Introduction
Although the USA is regarded as a country of unlimited opportunities, the income gap undermines people’s aspirations to make their American Dream come true. Diverse factors affect people’s income, and education has been seen as one of the reasons for income inequality in the United States. The link between education and people’s wealth is quite direct as people with higher education have higher salaries due to their prospects of occupying managerial or executive posts. Blue-collar workers who usually do not have higher education tend to have lower salaries.
Hence, it is believed that education is one of the potent factors contributing to the income gap in the USA. At the same time, some researchers note that the relationship between education and income is more complex (Hanauer, 2019). For instance, Hanauer (2019) states that the rate of people with a high-school education or a degree has increased since the middle of the twentieth century, but the income gap has been growing. It is necessary to analyze the link between education and income inequality in order to develop effective strategies to address the problem. This paper includes a detailed analysis of the effects of education on the income gap in the United States and potential ways to reduce this kind of inequality.
How Countries Can Measure Their Income Inequality
First, it is necessary to note that several methods to estimate the income gap exist. International institutions and countries choose among these measurements, which may lead to certain inconsistencies and issues. In addition, quite different variables can be used to define income, which may also lead to misunderstandings (Pfeffer, 2019). The most widespread way to measure income inequality is the comparison of the income rates of different populations (Ulu, 2018). Countries also identify the income gap by measuring the rate of people who live on an income that is beyond an established limit.
Each country collects statistical data through certain channels that are analyzed and sent to international institutions as well. In the USA, researchers often utilize the data of the US Census Bureau (Atems & Shand, 2018). The Panel Study of Income Dynamics (PSID) is another source of information for research. The PSID provides data for two decades, so long-term effects and trends can be traced with the help of this survey panel’s findings (Pfeffer, 2019). In addition to the identification of the rate of people with diverse levels of income, the GINI index is often used to assess the income gap. The index is a measure of income dispersion on a scale where zero is when everyone’s income is absolutely equal, and one is when one member of the group owns all the income.
Household income is the central variable that includes household members’ earnings. At the same time, social security contributions and income taxes are deducted (Organization for Economic Co-operation and Development [OECD], n.d.). That, these estimations do not involve such resources as financial aid, food stamps, or access to other opportunities, which can have a considerable effect on data (Ulu, 2018; Pfeffer, 2019). Hence, it has been acknowledged that these measurements are not perfect and further development of the methodology is necessary.
Effects of Income Inequality on the U. S. Economy
Income inequality may have numerous outcomes and shape the way a country develops. For instance, income inequality has a negative impact on the economic growth of a country as the spending of a large portion of the population decreases (Lee & Lee, 2018). Lower spending slows down economic growth as the segments of the economy do not have the necessary impetus for further development. Simultaneously, the income gap adversely influences human capital as many talented people may have limited access to education and employment. Quite a direct effect of this phenomenon includes the increase in people’s debts, which is a considerable threat to the economic balance. Real estate and educational loans have already become a substantial burden for Americans and the country’s financial system.
Clearly, such economic issues often become a trigger for social and even political issues. Social unrest caused by people’s dissatisfaction with their living standards and lack of opportunities may result in political turmoil (Lee & Lee, 2018). Political elites may use the situation to gain more power. In developing countries, where institutions are not properly functioning, people may be prepared for dramatic changes and even the use of violence. Such disturbances may lead to a political crisis that tends to be associated with economic stagnation.
Another area that is often affected by the increasing income gap is public health, which, in its turn, has a considerable influence on the economic development of a country. This link is specifically apparent in the USA, where the healthcare system constitutes a considerable part of the country’s GDP (Bor et al., 2017). It has been acknowledged that growing income inequality positively correlates with increasing health issues (Bor et al., 2017). For example, health-related risk behaviors become more pronounced, which leads to the development of diverse diseases. Smoking and alcohol use (as well as substance addiction) become a serious threat to public health. Moreover, hypertension, diabetes, heart failure, numerous mental health disorders, and other conditions persist as a result of economic problems people experience. Healthcare expenditure increases while people are still unable to contribute to the economic growth of the country, which results in major losses for the nation.
Gap Between Those Who Hold Bachelor’s and Higher Degrees and Those Who Do Not
It seems natural that people with a higher level of education have a higher income as they tend to have more skills and in-depth knowledge in specific areas. It has been acknowledged that people with a bachelor’s degree or higher degrees have a higher household income compared to those who have a high-school education or a lower level of education (Bialik & Fry, 2019). For instance, the gap between these cohorts in 2017 was dramatic as people with a bachelor’s degree or higher earned over $100,000 while those with high-school education had less than $50,000 (Bialik & Fry, 2019)., researchers note that this trend is likely to vanish in the near future as it is expected that jobs that do not require higher education will be demanded and, as a result, well-paid (Hanauer, 2019). Although such forecasts exist, the current situation suggests that a higher degree is associated with better employment and income.
