A populist movement called Occupy Wall Street was born out of frustration over a decade’s long trend of growing wealth and income disparity between the very rich and the rest of the country. The anger is focused at corporate leaders on Wall Street and also political leaders in Washington. Congressional approval ratings are at historic lows and they aren’t likely to improve very soon after the recent failure of the debt Super Committee.
A recent study by the Congressional Budget Office shows that the wealthiest U.S. income households have garnered a disproportionately large portion of total income growth over the last thirty years. In the last three decades, the top 1% of U.S. earners have seen their slice of the country’s income pie double from 10.5% to over 21%. Their real (inflation adjusted) after-tax incomes rose by 275% while the bottom 20% of income households have experienced quite a different reality as their real after-tax incomes grew by only 18 percent. As a result, the income gap between the wealthiest and poorest Americans has grown to a level not seen since the 1920’s.
How did the Gap Become so Wide?
Much of this widening income gap is believed to have been caused to a large extent by technological advancement and to a lesser extent globalization. As this study points out, it’s imperative for policy makers to increase access to education and training in order that worker skills meet the demand from today’s rapidly changing world.
Lower skilled U.S. workers are at a disadvantage because they have faced a dual threat to their livelihoods. Yes cheap foreign labor has contributed to U.S. job losses, but automation has been a bigger factor.
Currently much of the financial benefits from technology gains are showing up in corporate bottom lines. At some point the benefits from technology gains, however, have to be spread further down to workers. Henry Ford had a goal to build a car that the average American worker could afford while paying his own workers a wage that would allow them to buy the cars that they were producing. Through his determination and ingenuity, the Model T rolled off of the first modern industrial assembly line in 1908. The American economy and the life of the average worker were forever changed.
Corporate and political leaders need to work together to leverage advancement in technologies so that the lower and middle of the income spectrum have more of an opportunity to participate.
We will continue this discussion of factors that we think have played a role in creating the large income gap as well as some possible solutions for restoring a healthier balance in our next post on this topic.
