Social inequality is prevalent across the globe, and is an issue that is both impossible to eradicate and difficult to mitigate. Income, which is a strong indicator of socioeconomic status, is one of the most crucial forms of inequality which is particularly palpable in capitalistic and other economy-driven societies. This paper will focus on historical changes of income inequality, identifying patterns within democratic societies, and seek to uncover the root causes of income inequality, as well as investigating possible reforms that have the potential to mitigate income inequality.
Income Inequality Changes in the Past Century
The Gini coefficient, one of the most common indices in measuring income inequality, showed that income inequality of US is very similar to those of European countries around the 1960s. However, in 2008, the US Gini coefficient was substantially higher than those in European nations and Canada (Maio, 2007, p.849; Oishi, Kesebir, & Diener, 2011, p.1095). Income inequality experienced an upward spike in the US around the 1990s. This was initially catalyzed by income inequality within household, which soon morphed into an inequality distribution of wages. This pattern is caused by a latent feature of capitalism, as the pattern is noticeable across various industrialized countries (Moller, Alderson, & Nielsen, 2009). The pattern, according to Moller et al., “… is largely consistent with classic human ecological expectations regarding the geographical distribution of inequality of the United States” (Moller et al., 2009, p.1038). This trend of income inequality is also reinforced by another set of data which showed that during Jimmy Carter’s tenure as the president of the U.S. (1977-1981), income inequality was at its lowest of the century. However, during the Clinton and George W. Bush administration, income inequality increased once again (Gramm & McMillin, 2012). Income segregation, a contributing factor to income inequality, grew in metropolitan areas from 1970 to 2000 which correlates with the rise of income inequality in the U.S. within the same time frame (Reardon & Bischoff, 2011, p.1099; Thompson, 2012, p.1). To better understand the trend of inequality is to observe the changes of upper quintile and lower quintile. The lowest quintile experienced nearly no increase in income, and if inflation was adjusted for, the lowest quintile would, in fact, see a decrease in real value of their income. At the same time, those in the highest quintile saw a significant increase in wages. These statistics show that while the poor are becoming poorer, the rich are becoming richer (Thompson, 2012, p.1-2). Income inequality is not just visible between social classes but also between genders. Several large U.S. states, including New Jersey, California, New York, and Mississippi, all saw an increase in income inequality between men and women.
Pattern Within Modern Democracies
The concept of income inequality can be measured using different units of analysis, all having their unique pros and cons. County is one measure of income inequality utilized by researchers. By using this unit of analysis, researchers can witness the rich variation in social context within counties which are representatives of the broader society. Second of all, being a smaller unit of analysis, as oppose to cross-national, results in data collection are generally more uniformed. Thirdly, counties can be studied at different time periods, allowing for effective cross sections. Another advantage is that the locations of counties allow for a better assessment of the impact of the state on inequality than metropolitan areas. Furthermore, it provides insight of inequality at a local level. Lastly, national income inequality is partially determined by smaller units of income inequality, which includes county income inequality (Moller et al., 2009, p.1044-1045). This unit of analysis is not without its drawback, however. Counties are generally much more homogenous than nations. Second of all, by using counties as units, researchers can only study within country income inequality which is only one of the many components of income inequality, and consequently it is not possible to compare county data to those of other countries. Lastly, county boundaries do not necessarily represent social or system boundaries (Moller et al., 2009, p.1045-1046).
Although the side-effect of globalization is very difficult to mitigate, there is one aspect of income inequality which may be reduced, income segregation. Income segregation, which will be investigated later on in detail, is essentially the geographic grouping of citizens based on income which would create ghettos/slums and wealthy gated communities. Poor neighbourhoods, which lack effective social and economic institutions, including job opportunities, human capital, and etc, would continue to house low income households while upper class neighbourhoods will remain at a higher socio-economic status (Reardon & Bischoff, 2011, p.1100). This vicious cycle must be broken in order to balance the income distribution and provide adequate educational and career opportunities to those in deteriorated neighbourhoods.
The general conclusion in terms of the trend and pattern of conclusion is as follows: 1. As government interfere less, income inequality rises; 2. As globalization began taking place and technology advances, the gap between classes will expand, thus resulting in higher income inequality; 3. Social segregation, particularly relating to housing and real estate.
