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Kimberly Amadeo

The Big Squeeze - Income Inequality in America

By August 26, 2008

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Income Inequality

(Credit: Getty Images)
In The Big Squeeze, author Steven Greenhouse does a great job of showing how income inequality has increased in the last 30 years. Between 1979 and 2005, after tax household income grew 80% for the top fifth but only 6% for the bottom fifth of American workers. Greenhouse blames corporate America for putting profits before workers, and cites Wal-Mart as a prime example. While corporate profits increased 13% per year, (between 2000 -2006) average wages remained flat.

This year's economic slowdown and inflation has only made things worse, with many families are going into debt just to pay for their daily lives. (See July Credit Card Debt Holding Steady at $8,200 per Household)

New York Times columnist Bob Herbert recently chided President Bush as well as the leading Presidential candidates, stating that "No one will tackle the crucial issue of employment in a serious way." (See Economic Slowdown Affecting All Income Levels)

However, I also believe the U.S. is caught up in an inevitable trend that is about lessening global income inequality. The richest 1% of the world's population has 40% of its wealth, and 25% of that wealth is held by Americans. On the other hand, China has 22% of the world's population and 9% of its wealth, while India has 15% of its population and 4% of its wealth. (Source: World Institute for Development Economic Research, "Estimating the Level and Distribution of Global Household Wealth, November 2007)

To remain competitive in a global economy, U.S. companies must drop wage levels to match those in foreign countries with a much lower cost of living. At the same time, the education and skill level of their labor force is increasing. Furthermore, technology and the global spread of English is making it easier to employ foreign workers.

Unfortunately, the brunt of this shift is being born by the least wealthy Americans. Those in the top fifth of the U.S. income bracket must realize that those in the bottom two-fifths cannot bear the brunt indefinitely. Changes in tax policies, access to education and employment training should be planned for now so that the transition is gradual and healthy for the economy overall.

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From About.com Guide to U.S. Politics, Kathy Gill


August 27, 2008 at 2:25 am
(1) John Russell says:

Great article! There is alot going on in the US economy right now. Many Americans don’t even pay attention to economics until it gets close enough to them to cut off a toe! Hopefully, this lean on credit will convince people that they don’t have to go into hawk up to their eyeballs to keep up with their neighbors.

The Fed, Congress, and the presidential candidates need to take a lead in cleaning up this economic mess. They need to look beyond the easy “print the trouble away” solutions that brought the mess in the first place. The only way to fix everything is for the leaders to be honest about what this mess is and what caused it, so the problems can be fixed.

October 24, 2008 at 4:02 pm
(2) Andy says:

Very intersting article. America has the widest distribution of wealth in the OECD world ( http://www.savingtoinvest.com/2008/10/americas-income-and-wealth-inequality.html ) yet the poorest Americans are the worst of amongst the OECD countries. You can see why this issue is a key policy platform for Obama.

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