Paper Example on Income Inequality: A Growing Threat to US Economic Growth

Introduction

Income inequality in the United States has been described as one of the leading factors that are slowly drawing down the economic growth in the nation. While the advancement in technology has pushed for growth in productivity, most of the companies are slowly moving away from using the skills of low educated workers, as more competition of production is set to attract many skilled and highly educated employees. Therefore, the quest to acquire more skilled employees has pushed to the income gap, as it is set to stretch further based on the level of education for the employees. Every group of employees possesses a different payment rate, which has been pushed by the level of education one has. In this case, those with little education remains to be in the threat of higher unemployment. In contrast, those with competent education levels have a lower unemployment rate, with higher employment and income wages. The income distribution within the US economy depicts a closer inter-relationship between education level, income, per household, and unemployment, which has affected economic growth. Therefore, the essay will critically elucidate the relationship between household income and how it has affected the US economic growth.

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How to Measure Inequality in a Country

According to Yang and Qiu (2016), economists use a set of different tools to measure income inequality. Among the most popularly used methods to measure income inequality includes The Gini coefficient, the Lorenz curve, Palma ratio, decile ratios, and the Theil index, which helps to position the country’s income inequality. It is essential to consider what needs to be measure, which may include pre-tax, or after-tax income, wealth, and consumption. However, despite the use of these tools to measure the income distribution of a nation, the education level has played a role in promoting inequality in the American economy.

Income inequality has increased in the United States over the past 30 years, as income is slowly flowing to those at the very top of the income spectrum (Coady & Dizioli 2018). Even though numerous intervention methods are slowly being adopted at a foot-dragging pace, the impacts of economic inequalities are felt by every average American citizen. Economic literature has much speculated that three factors may be highly associated with the increased economic inequalities, which includes technology, institutions, trade. Never the less, education inequality helped reshape the belief of increased inequality in the nation as a cause of increased inequality, due to the unemployment levels based on the possessed skills to meet the demanding job market.

According to Brueckner et al., (2020), there has been a closer inter-relationship between education and wealth in the US, as the educated citizens are in the spectrum of increased chances of employment with lower chances of unemployment as opposed to those with little education or do not possess any valuable skills to meet the job market demands.

According to the Organization for Economic Co-operation and Development (OECD) analysis, income inequality has been widely increasing in most OECD countries in the past 30 years (Hill, 2016). The Gini coefficient, which measures income inequality, indicated that by the 1980s, many OECD countries were ranging in 0.29 before they shifted to 0.32 in 2012/2013 (Hill, 2016). The Gini coefficient in the US was recorded to be at 0.403 in 1980, and 0.468 in 2011, representing a higher mark than other OECD nations (Hill, 2016). Therefore, the statistical significance of inequality has depicted a negative medium-term growth in the US economy (Hill, 2016).

The Increasing Opportunities for Higher Education can Reduce Income Inequality

There has been a direct interconnection between higher education and employment rates. Workers with higher education levels are more skilled and competent, as compare to those with little education. Therefore, increasing higher education opportunities calls for an increase in the possibilities of higher employment chances. More skilled employees in the job market increase productivity, which increases the possibilities of higher employment.

According to Yang and Qiu (2016), “if our society produces more collage-graduating workers, income inequality can be reduced.” Therefore, this increases the level of the skilled workforce within our job market, which reduces inequality and income per household. The increase in college-educated workers alters the supply curve to the right, as more educated workers are supplied, while the shift of college diploma workers shift to the left (indicating fewer non-educated workers supplied). Therefore, this will reduce the earning gap, reducing inequality. Moreover, the statistics depict an increase in unemployment in recent years for those with less than high school education. Thus, workers with the less educational background are highly targeted, which increases economic inequality.

