Specialisation: Income Inequality

Poverty and Income Inequality

Introduction

Income inequality and poverty are two major issues facing society today. As the disparity between the wealthy and those in poverty continues to widen, more and more people are being pushed into poverty (Schwindt, 2021). Consequently, income inequality negatively impacts economic growth, and the negative impact is more in countries with high poverty rates. As such, there is a need to introduce policies to alleviate poverty so that income inequality is reduced, such as social safety nets, targeted education, health care investments, and progressive taxation.

Background Information

In the past few decades, the world has experienced unprecedented economic growth, globalization, and technological change. While this has led to many benefits, it has also contributed to rising poverty and income inequality (Strader & Misra, 2018). Economic growth has been uneven, with some regions and groups of people benefiting more than others. Globalization has led to the rise of multinational corporations and the globalization of production, making it easier for companies to move production to countries where labor is cheaper (Strader & Misra, 2018). Consequently, this has put downward pressure on wages and benefits, making it harder for workers to earn a decent living.

Technological change has also had an impact on income inequality. The rise of automation and artificial intelligence has led to job losses in many sectors, including manufacturing and service industries. This has put downward pressure on wages and benefits, making it harder for workers to earn a decent living (Dong et al., 2022). These trends have all contributed to rising poverty levels as well as income inequality.

Poverty and Income Inequality as a Societal Problem

America has long been considered a heaven of opportunity, where anyone can start with nothing and achieve success through hard work and determination. However, the reality is that not everyone has an equal chance of achieving the American dream. According to Mooney et al. (2021), income inequality and poverty have been on the rise in the United States for decades and have become two major obstacles standing in the way of many people’s ability to improve their economic situation. While there are a number of factors that contribute to income inequality and poverty, one of the most significant is economic inequality.

In the past decades, the wealthiest Americans have seen their incomes steadily increase while the incomes of the poorest Americans have stagnated or even declined. When the rich get richer, and the poor get poorer, it creates an unequal society in which some people have a much higher standard of living than others (Schwindt, 2021). This can lead to social and economic tensions, as well as resentment and envy. Additionally, poverty can lead to a lack of education. Children who lack good education have difficulty finding good jobs as adults. Similarly, poverty can lead to crime. This is because people who are desperate for money are more likely to turn to crime in order to make ends meet.

Income inequality can also have negative effects on society. Extreme economic inequality can lead to social unrest. Poor people may become angry and resentful of the wealthy, leading to riots and protests (Brown & Long, 2018). Additionally, income inequality can lead to political instability. Countries with high levels of income inequality are more likely to experience coups and civil wars. Besides, poverty and income inequality can create a sense of hopelessness. When people are living in poverty, they may feel like they will never be able to get out of it (Brown & Long, 2018). Similarly, it can lead to people giving up on their dreams and goals. They may feel like they will never be able to achieve anything and see no point in trying to make improvements.

Proposed Solutions

Social Safety Nets

Social safety nets are government programs that provide financial assistance to people who are unable to support themselves or their families. This can include pensions for the elderly, health care, cash transfers, and in-kind assistance (Beegle et al., 2018). For many people, a social safety net makes the difference between being able to afford basic necessities like food and shelter and being homeless or starving (Minton & Giannarelli, 2019). Pensions are quite effective in reducing poverty levels and income inequality because they provide a reliable source of income for people who are no longer able to earn a living.

In their study, Minton & Giannarelli (2019) determined that most people in extreme poverty have no connection to any social safety net programs. This is especially true for non-disabled adults who lack children, illegal immigrants, and short-term residents. Statistics indicate that a whopping 30kes5 of individuals living in extreme poverty do not receive any social safety net benefits. On the other hand, 70% had access to at least one social safety net program. This indicates that social safety nets play a big role in alleviating poverty. Besides, pensions are also progressive, meaning that they provide more financial assistance to people who are in greater need.

In-kind assistance can also be a viable solution to reducing poverty and income inequality because it helps to meet the basic needs of those who are struggling. When people have their basic needs met, they are better able to focus on other things, like finding a job or going to school. In-kind assistance can also help to break the cycle of poverty, as it can provide the resources that people need to get ahead. However, there are some drawbacks to in-kind assistance, however. One is that it can be difficult to target assistance to those who truly need it. Another is that in-kind assistance can create dependency, as people may become reliant on assistance to meet their needs.

