NCPA - National Center for Policy Analysis


October 6, 2008

What is driving income inequality in American?  Signs points to the advent of technology, the thrill of the winners-take-most markets, the effect of an educated family structure, the force of immigration, say Arnold Kling, an economist and author, and Nick Schulz, the DeWitt Wallace fellow at the American Enterprise Institute.

Today, there are two income inequality gaps in America: the upper-lower gap -- between those with a college education and those without, and the upper-upper gap -- between those with high incomes and those with extraordinary high incomes, say Kling and Schulz.  These gaps reflect changes in the structure of the economy and illustrate how the aforementioned factors have widened the distribution of income:

  • New technologies have placed a premium on cognitive ability; in today's economy, more value added comes from knowledge work, and relatively less comes from unskilled labor.
  • More Americans are engaging in a kind of gambling behavior in their choice of occupation, and they are increasingly choosing to play in winners-take-most tournaments that lure people from the security of earning salaries for a quick thrill.
  • Early family conditions seem to be a major factor in the upper-lower income gap; even though upper-income martial relationships have stabilized, the problem remains for lower-income Americans.
  • Since 1980, the proportion of lower-income never-married mothers among college graduates has stabilized near 3 percent, while the proportion among high school graduates has risen from 3 percent to 10 percent, and the proportion among high school dropouts has doubled to nearly 15 percent.
  • There is also another factor at work: marriage is becoming increasingly sorted by class -- children of well-educated parents tend to marry one another and the children of less educated parents tend to marry one another.

In order to make a dramatic impact on inequality, government would have to do something about the fundamental causes: technology and marriage patterns.  But as much as inequality may be a problem, no real solution is in sight, say Kling and Schulz.

Source: Arnold Kling and Nick Schulz, "Inequality and the Sergey Brin Effect," The American, October 1, 2008.

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