May 2003 - VOLUME 24 - NUMBER 5
W e a l t h a n d I n c o m e I n e q u a l i t y i n t h e U S A
The last 30 years has seen a tremendous rise in income and wealth disparity in the United States, and around the world. This issue of Multinational Monitor is devoted to exploring the measures and causes of income and wealth inequality in the United States. In our July/August issue, we will focus on international inequality.
As Ed Wolff describes in these pages, the share of national wealth owned by the richest 1 percent has doubled during the past three decades. And as Jared Bernstein explains, income inequality has skyrocketed nearly as fast.
These are startling changes in the relative affluence of the country's population over a very short period. They leave the country more class bound, less democratic, less just and more riven by wealth and inequality gaps that mean people's basic life opportunities are unequal.
Most of the increased wealth created over the last three decades has been captured by a small sliver of the population.
While the well off have become better off and the rich have become opulently so, the middle and lower groups have struggled to stay in place. It took until the late 1990s for the inflation-adjusted average wage of the bottom 80 percent of the population to catch up with the levels of the early 1970s. Wealth of the richest 1 percent has skyrocketed, while personal and consumer debt has ballooned for those in the middle and bottom.
There was nothing inevitable about these trends, and no forces of nature prevent them from being reversed. Rather, the rise in wealth and income inequality is due to shifting power relationships and policy choices favoring the rich, each of which reinforce each other. Capital has grabbed power from labor, and corporations have taken power from citizens. The federal government, as well as state and local governments, have pursued policies -- from trade to labor law -- that have strengthened corporate power and weakened workers.
A vicious cycle has ensued, with corporations then better positioned to lobby and advocate for still more policy changes to shift income, wealth and power.
There are too many intertwined factors driving the growth in inequality to identify them all, or to separate out the relative contribution of each, but it is important to pinpoint specific contributing causes. Identifying these factors is a prerequisite to remedying or addressing each, and ultimately to reversing the trends of rising inequality. Focusing on the policies and trends driving inequality is important in order to dispense with the myth that growing inequality is inevitable (to this, it should be enough to cite Edward Wolff's point that wealth inequality in the United States actually fell steadily from the period of the Great Depression until the early or mid-1970s), or simply the outgrowth of new technologies. Detailing the causes of inequality is also important because it makes clear the many ways in which the recent era of enhanced corporate rule and corporate globalization has not led to broadly shared benefits, but to modest gains in wealth that have been appropriated by a relative few.
With that in mind, here are 10 of the more important contributing factors to surging inequality in the United States.
1. Falling Levels of Unionization
But even reference to the dramatic wage premium understates the importance of unions. Union power is collective power. When unions represent a higher proportion of the workforce -- when there is greater "union density" -- in a particular industry, unions can raise the overall industry wage rate, including for non-union workers. When unions represent a higher proportion of the national workforce, they can raise the national wage rate.
Even more importantly, when there is greater national union density, unions can exert more political power, to ensure the benefits and pain in the national economy is more equally shared.
As Kate Bronfenbrenner describes, the erosion of the U.S. manufacturing base, vicious anti-union campaigns by employers and inadequate organizing efforts by labor has led to the drop-off in union representation in the United States.
2. Corporate Globalization
Workers who remain in the manufacturing sector are forced to compete in the race to the bottom, with union demands for wage gains replaced by employer demands for wage givebacks. Sometimes the employers really are unable to compete with lower-wage producers in other countries (sometimes they are those lower-wage producers). Sometimes the employers simply use the threat to threat to enhance profitability. Either way, workers bargaining leverage is dramatically lessened. Workers lose. Owners win.
Moreover, the exact same threats are among the most effective at deterring workers from joining unions. Join a union, employers tell workers in the majority of organizing campaigns, and we'll have to close. We just can't compete if we are burdened by union wages and union bureacracy (read: protection for worker rights).
Nowhere is the intertwined nature of the causes of inequality made more clear: Corporate globalization diminishes the union base and worker power. Weaker unions are less able to defend their jobs, either in direct negotiations with companies or in policy-making disputes in Congress. And on and on.
3. Declining Minimum Wage
Today's minimum wage of $5.15 has been stuck since 1997. In inflation-adjusted terms, its current value is almost a quarter less than at its peak in the late 1960s.
In one of the most vibrant economic justice campaigns in the United States today, many communities have passed living wage laws, requiring employers to pay not just a minimum wage, but a minimum wage sufficient to enable a family to survive. Unfortunately, these laws typically apply only to government contractors, or sometimes to recipients of government benefits, but not to the overall community. They are an important step forward, and provide some hope for the future; but for now have not managed to have broad nationally felt impacts on wage rates.
4. The Soaring Stock Market
Popular myth to the contrary, the stock market gains accrued overwhelmingly to the rich. Edward Wolff explains that stock holdings are as concentrated now as they have been historically.
5. Tax Cuts for the Rich
State taxes, heavily reliant on sales tax, remain regressive; and the current state funding deficit is likely to lead states to increase regressive taxes.
The one very important offset in the gloomy tax story has been the Earned Income Tax Credit, a federal tax rebate for the lowest income earners, which has meaningfully raised the income level of the poorest.
6. Reduced Taxes on Corporations
7. Declining Welfare Payments to the Poor, Increased Payments to the
8. An out-of-whack Financial System
9. Tight Money from the Federal Reserve
10. A Culture of Overcompensation and Acceptance of the Wealth Divide
This culture, nurtured by new marketing campaigns advertising luxurious lifestyles and a media that more and more narrowly targets upper-income groups, has helped push up salaries broadly at the top.
But these riches are not available to all. Part of the culture has been the normalization and acceptance of a persistent and deepening income and wealth inequality, with the situation of middle and lower income groups largely absent from the news or popular culture.