Reasons for the Growing Inequality Gap Between Educated and Less-Educated Workers
As mentioned above, the major cause of the increasing inequality gap between employees with different levels of education is people’s skills and knowledge. Workers’ skills are seen as the primary assets contributing to individuals’ and companies’ competitiveness (Lee & Lee, 2018). For instance, such a highly competitive environment as information technology is characterized by the focus on exact technical, leadership, time and conflict management, as well as other skills. Higher educational establishments offer courses that equip students with the corresponding knowledge and skills. Companies that hire people who are able to generate new ideas and realize projects become more successful in the global market. People with higher degrees tend to generate more profit, so they are valued higher compared to those who have no degree. Regarding indirect effects, people with better employment have better access to resources, which intensifies the gap between the groups in question. Those who have well-paid jobs are likely to gain better loans, which has a positive impact on their financial stability. These people also have access to higher-quality health care, which positively influences their well-being and their productiveness.
Increasing Opportunities for Higher Education and Income Inequality
When evaluating the potential of increased higher education opportunities for Americans as a remedy for the inequality gap, conflicting conclusions emerge. On the one hand, the historical analysis of the link between educational background and income suggests that the relationship is not absolute. For instance, the level of education of baby boomers was considerably lower compared to the educational background of millennials (Bialik & Fry, 2019). However, the inequality gap was significantly lower, with slightly over $80,000 for holders of a Bachelor’s degree or higher and more than $51,000 for people with a high-school education or lower (Bialik & Fry, 2019). The income gap between these two groups was not as evident. So, it is possible to assume that at some historical point, higher education does not correlate with or is partially related to income inequality. Based on this data, it is also possible to predict a decreasing influence of higher education on the inequality gap due to the increasing rate of people with this educational background.
On the other hand, the peculiarities of the modern economy and the potential areas of development show that high-skilled employees will be equally valued or even valued higher in the future. The most promising segments of the economy include biotechnologies and information technologies. Being successful in these areas requires in-depth knowledge of some disciplines and specific skills that are associated with higher education. According to Hanauer (2019), the jobs that do not require a higher-education degree are expected to dominate the labor market for decades to come. The risk of the increasing unemployment rate is also forecasted to be high. Nevertheless, it is still evident that people who create value do and will have a higher income.
Other Causes of U.S. Income Inequality
Education is not the only or the most influential cause of the income gap in the United States. Families’ social status, parental income and educational level, and the person’s gender, race, and age are among the other factors contributing to income inequality. It has been estimated that people whose parents have higher education are more likely to gain a bachelor’s degree or higher, which is associated with these people’s higher income (Pfeffer, 2019). People from disadvantaged families are also more likely to remain within the boundaries of their social stratum or even have a lower social status. In simple terms, rich families become richer, while underprivileged groups remain poor or become poorer.
The influence of gender on a person’s income may seem ubiquitous, but male employees still earn more than women. Irrespective of various laws and regulations related to gender equality and non-discrimination, females have lower salaries and limited access to managerial positions. Interestingly, Hui (2020) notes that females contributed to the increase in income inequality in the 1980s considerably. During this period, women started playing a significantly more active role in the labor force. Females with higher education were likely to descend from middle-class or upper-class families, so the income gap grew.
Race is still an influential factor affecting people’s income although various steps have been undertaken to address the issues associated with racial discrimination. African Americans and Hispanics are still underprivileged groups who have a lower income and educational background (Hui, 2020). The enrollment and completion rate among these cohorts is lower compared to similar rates among white students. Racial minorities tend to have lower salaries and limited employment opportunities. Age is also a factor affecting people’s financial well-being as middle-aged workers are often less valued in the labor market.
Recommendations Regarding the Reduction of Income Inequality
The governments of many countries try to ensure the expansion of higher education and improvement of the quality of educational services. This tactic has been effective as education expansion is associated with the reduction of the income gap (Coady & Dizioli, 2018). Clearly, the implementation of this approach is associated with considerable investment of such resources as money and time. The U. S. government should also pay attention to this strategy and invest in the development of its educational system. The provision of more grants and scholarships, as well as the introduction of similar incentives, can be instrumental in reducing income inequality by addressing the problems related to student loans. The financial burden is now a considerable issue many young people have to address, choosing less attractive professional paths to get out of their debts. These choices often make these people confined to certain professional options that prevent them from improving their socioeconomic status.
