Daily Policy Digest
Economic Issues
April 5, 1996
The Causes Of Income Inequality
There is a great deal of talk about "economic angst," brought on, some say, by growing class warfare. However, economists who look at the numbers argue this is not a conclusion borne out by the numbers.
The poor are not losing ground, researchers say. They are falling behind because the center of the pack is pulling ahead.
- About the same share of families get by on $10,000 or less a year (adjusted for inflation) as did a quarter century ago.
- However, families that earn $10,000 to $50,000 are less common because more people are earning more.
Why are some falling behind, and what can be done about it? Two things are important, but they're harder to fix: education and family structure.
- College graduates earned 1.43 times as much as high school grads in 1972 but 1.82 times as much by 1992.
- Those with advanced degrees made 1.72 times as much as high school grads in 1972, 2.54 times as much in 1992.
It's possible to improve the schools, but serious improvement will only come with parental participation, which brings us to the second stumbling block: family structure.
While some single mothers do better than married couples and others are better off without the father in the house, having only one parent in the home is the surest indicator that a family will have a low income and other problems. Government can't make up the financial or, more importantly, the emotional commitments of fathers who live with their families.
But even when both parents work there is no guarantee of equality. At the extreme it doubles the gap in family incomes because people tend to marry their peers (so that one household gets two professional incomes, another gets that of two minimum wage earners). There is no fair way to reverse this trend.
Another factor is at work which causes inequality:
- More than one-half of families in the highest-income fifth in 1990 had two earners with full-time, year-round jobs.
- In the lowest fifth, only 15 percent had two earners, with full-time, year-round work being the exception rather than the rule.
- More than 40 percent of the lowest fifth reported having no wage earners.
- The fact that nearly 43 percent of the lowest income fifth have a head of household with less than a high school education seriously impedes their ability to earn.
Economic policy still matters, but income inequality has as many if not more roots in society (the schools) as in the workplace.
Source: Editorial, "The Roots Of Inequality," Investor's Business Daily, April 5, 1996.
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