Targeted Education

Targeted education can be a viable solution to reducing poverty and income inequality because it can provide individuals with the skills and knowledge necessary to find well-paying jobs. When people are able to get good jobs, they are more likely to be able to support themselves and their families. Targeted education can also help to reduce income inequality by providing opportunities for people to improve their socioeconomic status (Guo et al., 2019). When people have access to better education, they are more likely to get better jobs and earn more money. According to Guo et al. (2019), this can help reduce economic inequality. Although targeted education can be an effective way to reduce poverty and income inequality, it is important to ensure that the programs are well-designed and implemented in order to be successful.

Healthcare Investments

There is a growing body of evidence that suggests social safety nets (healthcare investments) can be a viable solution to reducing poverty and income inequality. A recent study by Khullar & Chokshi (2018) found that there is a positive correlation between healthcare investments and reduced poverty levels. According to their findings, adults in the United States with incomes below $35,000 depicted lower general well-being relative to those with earnings above $100,000 (Khullar & Chokshi, 2018). As such, those with lower incomes tended to have four times poorer life choices, both regarding general life decisions. The statistics further indicate that poorer adults often have worse conditions, such as obesity and chronic diseases, which further reduce economic and financial stability (Khullar & Chokshi, 2018). Based on these findings, it is evident that better health investments can have a significant impact on poverty levels.

Similarly, countries with more robust social safety nets had significantly lower levels of poverty and income inequality. Healthcare investments can help to ensure that everyone has access to quality care, which can prevent and address health problems before they become too expensive or life-threatening (Jamison, 2018). This, in turn, can help to reduce the overall costs of healthcare and make it more affordable for everyone. Additionally, by providing access to quality healthcare, social safety nets can help to improve the overall health of the population, which can lead to increased productivity and economic growth.

Progressive Taxation

In a progressive tax structure, the wealthy would give more of their earnings in taxes relative to the poor. According to Tanchev (2021), the rich have a higher ability to pay taxes, and they can afford to pay more. This would also help to raise revenue for the government, which could be used to fund programs that help the poor and reduce poverty. Some people argue that progressive taxation is unfair because it taxes people at different rates. However, this is not true. According to Oishi et al. (2018), progressive taxation is fair because it taxes people according to their ability to pay. In their study, Oishi et al. (2018) indicated an outcome (1972–2014; N = 59,599) that determined a positive correlation between higher progressive taxation and reduced income inequality. Essentially, individuals who earn more money have a higher ability to pay taxes than people who earn less.

The validity, Reliability, and Possible Biases

The article by Khullar & Chokshi (2018) is based on a study conducted by the Centers for Disease Control and Prevention (CDC). This is a reliable source of information, and the study appears to be valid. However, the study did not control for all possible confounding factors, such as education level and employment status. This calls for future research on how a combination of these factors impacts poverty and income inequality.

The article by Oishi et al. (2018) is based on a study that used data from the World Happiness Report, which is considered to be valid and reliable. However, there are some potential biases that should be considered. First, the data is self-reported, which means that it is possible that people may not be honest about their income levels. Besides, the data only reflects the opinions of those who participated in the study, which may not be representative of the entire population. Future research should target a wider population, including different population sects such as marginalized communities, women, children, and other nations.

The article by Minton & Giannarelli (2019) is based on data from the U.S. Census Bureau and the U.S. Department of Health and Human Services, which makes it reliable and valid. However, the article only looks at a few programs that help people living in poverty. There are many other programs, such as Medicaid, that provide assistance to low-income people, which should be included in future research.

Ethical Outcomes of Proposed Solutions

One positive ethical outcome that could result from implementing social safety nets is that it could provide a safety net for people who are at risk of falling into poverty, which can minimize the number of individuals living in poverty. However, if people become reliant on social safety nets, they may be less likely to work toward improving their economic situation (Bruch et al., 2018). This could lead to increased poverty and income inequality over time.

Targeted education programs could provide additional resources and support to struggling students, which could help to level the playing field and give all students an equal opportunity to succeed. A negative ethical outcome that could result from targeted education is that it could exacerbate existing inequalities if not implemented properly (Guo et al., 2019). For example, if resources are not evenly distributed among schools, or if the most struggling students are not given the necessary support, then targeted education could end up widening the achievement gap instead of closing it.

One positive ethical outcome is that healthcare investments could lead to improved health outcomes for individuals and communities. However, it could also lead to increased costs, which could place a burden on taxpayers. On the other hand, progressive taxation would help to even out the playing field and give everyone a fair chance. However, it could discourage people from working hard and making more money.

