lead to inequitable wage distribution in the country. There several policy responses as discussed below. Increased Utilization 0f the Minimum Wage Policy The minimum wage policy in America has been les valued as a top economic tool for attaining increased fairness in distribution of wage incomes. However, it remains an important tool since in advocates for the minimum wages that should be offered to the employers (Senate Budget Committee, 2014 p.1). The minimum wage cuts across various kinds of works and hence would ensure all the low income earners obtain improved wages. The minimum wage policy also has little impact on the levels of employment as well as job creation. The government reviews the policy from time to time according to performances of the economy. The government would use this policy to raise the minimum wages for workers and maintain frequent reviews with aim of ensuring sustainable wage increments to meet set inequality targets. Utilization of Collective Bargaining Power The international labour conference (ILO) rights that provide for common labour bargaining could be applied intensively applied in America to help bridge the labour inequality gaps among the employees. This would be achieved by ensuring large proportion of the labourers work under collective agreements of labour terms (ILO, 2014 p.59). This would ensure the employees in the same levels of job earn wages that do not vary much across various sectors of the economy. The government would advocate for adoption of these common bargaining agreements in even in the private sector. The private sector is less regulated by government policies on labour that causes disparities in wages offered by similar firms in the same industry or performing similar duties in different industries. Adoption of the collective bargaining tool would entirely reduce widespread wage inequalities and ensure most employees are not underpaid. The policy involves creation and increasing powers of the workers unions to protect issues of employees. Promoting Equal Wages among Subgroups There are great disparities among workers doing same job prescriptions in varied organizations and significantly contribute to high national inequalities. In application of this initiative, the government could develop legislation that advocate for payments of similar levels of wages for same value of job done by workers (ILO, 2014 p.61). Implementation of this legislation would lead to equitable pays for workers in various subgroups. This is a powerful tool though is limited by the existing laws that give freedom to firms to determine wages exclusively from the pay levels in other firms. However, it could be introduced gradually at stages until equitable wages are attained in the working population. Enhanced Fiscal Policies Fiscal policies could be used to help bridge wage inequalities and balancing distribution. Enhanced policies such as in taxation systems influence the net wages earned by workers. The American taxation has become barely progressive and this does not take into considerations the wage inequalities. The government would review the taxation system to ensure promote the net wages of low salary earners while raising taxation for high income earners (Machin & Reenan, 2012 p. 9). The tax collected would be used for general development of the country. However, this action does not motivate the people in the high salary bracket. Another policy would be increased social protection such as through direct payments to houses with low incomes. The programs are available in the United States could be expanded to support the people. The government would also direct more resources to the creation of employment that enable workers to earn better wages. Conclusion America has experienced high wage inequalities and ranks below other developed countries. This paper has highlighted possible reasons for the wage inequalities in America and gave some or the response policies for reversing the trend. The inequalities in wage distribution could have been due to low social mobility compared to other nations. The mobility for high income earners is higher compared to low wage earners and lead to inequalities. Different mobility across wages of different generations, technological advancements, low emphasis on minimum wage policy and labour unions, and weaker regulations have influenced rise in wage inequalities. Some policies to reverse the trend include increased utilization of minimum wage law, use of ILO collective bargaining rights, similar pays for same labour groups, and fiscal policy such as reviewing taxation systems. References List Blanchflower, D. And Machin, S. (2014) Falling real wages, Centrepiece, 19(1), p19-21. Boehm, M. (2013) Has job polarisation squeezed the American middleclass? Centrepiece, 18(2), p7-9. Furman,J. (2014). Structural Challenges and Opportunities for the US Economy, [Online]. Available at http://www.whitehouse.gov/sites/default/files/docs/structural_challenges_and_opportunities_in_the_u.s._economy_11.5.14_jf.pdf [accessed 16 April 2015] ILO (2014). Global Wage Report: Wages and Income Inequality, [Online]. Available at http://www.ilo.org/global/publications/books/WCMS_324678/lang--en/index.htm [accessed 16 April 2015] Machin,S. and Van Reenan, (2012). Inequality and Opportunity: the return of a neglected debate, Centre for Economic Performance, US Election Analysis, no.4.,LSE. OECD. (2014a). OECD Economic Surveys: United States 2014. [Online]. Available at http://www.oecd.org/eco/surveys/economic-survey-united-states.htm [accessed 16 April 2015] OECD. (2014b). OECD Economic Outlook 2014. [Online]. Available at http://www.keepeek.com/Digital-Asset-Management/oecd/employment/oecd-employment-outlook-2014_empl_outlook-2014-en#page1 [accessed 16 April 2015] Senate Budget Committee (2014). Opportunity, Mobility and Inequality in Today’s Economy, [Online]. Available at http://www.budget.senate.gov/democratic/public/index.cfm/2014/4/opportunity-mobility-and-inequality-in-today-s-economy [accessed 16 April 2015] Read More