Income Inequality in a Dynamic Economy


I have pointed out in a recent post that, not only is the U.S. the world’s most competitive large economy, but also that our per-capita GDP is growing faster than for our nearest rivals.
A particularly vivid example of this dynamism is ecommerce where both the adjusted (gains minus losses) size of the workforce and the average wage are increasing rapidly.
We also know that incomes in the U.S. are rising faster at the high end rather than further down (see chart below).  What to do about this has become a major political issue.

Here are my ideas (in rough order of importance):

  • Economic growth is too slow, averaging just 2% per year since the end of the Great Recession in June 2009. It is reasonable to expect that the regulatory reform already underway and the tax reform under consideration in Congress can increase growth to 2.5% per year.  Together with our low unemployment rate of 4.2%, this is already leading to more and better paying jobs.
  • Improve educational opportunities by, for example, making early childhood education widely available to low-income families and attracting the best teachers to the poorest performing schools with targeted bonus pay.
  • Better vocational and retraining programs to prepare the unemployed and underemployed for the millions of skilled jobs now going begging for a lack of qualified applicants.
  • Attempt to address the social inequality associated with income inequality, see here.  Marriage rates, civic involvement and public trust have all declined significantly in recent years for the lower class. A very difficult problem to solve!

Conclusion.   In a free society like the U.S., providing self-help opportunities for advancement is the natural and preferred way of lifting up people who need assistance. The U.S. does a okay job in this respect but there is plenty of room for improvement.

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9 thoughts on “Income Inequality in a Dynamic Economy

  1. Jack,

    I have watching the trend toward greater income inequality for many years. I have also seen the pattern of young graduates leaving a state when better compensation was available elsewhere. Kids from Iowa, for example, did not go to Texas or California as many thought. The 4-year grads went first to Minnesota, Wisconsin, Illinois and even Missouri. Simply because the jobs paid 5-10K more. Employers never needed to pay enough to keep the kids around. ( )

    I really believe that the jobs wouldn’t go begging if the compensation stayed high for long enough for the system to adjust. It may not be in a corporation’s best interest, but the inequality issue won’t be solved until something happens along those lines.


  2. Very interesting NYT article. Too many Iowa college grads can’t find attractive jobs in Iowa. Are Iowa colleges and universities neglecting the needs of the state? The nearby states you mention have much bigger cities than Des Moines. Maybe that is part of the problem. I’m from Iowa myself and went to UI.
    I don’t know what the solution is. Employers will pay what they have to, to get the employees they need, and no more. That’s just basic economics.

  3. The Social Inequality issues for our nation also drive the unacceptable cost and quality problems of our nation’s healthcare. Our Nation’s efforts to solve these problems will require a community by community, Nationally prompted strategy to improve the local level of Social Capital for their citizens. I offer my own definition of Social Capital.

    SOCIAL CAPITAL may be defined as
    …the expression of Trust, Cooperation and Reciprocity
    …by the citizens of a community that is more likely to occur for resolving
    …the social dilemmas they encounter daily within their community’s civil life
    …when the attributes of a caring relationship
    …increasingly characterize the enduring networks of the community’s citizens,
    …especially the neighborhood network of each citizen’s family.
    There are volumes of research studies that have looked at the recovery process following a disaster. They as a group all indicate that the communities with higher levels of Social Capital recover more quickly and reconstitute their neighborhoods more successfully. Think about the apparent recovery of Texas and Florida as compared to Louisiana (Katrina) and Puerto Rico. The Common Good for each citizen’s community is at stake here.
    I try to take a walk every day. I am amazed by the number of drivers that ‘wave me on’ when I approach an intersection. I love my neighborhood, located near the urban core of Omaha.

    • But how can we achieve this higher level of Social Capital by administrative fiat, so to speak? In Omaha you have it in your neighborhood and I see the same thing when I go jogging in Memorial Park every morning.
      At the healthcare level, South Omaha has the One World clinic and North Omaha has the Charles Drew clinic.
      So in a vague sense, Social Capital neighborhoods develop spontaneously on the own.
      Can this sort of thing be encouraged to develop more formally?

  4. For sure, the healthcare industry has no direct responsibility for improving our Nation’s level of Social Capital. The only possible exception might apply to the Public Health traditions as most clearly represented by the Communicable Disease Center in Atlanta and each community’s Department of Public Health. As you suggest and the Social Capital definition identifies, it is a neighborhood phenomena. But any definition of community’s COMMON GOOD would identify Social Capital as a means to assure its applicability to each of a community’s citizens. Another issue is the occurrence of social dilemmas that each citizen encounters daily. These are related to education (especially early childhood education), community policing, housing quality, meaningful employment, volunteerism, philanthropy for collective thrust projects, community-wide disaster planning, homelessness prevention, service groups (Rotary and Kiwanis Clubs) and spiritual communities. To what extent do all of these activities support a mutually shared CARING RELATIONSHIP? In effect, the improvement of Social Capital requires many sectors within a community to simultaneously focus on promoting caring relationships.
    A CARING RELATIONSHIP may be defined as:
    …a variably asymmetric interaction
    …between two persons who share a beneficent intent
    …to enhance each other’s autonomy by communicating
    …with Warmth, Non-critical Acceptance, Honesty and Empathy.
    The traditions of each community are different. The initial formation of a community and its subsequent evolution are very important. The associated local, regional and national government evolution interact in unusual ways for each community. The only reform process that could help each community’s COMMON GOOD by healthcare reform would require a nationally sanctioned strategy to assist each community to assure that its Primary Healthcare is equitably available to AND ecologically accessible by each citizen. The accessibility issue currently is most widely impaired by our Nation’s lack of universal health insurance. But, a solution for universal health insurance will NOT, by itself, reduce the social adversities that produce poor health. You know the rest.

    • We already have achieved a high degree of Social Capital in our communities through the informal interrelationships you describe above.
      We are now moving in the direction of universal healthcare although many details remain to be worked out by the political process.
      Perhaps your “nationally sanctioned strategy” for universal healthcare can be adopted more widely to implement a more formal national structure to promote caring relationships.

      • Within every community, the level of Social Capital varies from neighborhood to neighborhood. There is a Zip code in Omaha that has the WORST African American, death-rate by homicide in our Nation.

  5. What I’m trying to get at is how to encourage enhanced Social Capital communities to develop informally rather than creating them by administrative fiat. If they developed naturally somehow, they’d be much more robust and last a lot longer.

  6. Pingback: How Much Should We Be Concerned about Income Inequality? | It Does Not Add Up

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