Conclusion

In conclusion, income inequality is negatively impacting economic growth, and the negative impact is more in countries with high poverty rates. As such, there is a need to introduce policies to alleviate poverty so that income inequality is reduced, such as social safety nets, targeted education, health care investments, and progressive taxation. Poverty and income inequality are significant problems to general society as they lead to various social ills, including unrest, lack of education, social and economic tensions, as well as resentment and envy. Although there are various perspectives regarding poverty and income inequality, there is a clear demand for a long-term sustainable solution. Through an assessment of various studies, there are various pragmatic measures, including social safety nets, targeted education, health care investments, and progressive taxation. These solutions seem quite plausible as they tackle the problem of poverty and income inequality from the roots, which makes them quite sustainable.

References

Beegle, K., Coudouel, A., & Monsalve, E. (Eds.). (2018). Realizing the full potential of social safety nets in Africa. World Bank Publications.

Brown, U., & Long, G. (2018). Poverty and welfare. In Social Welfare (pp. 19–34). Routledge.

Bruch, S. K., Meyers, M. K., & Gornick, J. C. (2018). The consequences of decentralization: Inequality in safety net provision in the post-welfare reform era. Social service review92(1), 3-35.

Dong, K., Dou, Y., & Jiang, Q. (2022). Income inequality, energy poverty, and energy efficiency: Who causes who and how?. Technological Forecasting and Social Change179, 121622.

Guo, Y., Zhou, Y., & Liu, Y. (2019). Targeted poverty alleviation and its practices in rural China: A case study of Fuping county, Hebei Province. Journal of Rural Studies.

Jamison, D. T. (2018). Disease control priorities: improving health and reducing poverty. The Lancet391(10125), e11-e14.

Khullar, D., & Chokshi, D. A. (2018). Health, income, & poverty: Where we are & what could help. Health Affairs10.

Minton, S., & Giannarelli, L. (2019). Five things you may not know about the U.S. social safety net. Washington, DC: Urban Institute.

Mooney, L. A., Clever, M., & Van Willigen, M. (2021). Understanding social problems. Cengage learning.

Oishi, S., Kushlev, K., & Schimmack, U. (2018). Progressive taxation, income inequality, and happiness. American Psychologist73(2), 157.

Schwindt, R. (2021). The Links between Globalization, Poverty, and Income Inequality. Globalization, Poverty, and Income Inequality: Insights from Indonesia, p. 232.

Strader, E., & Misra, J. (2018). Poverty and income inequality: A cross-national perspective on social citizenship. The Cambridge Handbook of Social Problems1, 385-407.

Tanchev, S. (2021). How proportional income taxation increases inequality in Bulgaria. Journal of Tax Reform7(3), 244–254.

The American Dream and Income Inequality

Several developed nations are experiencing substantially higher income and wealth inequality, and the problem is growing, causing a national debate to intensify. Economic shocks caused by the COVID-19 pandemic, the 2008 financial crisis, and the slow and uneven recovery have worsened these trends. The ability to move upwards has long been a strength of American culture, but some signs suggest that American economic mobility tends to start disappearing.  By creating large income and wealth gaps across racial groups, economic inequality affects the ability to achieve the “American Dream,” and ways to solve the problem include increased educational opportunities, higher minimum wage, and progressive income taxes.

Since the 1970s, income inequality has been on the rise in the United States as the high earners expand rapidly. There has been a disproportionate increase in income gains among high earners. The problem of an increasing income gap in American society is well known to all of us. The Census Bureau’s data are often used to illustrate the divide between the rich and the poor. According to them, “between 1967 and 2010, the share of national income going to the bottom 20% of households declined from 4% of the total to 3%, while for the top 20% of households during the same period, it rose from 44% to 50%” (Siripuraru). By 2018, the ratio of corporate CEOs to workers was 278:1, according to a progressive think tank. CEOs earned about twenty times as much as workers in 1965. Many fear that this distribution may not just be inherently unfair but may indicate that individuals are having an increasingly difficult time moving up due to a concentration of income and wealth at the top.

Having a clear notion of what economic mobility means is essential to understanding the supposed problem with the American Dream. Most Americans understand “economic mobility” as the development of a person’s standard of living in line with his skills and effort over time and with the generational rise in general living standards (Butler). In America, mobility has been reasonably robust according to this metric, which analysts call “absolute mobility.” American families in their forties and fifties in their forties and fifties have about 30% more income than the generations before.

