Introduction

Income inequality refers to how income is distributed unevenly in a population, social class, or a society. In layman’s language, income inequality refers to the difference between the money grossed by the richest in an economy and the money earned by the poorest. It is influenced by factors such as wealth, politics and social status. Distribution of income alongside distributions of wealth are used to measure the wide varieties of economic inequalities. In income inequalities, the higher the uneven income distribution, the higher the income inequality. In the United States, this economic inequality is measured by The U.S. Census Bureau using earnings by households. To help in comparison, the U.S. Census Bureau groups the population into quintile. That is, dividing the population into fifths.

According to the U.S., a fifth of the population contributed more than 50% of the total income in the U.S. Census Bureau in 2018. According to this data, the group at the bottom of the quintile contributed only 3.1% of the total U.S. income. This group comprises the unemployed, the underemployed, the sick, and the homeless who can barely afford health insurance or sick days or even a pension plan from their jobs (Amadeo, 2020).

Income Inequality is Getting Worse in The U.S.

From the U.S. Gini index, which is used to measures income distribution was 0.483 in 2018. This was better than in 2017, which was 0.489 (Amadeo, 2020). However, this was worse than in 1968 when it was 0.386. This shows how income inequality has deteriorated over time. The rich have continuously become richer while the poor become poorer. This phenomenon can be attributed to the 2008 recession. However, this increase in inequality has been going on since the 1970s. Before this period, in the 1930s to 1960s, the inequality was less due to workers union influence, the government enacting of the income tax, and better post-war economic growth strategies (Krugman & University Paul Krugman, 2007, p. 47–52). The trade unions fought for better pay for earners in the lower quintile. Income tax ensured that wealth was redistributed wealth to all people by taxing more those earners in the upper fifth, and little or none, those earners that are in the lower fifth. From 1976, the top fifth’s household income increased steadily up to 65% until 2007 while the bottom fifth only increased by 18% for the same period (Congressional Budget Office, 2011, p. ix). These changes are influenced by outsourcing cheap labour, especially from China, the unfair exchange rate for people working in foreign countries, and education. Companies will opt to outsource labour to produce affordable and high-quality products while still retaining the ability to make profits. When these companies outsource labour from other countries, it replaces domestic labour which means the unemployment rate will increase. Since the top fifth will continue to have the income since they are not affected by labour outsourcing, it will result in income inequality, which is the case in the U.S. Level of education determines the amount of earning one is entitled. The more one advanced their education, the more their income increase. Therefore, since people from different regions will have a different education; therefore, income levels will vary, leading to income inequality.

Market Demand and Supply and How Income Affects Them

Market demand is the total individual demand for all the household. It gives the quantity for each price of the total purchases that have been made by all market participants. Similarly, market supply is the total of the quantity of all individual supply curves. Market demand and supply can be used to measure income inequalities. To illustrate this, let’s say that a chocolate bar costs 5

$5. Due to individual income, household A can only afford to buy two chocolate bars while household B can afford eight chocolate bars. Assuming the two are the only market participants, and chocolate is the only commodity in this market, their total demand for the chocolate is the market demand. Evaluating this data, one can be able to calculate for income inequality.

Solutions To Income Inequality

According to the United States Congress; Joint Economic Committee, there are several policies which if enacted, will reduce income inequality. One of these policies includes helping workers, especially those in the lower fifth, to train for their work and enabling them to find jobs. This will increase their education level, thus increasing their pay. Other policies that will increase education level include enabling students to acquire the required market skills and making college education affordable by all. Another solution includes helping workers to fight against discrimination in the workplace. The government should also ensure that all citizen get fair tax treatment (Klobuchar, 2014, p. 5-6).

Conclusion

In conclusion, income inequality has significantly increased in the last 40 years due to education and cheap labour outsourcing. This paper has outlined some solutions that, if implemented, will be essential to lower this income inequality.

References