Clearly, the provision of more grants and scholarships is only one of the possible methods to address the problem of the income gap. The government should also invest more in raising people’s awareness of the value of education and the role it can play in people’s lives. The promotion of higher and vocational education can help in solving the problem. In many cases, young people try to pursue academic goals that lead them nowhere to choose professions or programs that do not translate into successful employment (Hanauer, 2019). The government can invest more in raising students’ awareness regarding the labor market and the gaps they may find attractive. The promotion and popularization of some professions or skills can also be a good strategy for motivating students to choose professions wisely. Young people will be able to choose the courses that will equip them with the skills needed in the labor market, so they will be able to land good jobs and improve their socioeconomic status.
Federal and state educational programs can have a positive impact, while stronger decentralization can lead to higher inequality. Decentralization has proved an effective strategy in many areas, but it has some pitfalls when it comes to education. Ghosh Moulick (2019) found that school districts that gained more power due to decentralization started paying more attention to the needs of people with a higher income. Local elites tended to increase their pressure to make officials meet the needs of their children rather than concentrate on diminishing the education-based income gap in the community. Thus, decentralization leads to an increasing income gap as wealthy families obtain control over more resources.
At this point, it is necessary to add that the involvement of the government in the development of the educational system should not be overwhelming. Atems and Shand (2018) argue that income inequality positively correlates with entrepreneurial effort. The rise in entrepreneurship is manifested in the increased number of self-employed individuals and the growing number of small businesses. This trend has a positive impact on the development of the country’s economy (Atems & Shand, 2018). In simple terms, the gap is a potent motivational factor encouraging people to be more active. Therefore, instead of providing money to fund some educational programs, the government should also pay attention to supporting entrepreneurs. The provision of loans, grants, informational support, and other incentives can be instrumental in building a favorable environment for entrepreneurs.
In addition to addressing education-based income inequality, policymakers should pay attention to other factors contributing to the problem. By investing in the development of disadvantaged communities, the government can considerably reduce the existing income gap. Policymakers should work more actively with communities to understand their needs and be able to create viable and effective strategies. The government should not simply allocate more funds but ensure that provided investment is used effectively and addresses particular problems. The involvement of communities in the process of their development is critical. People should be ready to work hard to attain the goals they, in collaboration with authorities, have established.
Conclusion
In conclusion, income inequality is a serious issue American society is yet to solve. The problem has aggravated during the past decades, and it has been acknowledged that well-off families have become richer while poor people have become even poorer. The education-based income gap is one of the areas of major concern for policymakers as education is one of the influential factors leading to the increase in the gap. People with higher education receive higher salaries, which makes their access to resources, including education for their children, wider. People with high school or lower education can obtain blue-collar employment options or become a part of the unskilled worker pool. Such individuals have lower incomes and can ensure fewer opportunities for their children’s success.
It is important to make sure that people have more opportunities to obtain an education, but young people also need help in choosing the path wisely. That, such areas as health care also require proper attention. By living healthy lives and having access to quality healthcare services, people may improve their socioeconomic status. Finally, the government needs to continue its effort to reduce all types of discrimination with a focus on gender, race, and age. It is pivotal to ensure people’s equal access to employment and other opportunities in order to enhance diversity, which is associated with progress and positive changes. Supporting entrepreneurs in different ways can also boost the development of the economy, which, in its turn, will be the basis of the reduction of income inequality in the United States.
References
Atems, B., & Shand, G. (2018). An empirical analysis of the relationship between entrepreneurship and income inequality. Small Business Economics, 51(4), 905-922.
Bialik, K., & Fry, R. (2019). Millennial life: How young adulthood today compares with prior generations. Pew Research Center. Web.
Bor, J., Cohen, G. H., & Galea, S. (2017). Population health in an era of rising income inequality: the USA, 1980–2015. The Lancet, 389(10077), 1475-1490.
Coady, D., & Dizioli, A. (2018). Income inequality and education revisited: persistence, endogeneity and heterogeneity. Applied Economics, 50(25), 2747-2761.
Ghosh Moulick, A. (2019). Entrepreneurial to impactful management: Income inequality in education. Educational Policy, 1-18.
Hanauer, N. (2019). Better schools won’t fix America. The Atlantic.
Hui, X. (2020). An empirical analysis of the impact of higher education on income inequality. Journal of Applied Finance & Banking, 10(2), 181-193.
Lee, J. W., & Lee, H. (2018). Human capital and income inequality. Journal of the Asia Pacific Economy, 23(4), 554-583.
Organization for Economic Co-operation and Development. (n. d.). Income inequality.
Pfeffer, F. T. (2019). Growing wealth gaps in education. Demography, 55(3), 1033-1068.
Ulu, M. İ. (2018). The effect of government social spending on income Inequality in OECD: A panel data analysis. International Journal of Economics Politics Humanities and Social Sciences, 1(3), 1-19.