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5 reasons why income inequality has become a major political issue

VIDEO8:0608:06
Why the economic inequality gap is widening

Income inequality has captured America's economic debate.

President Donald Trump, elected with the votes of discontented blue-collar workers, slaps tariffs on allies and adversaries alike in the name of restoring yesterday's middle-class manufacturing jobs. His 2020 Democratic challengers demand an array of federal initiatives, including higher minimum wages, tax hikes on the rich and reshuffling the balance of power between business and labor.

Indeed, the rising gap between the rich and everyone else has fueled unrest across the world, from Europe's ongoing Brexit crisis to this year's elections in India. A sharp reduction in extreme poverty globally has not diminished the sense of loss among middle- and working-class citizens of countries with advanced economies.

Why has this happened? And why has it grown so pronounced in the United States?

Here are five causes identified by scholars of the subject:

Technology has altered the nature of work

The digital revolution creates enormous wealth for those with the skills and preparation to take advantage, but it eliminates what economists call "middle-skill" jobs. Computer software and industrial machines now fill roles — from clerical tasks to routine manufacturing — that once produced middle-class incomes for workers without college degrees.

"That has increased the value of abstract problem solving, interpersonal communication, organization skills — things that highly educated workers tend to be very capable of," said MIT professor David Autor. "It has simultaneously devalued a lot of cognitively repetitive tasks in offices (and) on production lines. That has contributed to downward pressure and wage pressure and economic insecurity for the less educated."

Globalization

Competition from rising economies like China's, combined with reduced trade barriers, have further reduced prospects for American workers without advanced skills. That has produced devastating consequences for workers in sectors such as textiles, furniture and leather goods.

"The biggest economic story of the last 50 years has been China going from a poor and backward country, in perpetual political and economic crisis, to a frontier manufacturer with pretty well educated, highly available skilled labor using modern technology," said Autor. "That's primarily a function of internal developments in China — the decision to allow free mobility of labor, to adopt Western technology and foreign direct investment, and to start trading throughout the world.

"That had a big effect on the United States even in the 1990s prior to China's joining the World Trade Organization," he added. "But when China joined in 2001 that further opened the floodgates, and had a dramatic accelerant effect on the rate at which competition entered the U.S. market for manufactured goods."

The rise of superstars

Breakthrough firms such as Apple and Amazon can attract revenue across the world on a scale far larger than in previous generations. That produces immense jackpots for those companies and the executives who lead them, turning the pay gap between top executives and the workers they employ into a chasm.

It has also widened the gap between the metropolises those firms call home and less-populous small-towns and rural areas.

"There is increasingly divergence and economic growth and economic outcomes across places in the U.S.," said University of Maryland economist Melissa Kearney. "Along with these superstar workers, and these superstar firms, we now have superstar cities in our increasingly winner-take-all economy."

The decline of organized labor

The share of workers represented by labor unions has dropped by half, to just over 10%, over the last four decades. That has shrunk their power to bargain for higher wages and benefits.

Inaction by Congress has shrunk the buying power of the lowest-paid workers. Because the $7.25 per hour minimum wage has not been increased to keep pace with inflation, its value has fallen 16% over the past half-century.

Changing, and breaking, the rules

Rising wealth confers political power, and it has allowed economic winners to further reward themselves through government policies. The 2017 GOP tax cut delivers a disproportionate share of its benefits to the most affluent Americans.

The same goes for policies at private institutions. Admissions procedures at top colleges favor the children of donors and past graduates. As the recent scandal ensnaring prominent entertainers and athletic coaches demonstrates, those with money can also buy illicit advantages.

The market incentives income inequality creates — for hard work and risk-taking — helps make America's economy dynamic. But they also impose costs.

We need some inequality. The problem is when that dynamism gives rise to dynasticism. Kids of affluent parents, even if they're of mediocre talent, go to the best schools and talented kids from less affluent families don't.
David Autor
MIT professor

"We need some inequality," said Autor. "The problem is when that dynamism gives rise to dynasticism. Kids of affluent parents, even if they're of mediocre talent, go to the best schools and talented kids from less affluent families don't. It's not just a loss for them. That means our society will be less productive."

It also keeps Americans unhappy. Despite solid top-line economic growth, the 2020 presidential election promises to be just as contentious as recent national campaigns that have repeatedly flipped the party in control of the White House or Congress.

"People are increasingly likely to report that they believe the system is rigged against them," said Kearney. "This is damaging for the functioning of our democracy, but I actually think also for the functioning of our economy.

"We're going to see people in increasing numbers dropping out of our mainstream drive for economic success. It's leading to large, loud political cries for completely upending our capitalist system."