With the Democrats once again in control of Congress, income inequality in the United States is likely to soon become a major public policy issue.
Official government statistics indicate that the dispersion of incomes in this country has grown dramatically in recent years. However, things aren’t nearly as bad as the headlines would have you believe.
Income is only as valuable as the leisure and consumption that it can be exchanged for. Here, the gap between the rich and the poor is much smaller than traditional income statistics would indicate.
Think of your favorite consumer good. It likely comes in both a high and low-end version and there probably isn’t a whole lot of difference in functionality between these two versions. Wristwatches are a classic example. Just about everyone can afford a $10 Casio from Wal-Mart, but few of us have the money to buy a sparkling new Rolex. The watches tell time equally well, but the Rolex’s exorbitant price gives it a certain cachet that cheaper watches just don’t have.
Even in markets for life essentials such as cars, food and housing, there are huge price differentials between high and low-end goods that provide the same utility. Although top earners have exponentially more income than individuals at the bottom of the social ladder, in many ways the consumption opportunities of these two groups aren’t all that different. For instance, the Census Bureau estimates that nearly 62 percent of households below the poverty line have cable or satellite TV and almost 97 percent of poor households own a color TV.
Differences in well-being in this country have become largely relative, and few individuals in this country face true material deprivation. So far, this discussion has focused only on consumption and has ignored leisure time entirely. But it is important to ask whether the working poor are working much longer hours than the rich.
According to recent estimates by the Bureau of Labor Statistics, on any given day of the week, individuals with less than a high school diploma spend approximately eight hours of their day working, while someone with at least a bachelor’s degree spends approximately 7.6 hours. In other words, individuals with little education spend an additional 25 minutes at work than do their peers with college degrees. Is this a problem? That’s open to interpretation. But considering the countless hours that are required to complete college, the time trade off doesn’t seem all that bad.
It is important to remember that while the dispersion of wages has been increasing, the vast majority of Americans have also seen their real wages increase.
According to Census Bureau data, between 1967 and 2005, median real household income in the U.S. increased from $35,379 to $46,326. That’s more than a 30 percent increase in real wealth for the average citizen! The U.S. economy generates a lot of inequality, but it would be a big mistake to make drastic changes to a system that generates so much wealth for the average citizen.
Of course, individuals at the very bottom of the income distribution have seen a relatively small increase in their real wages during this period. Most economists believe that rising real wages result from the increased productivity brought about by technological advances.
Low income individuals tend to have few technical skills and have largely missed out on the benefits of improved technology in the workplace. Thus, income inequality is intimately bound up with the deeper problem of educational inequality in the United States. Simply throwing money at this problem won’t make it go away. Massive sums have been spent on poorly performing public schools throughout the country, often with little effect. Radical reforms in our education policies are the only chance for a meaningful change. If we are serious about reducing inequality in America, we first need to get serious about educating this nation’s children. Miller is a member of the class of 2008.