Effect of Income Inequality on the U.S. Economy, such as Unemployment

Income inequalities have created a rift between the poor and the rich, a concept that has been defined by the degree of skills and education level of many who are on the top of the education spectrum. Income inequality is catalyzed by the demand for skills to quench the demand from the labor markets. Skills are among the driving factors that many organizations are focused on and determined to have. Therefore, many organizations understand that these skills do not come at a lower price, which calls for pay inequalities across the US.

Economic Growth

While the increased inequality on the US economy has been catalyzed by education level, it has posed devastating effects on those with poor or little education skills in market labor. On the one hand, inequalities have increased unemployment in the US economy, which has posed a negative impact on the overage growth of the American economy. According to Coady and Dizioli (2018), there is higher unemployment, especially for members with little skills, as they are deemed unfit for the improving technology employed in many American firms. Therefore, the gap in unemployment in the US economy is skyrocketing, especially in recent years. On the other hand, while unemployment has affected the increase in job losses in the groups with little education, this has ushered in the increase of crime within American societies.

Income inequality in the US, saw a twisting turn since the early 1970s, as wealth distribution and expenditure in the middle class increased, which the top class, which included as a minute number of liberal citizens, reduced their expenditure opting to build their American dream (Brueckner et al., 2020). Reduce expenditure in the upper class, has drastically affected the American economy, as more unemployment and low wage continues to pummeled the economy.

Security

The increased rate of inequality continues to cast its effects on the average American citizens, as education and medical cost remain to be one of the challenging factors that many Americans are unable to meet them. Therefore, while the cost of these essential services continues to rise, the wage of many Americans, especially those with little professional skills, is moving at a foot-dragging pace, due to the prevailing inequality. Therefore, this has rendered man Americans unable to afford meeting their higher education cost, which has been defined as a critical factor towards job safety.

The Gap Between Those Who Hold Bachelor’s and Higher (Master or Doctoral) Degrees

According to Coady and Dizioli (2018), higher education in the United States is becoming a necessity, as many employers are tightening their ropes during job requirements, which is pushing for the American employees to dig deeper into their academic world. Never the less, the increasing demand for higher education is on the horizon, despite having a reduced number of candidates who manage to meet the cost. As Strauss and Weinberg (2017) observed, the average cost of higher education (master or doctoral) degrees has seen an increase over the past two decades, despite the cost of education being higher. Americans are striving harder to polish their academic profiles. However, many still fail to accomplish or apply for higher education ones they are through with the bachelors’ degree.

According to Brueckner et al. (2020), the number of candidates applying for higher education has gradually increased since 2000. Due to the demand in the job market. Moreover, many employees deem it as a security measure for their profession. However, despite the increase and demand for higher education candidates, the number of employees with higher education is still lower in the job market.

The number of employees with minimal education (college and above) is higher in the job market as compared to those with professional specialization and higher education (master or doctorate). While more emphasis for higher education has been widely emphasized upon, many middle Americans fail to afford the substantial expenses that come with higher education. Moreover, the minimal income does not hold any promise in meeting the higher education cost. Therefore, income inequality has been another significant variable that has also increased the gap between the number of candidates with higher education levels to those with minimal education and a college degree.

The Reasons Behind Education Gap Widening in the US

Income inequality has swept the US due to various reasons that strongly interrelate with one another. Education, race, and gender are among the leading causes of inequality in many regions across the globe. Never the less, these factors have also played their role in promoting inequality in the US economic growth. As Coady and Dizioli (2018), outlined, workers are among the severely affected members by the inequality. Therefore, this increases education differences and rapidness in criminal activities. Education is arguably regarded as one of the leading factors that cause income inequality in many regions in the world. Recent studies critically elucidate the earning gap between workers with a high school diploma and those with higher education, and how it has affected their income.

While income between the two sides may be the critical factor behind the bridge, many Americans do not meet the higher cost of higher education. Therefore, those with minimal education or less-educated are subjected to low income in their profession. Thus, this increases between the two sides, as income varies highly. Never the less, the unforeseen consequences of inequality have dramatically affected higher education in an indirect manner, a concept that many Americans are battling to overcome.