What has attributed to the growing wealth and income inequality in the United States since the 1970's and what are some of its consequences?

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Ashley Kannan eNotes educator| Certified Educator

There will be no exact answer to this particular question.  Some of the strongest minds in sociology, economics, and political theory have made it the subject of intense study.  The best that can be offered here is a starting point where there will be more questions than answers.  Perhaps, this speaks to the complex nature of growing wealth and income inequality.

Part of the challenge here is to understand that the nature of wealth disparity and growing income that is intrinsic to capitalism.  The market approach to economy will always feature those who have a great deal of wealth and many more who lack it.  I don't think that anyone could truthfully argue that capitalism provides a system where everyone receives the same compensation. Its very appeal is driven by the idea of expanding profit margins and increasing wealth accumulation.  Its very essence is to generate differences in that field of play. Thus, growing wealth and income inequality is part of the system.

The issue at hand is the mark of the late 1970s and into the 1980s where the gap became unprecedented.  The "Great Divergence" was the point in which the gap between those with money and economic autonomy and those without rose to a staggering condition.  Naturally, there are several factors at play in trying to potentially explain such a reality.  One such factor is political.  The ascension of Ronald Reagan's theory of supply side economics had much to do with the growing wealth and income inequality of the time period.  Reagan rode fiscal conservativism and his vision of it into the White House for two terms.  Part of this platform resided in changing the manner of taxing individuals.  Under Reagaonomics,  there was a significant "reduction in the top marginal income tax rates from 91% to less than 40%; and taxes on capital gains at lower rates than income taxes."  The theory behind this was that those who had the potential to give more and do more for the economy could do so if regulation was reduced.  This came in the form of massive tax breaks for the wealthiest of Americans. Analysis shows that the result of Reagan's economic practices resulted in growing wealth and income inequality that is still present today.  Income accumulation grew "275 percent for the top 1 percent of households, 65 percent for the next 19 percent, just under 40 percent for the next 60 percent, and 18 percent for the bottom 20 percent."  

This trend is still present today, as globalized capitalism has replicated some of the same patterns of wealth inequality.  With a widening field of economic participation, different nations have laid claim to different types of jobs, causing challenge to sectors that would have found some stability in them.  For example, manufacturing and industrialized factory jobs have been outsourced to nations with "emerging" economies, while workforces in established nations have been closed out from such opportunities.   The pattern that was seen in Reagan's time, one in which government approaches were friendly to business and economic ventures in terms of lax taxation and regulatory practices, is seen today.  This helps to explain why growing wealth and income inequality started in the late 1970s and continues today.

The political and economic approach taken in the late 1970s and still present in globalization is one that is decidedly "pro- business."  Accordingly,  I would also suggest that the decline in unionization is another reason that can help to explain income inequality and growing wealth patters for a distinct few. The primary purpose of a union is to "maximize the income of its membership."  Doing so cuts at profit motives for businesses and corporations.  Since the late 1970s, organized labor has been experiencing a decrease in its power and ability to provide wage increase or protection for its membership.  It is not surprising to be able to draw a clear connection between the decline of organized labor and the rise of wealth and income inequality:

The age of inequality has coincided with a dramatic decline in the power of organized labor.  Union membership in the United States reached its historic peak in 1979 at about 21 million, representing about 21% of the workforce.  Today, membership stands at about 15 million and represents about 12 percent.  When you exclude public employee unions (more than half of all union members today work not for a private company, but for the government), union membership has dropped to about 7 percent of the private sector workforce.

The decrease in union membership and union power has enabled those in the position of economic power and control to gain greater profit and bypass issues such as wage equality or wage protection.  It has translated in a federal government that has established a minimum wage that is not competitive with rising costs.  Full time minimum wage employees make a yearly salary that is closer to poverty than economic empowerment.  This reality contributes to growing economic inequality.  It has been able to take place in part because organized labor has suffered tremendously.  Being unable to guarantee wage protection and income increase to members and employees facing harassment and intimidation for merely trying to unionize inevitably puts a strain on wage increases and wage competitiveness.  This reality has helped to explain growing wealth and income inequality.

The implications of this reality are profound.  More people face economic hardship now than ever before.  As a result of growing wealth and income inequality in the United States, Census reports indicate that 46.2 million people live in poverty.  The lack of rise in the federal minimum wage has also contributed to a situation where more are economically challenged:  "Nearly two-thirds of workers making minimum wage or less are women, and about 80 percent of them are over the age of 20."   The reality of growing wealth for the few and income inequality for many has challenged the entire notion of progress and advancement in America:

....for the last two decades and especially in the current period, ... productivity soared ... [but] U.S. real average hourly earnings are essentially flat to down, with today's inflation-adjusted wage equating to about the same level as that attained by workers in 1970. ... So where have the benefits of technology-driven productivity cycle gone? Almost exclusively to corporations and their very top executives.

It is in these realities that one grasps the consequences of growing wealth and income inequality in America today.