US Income Disparity

In the last three decades, wealthy households in the United States have earned a proportionally-larger share of the nation’s income, fostering a significant income inequality gap. In 1980, the top 1 percent of earners made 10 percent of the overall income in the United States. By 2011, their share had doubled to 20 percent. The top 10 percent of earners were the beneficiaries of 98 percent of all income gains between 1980 and 2008. This disparity has been spurred in part by rising corporate profits and stagnating employee wages. At 14.2 percent, corporate profits have swelled to their largest proportion of national income since 1950. Concurrently, only 61.7 percent of the nation’s income was distributed to employ¬ees in the third quarter of 2012—the lowest proportion since the mid-1960s. As more of the nation’s wealth is simply distributed to shareholders in companies, the rich get richer.

Several solutions have been proposed to address this income dis¬parity, including increased taxation of upper-income Americans, higher minimum wage laws, and new restrictions on CEO com¬pensation. However, the research to support these types of redistribution policies is scant and suggests that unintended consequences could wash away the intended benefits. In some scenarios, imple¬menting such provisions might actually drive unemployment up and stunt economic growth—hurting those for which the provisions are intended to help.

Investing in public education is the most viable long-term solution for reducing income inequality without unintentionally dam¬aging the overall economy. Investment in education should focus on enabling the next generation to add value to the 21st century economy. Our economy rewards innovation, which requires con¬tent knowledge, critical thinking, problem solving, and effective communication.

By equipping the next generation of Americans with the training to fulfill the demands of our evolving economy, education empowers workers with increased capacity to earn higher wages, greater potential mobility, and elevated aptitude for innovation.

Education is paramount to enduring prosperity and is the key to fundamentally improving income inequality.

This post is part of an ongoing series of data-driven commentary on current events. It was originally published in the Zion’s Bank Economic Outlook Newsletter and the Deseret News.