The gap has become more pronounced since the housing crash of 2008.
Here's a look at why - which might help determine whether raising the minimum wage might be an effective way to address this problem.
Here's a look at why - which might help determine whether raising the minimum wage might be an effective way to address this problem.
This growing inequality is being exacerbated by policy failures – more specifically, by decreasingly progressive tax, transfer, regulatory, and full-employment policies in recent decades.
Financial deregulation has contributed to the rising share of national income going to investment income and compensation of financial professionals — with the latter being a significant driver of rising income share of the top 1 percent, as analyzed in a recent paper by Larry Mishel and Josh Bivens of the Economic Policy Institute.
There is also compelling evidence that reductions in top marginal tax have exacerbated the growth in market-based income inequality. Essentially, a lower top tax rate makes efforts by executives to demand greater compensation more rewarding. Successful such efforts will come out of workers’ paychecks, not shareholders’ portfolios.
Political inaction, or “political drift,” on the minimum wage — allowing the real minimum wage to be eroded by inflation — or unionization policy is certainly part of the story. Globalization and international trade have exerted downward domestic wage pressure while increasing returns to wealth, with pressures on inequality growth stemming both from irreversible market forces and certain trade policy choices.
Inequality would have risen sharply absent these influences of budget policy. But while market-based income inequality, as measured by the “Gini” index, rose 23 percent between 1979 and 2007, post-tax, post-transfer inequality rose 33 percent.
This means that roughly a third of the rise in post-tax, post-transfer inequality is attributable to erosions in the redistributive nature of tax and budget policy.
There are limits to how much redistributive policies can temper inequality (though we are far from those limits), but tax and budget policy should have been serving as a tempering influence rather than exacerbating market-based inequality growth.
Beyond these better-understood forces and policy levers, the disparate nature of the recovery from the Great Recession is both fueling inequality and is squarely in the hands of U.S. policymakers.