Comparing individuals’ wealth and incomes with their own parents’ inflation-adjusted incomes and wealth. There is also robust mobility in that area. Across the income distribution, an average of almost 85% of Americans tend to have higher incomes now than their parents had at the same age, according to the “Pew Charitable Trust’s Economic Mobility Project” (Siripuraru). Furthermore, 93% of American adults with parents in the bottom quintile earn more than their parents did when they were adults.

There is a well-documented connection between ethnicity, race, and inequality. Black households have barely increased their wealth since 1960, while white households have tripled their wealth. There has been a significant difference between black and white unemployment for decades. Corporate leadership, as well as high-paying professions, are underrepresented among Black Americans. Fortune 500 companies will have only four black CEOs by the year 2020. Researchers found that American Indian and black children are less likely to achieve economic mobility than Asian, white, or Hispanic children.

The legacy of slavery and systemic racism underlie U.S. inequality today. Housing segregation, a major source of wealth, resulted from a New Deal policy called redlining in the 1930s, which led to mortgage denials for Black Americans (Putnam). The Fair Housing Act of 1968 prohibits racial discrimination in housing, but its effects persist. The GI Bill, widely credited for boosting the middle class after World War II, was similarly unavailable to black Americans.

Children here inherit their parents’ relative income status more likely than in other countries since incomes at the top of the scale are “stickier.” Children in other countries have better prospects for economic advancement than children in American society because their parents’ money determines their futures more than their effort and abilities. It is believed that many countries, particularly those of Northern Europe, offer better economic opportunities compared to the United States. So, America no longer embodies the American Dream at its best.

High wages are usually earned by people working in jobs requiring high levels of education. Those in United States families with degrees earned nearly three times as much as those without, and those with a postgraduate earned nearly four times as much as those without. Compared to families without higher education, families with postgraduate degrees were nearly eight times wealthier in 2016. People without a high school diploma lived in poverty at a rate of 25 percent in 2015, compared to just 5% of people with a college diploma (Siriparu). While the United States attains higher education at higher rates than the OECD average, several other wealthy nations trail behind. Students’ debt should be eliminated, and tuition-free public colleges would reduce the cost of higher education and increase access. Warren and Sanders have proposed these policies to address the rising cost of college. Republican politicians, such as Trump, however, have advocated spending more federal funds on skills and trade training.

A further contributing factor to growing inequality is the repeated reduction in the top United States income tax rates over the last half-century. A top tax rate of more than 90 percent was in effect when President Kennedy entered the White House in 1961. There is a 37 percent top rate today (Putnam). Since President Ronald Reagan slashed taxes in the early 1980s, the top 1 percent’s share of income increased dramatically. Some experts argue that the gap between capital gains and income tax contributes to inequality since capital gains tax benefits the wealthy more than regular employment income.

According to Howard University’s Spriggs, a public posting of all jobs would help close the Black employment gap. Computer algorithms could help better match potential job seekers with job openings, and companies could encourage more Black students to establish themselves in Silicon Valley companies (Putnam). Additionally, Spriggs recommends that antidiscrimination laws be monitored and enforced more closely. It may also be possible to increase economic resilience by strengthening the social safety net, including a better sick leave policy, the provision of bigger unemployment benefits, and more job retraining programs.

According to experts, a lack of equality can stifle economic growth and foster political dysfunction. Richer households tend to spend less of their income compared to poorer ones, reducing the level of demand in the economy (DeVitis). It can also hurt the economy if low-income households have fewer opportunities. A weaker demand today and low growth in the future is a consequence of those at the bottom of the income distribution not reaching their full potential.

In conclusion, economic inequality reduces the ability to achieve the “American Dream” by creating racial and economic wealth gaps. The solution would be to enact a more progressive income tax, expand educational opportunities, and raise the minimum wage. It is the government’s responsibility to ensure the American Dream is valid and can be achieved. In addition to church-based social-welfare programs and grassroots outreach, government programs have marginalized or diminished the culture that supported them. There were multiple ways in which this process occurred.

Works Cited

Butler Stuart. “Can the American Dream Be Saved? National Affairs. Retrieved from https://www.nationalaffairs.com/publications/detail/can-the-american-dream-be-saved

Siripuraru Anshu.  The USA inequality debate. Council on foreign relations. https://www.cfr.org/backgrounder/us-inequality-debate#chapter-title-0-9

Putnam, Robert D. Our Kids: The American Dream in Crisis. First Simon & Schuster hardcover ed., Simon & Schuster, 2015.

DeVitis, Joseph L, and John Martin Rich.  The Success Ethic, Education, and the American Dream. State University of New York Press, 1996. Accessed 5 Aug. 2022.