Causes of Patterns
The causes for the patterns of income inequality are mainly due to the existence of certain social mechanisms. A change in the need of a different labour force is one of the most foremost contributing factors of income inequality. An increase in technology triggered a massive demand for highly educated and skilled workers (Moller et al., 2009, p.1041). In another research, a unified theory had emerged through comparative studies of countries within Organization for Economic Co-operation and Development (OECD) which would explain the trend of income inequality as well as real wages and unemployment of the 20th Century. Further research conducted on OECD nations showed that a combination of globalization and institutional arrangements, which consists of welfare and union, are factors which strongly influence inequality. The idea of change in technology also appeared Gramm and McMillin’s paper, which outlined three catalysts of income inequality: 1) Decrease in marginal tax rates which effected ways citizens pay taxes and invest wealth; 2) Marked-based economy, as a result of globalization, created a shift in labour-capital ratio; 3) Less a governmental intervened economy, as well as technological advancement during the Regan administration (Gramm & McMillin, 2012). Contrary to popular belief, U.S. has the most progressive taxation system in the globe. The reason of the continuation of increasing income inequality is due to a decrease of taxation on capital gains, this occurred both under Clinton and George W. Bush administration. Furthermore, increasing contributions from industrializing countries, including China, Brazil and India, to the world economy had resulted in an increase for the return on capital while decreasing the return on labour (Gramm & McMIllin, 2012). Another cause for income inequality is the interrelationship between degree of democracy implemented in a nation and the expansion of the public sector. This is due to the reason that, within nations characterized by limited or non-democratic ideologies, government tend to focus more on the development of the core industries and may divert and/or increase taxation to fulfill the funding. Whereas in a fully institutionalized democracy, government would place more focus in distributing income equally and perhaps even placing greater focus on lower-classes (Lee, 2005, p158). Similar ideas have been located in other researcher’s work. Sylwester also states that less democratic countries have much higher risk of increasing income inequality. In other words, greater civil liberty leads to lower income inequality. An example would be the transition of Britain into a democratic state which was followed by a decrease in income inequality (Sylwester, 2002, 167). Another factor which heavily effects income distribution is power distribution. One actor of both forms of distribution is multinational corporations (MNCs), which increase income inequality through the alteration of power distribution (Bornschier & Ballmer-Cao, 1979, 488). Income inequality is also affected by income segregation. Income segregation is, in essence, uneven income distribution which varies by geographical locations (Reardon & Bischoff, 2011, 1093). Income segregation contains three dimensions. Firstly, segregation of affluence and segregation of poverty may occur due to sorting of neighbourhoods basing on household income. Secondly, income segregation is also highlighted by racial segregation due to grouping of ethnicities into particular neighbourhood and geographic areas. Sometimes racial segregation alone is sufficient in producing income segregation. Lastly, it is the scale of income segregation. The scale could be large, in which ALL upper class would occupy one area and ALL lower class would occupy another area, or small, in which the wealthy and the poor, despite living in separate neighbourhoods, are spread out across a metropolitan and not concentrated (Reardon & Bischoff, 2011, 1097-1099). There is a strong presence of racial discrimination within the housing markets, and this is particularly evident when comparing whites and blacks. As a result, there is a lower income segregation among blacks than whites. This is because blacks, regardless of income, tend to reside in the same neighbourhood, while wealthy whites would not be living in the same neighbourhood as lower class whites. However, between the 1940s and the 90s, black middle class grew in number thus causing an increase in income inequality among black households (Reardon & Bischoff, 2011, 1106). Therefore, it is crucial to examine a broad range of complex social, economic, and governmental factors and policies. The best way to mitigate income inequality of the lower class is to provide education and training for the working class citizens as well as reforming labor market policies. Analysis shows that states with high income inequality do not tend to have better economy, but they do have a higher proportion of immigrant workers and lower minimum wages. From another social perspective, assortative mating is also a reason for income inequality. Those from similar background tend to marry, where the rich is more likely to marry the rich while poor marry the poor. As a result, this creates a scenario where it is very difficult to spread wealth.
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