Income Inequality And Increasing Skills Disparity


Income disparity-what is to be done?

[Labor Matters]

During the recent mayoral race in New York City, Mayor Elect DeBlasio made an issue out of income inequality. For market purists, this is no doubt a red herring used to justify redistribution. A free market where individuals enjoy equal opportunity means that they can make their own choices. As such, those who end up with more obviously made the right choices. Moreover, they worked hard for whatever they acquired.

Those who end up with less either made the wrong choices or perhaps lacked the requisite skills to earn more. Therefore, it is up to them to acquire the requisite skills that would enable them to have more.

In our modern global economy, the reason for growing income inequality is a function of skills-biased technical change. Old and obsolete industries that did not require much skill has been replaced by the new and technologically more advanced where skill has become key. The result has been a dual economy with highly educated and skilled workers earning high incomes at the top and poorly educated and unskilled workers earning low-wages at the bottom. Crowded out, of course, has been the middle class.

In recent years many have argued including Nobel laureate Joseph Stiglitz, that income inequality is the product of deliberate government policy. Since the 1980s tax policies have favored the rich. Also the Reagan administration launched an assault on labor by stacking the National Labor Relations Board with those more favorable to business, and with the firing of the PATCO air traffic comptrollers union the message was sent to private industry that it was OK to fire striking workers. On top of this federal courts have been too quick to assert managers’ property rights, without recognizing equivalent property rights of workers.

Meanwhile, declining union membership has lessened the influence of organized labor, which historically was the key constituency behind the type of legislative policy favorable to the middle class. Of course, unionizing has become more difficult with increasingly more states passing right-to-work laws. At the same time, the federal minimum wage was allowed to stagnate. In short, with decline of labor market institutions income inequality grew.

And yet, for all the discussion over the causes of income inequality, it is largely irrelevant. Let’s say for the sake of argument that income inequality is due to globalization and the loss of manufacturing that has attended structural change, has it not been aided and abetted by the consequences of the assault on labor institutions — the same forces that has resulted in greater income inequality?

The problem with focusing on causes is that we lose sight of why the consequences really matter. Income inequality has without a doubt become symptomatic of the declining middle class. It isn’t a question of fairness, rather it is the health of democracy that is at stake. Unequal distribution of wealth and income adversely affects individuals’ ability to participate in the democratic process on the an equal footing with others. Those lacking in wealth and income don’t enjoy the same access to political and policy officials.

Those at the top of the distribution find themselves in a better position to use their wealth toward the attainment of their political and other ideological objectives. Additionally, those at the top of the distribution often enjoy inordinate power and are able to not only limit redistribution, but also shape the rules of the game in their favor. This is particularly problematic in a big city like New York City where income inequality tends to be even higher than the rest of the nation.

Please see Laborpress

By Oren M. Levin-Waldman, Ph.D.

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