Introduction
Income inequality is a great problem of every society since it widens the chasm between the richest and the most deprived people and negatively affects economic growth. Many individuals are certain that income inequality is unrelated to education, and the authorities need to better investigate the issue to find the main reasons for inequality. At the same time, there are those who are sure that education and income inequality are interrelated and interdependent. Although there is no clear clarification of why this inequality occurs, education is one of its reasons, and if this matter is not addressed, the gap between less-educated and more-educated workers will continue to increase.
People with higher education have higher incomes in the United States. Thus, according to Strauss (2011), workers “with professional degrees earned 6x as much as people who did not graduate from high school (in 2009: $128,000 vs. $ 20,000)” (para. 2). Although this information may seem outdated, the situation has not changed significantly. Recent research showed that “Americans with college degrees earn 84% more than those with only high school degrees” (Amadeo, 2018, para. 19). Evidently, education is important for economic growth, and this essay will examine and evaluate the role of education in the economic development of the country. However, to understand this role, one should first comprehend how the country can measure income inequality and what effects this inequality has on the U.S. economy.
How Can a Country Measure Its Income Inequality?
Different methods can be utilized to rate income inequality. However, the most commonly used measurements are a measurement by quintile, using household income, and the Gini index (Amadeo, 2018). In the first case, the U.S. Census Bureau divides the population into fifths (quintile) and compares household incomes of each group (Amadeo, 2018). The first quintile, or 20% of all households, will have the lowest income, the second quintile will have the next bottommost, and so on. This measurement allows for measuring income inequality, comparing what amount of the total earnings each group receives.
Thus, in 2019, the bottom quintile “only earned 3.1% of the nation’s income,” with an average income of $15,286 (Amadeo, 2018, para. 11). At the same time, the group with the highest income earned “51.9% of all U.S. income,” with an average income of $254,449 (Amadeo, 2018, para. 10). One can see that the inequality gap between the bottom and the top quintiles is huge, and this difference should not be ignored.
Another way to quantify income differentiation is the Gini index. This method summarizes the dispersion of income from zero to one, where zero is an equal distribution, and one denotes that only one person has all the money (Amadeo, 2018). The U.S. Census Bureau indicates that the Gini index was 0.484 in 2019, comparing to 0.386 in 1968 (as cited by Amadeo, 2018). This measurement demonstrates that the income differentiation in America is widening, and the authorities have to take some steps to diminish this inequality gap.
The Effect of Income Inequality on the U.S. Economy
Although income inequality may seem to affect only those with the lowest income, it is not so. Researchers argue that income disparity is the major reason “why the recovery from the Great Recession has been so weak” (Fletcher, 2014, para. 2). Economic growth is only possible when most people spend money (Sherman, 2014). Those who earn the most cannot spend the most because the number of these people is much lower than those who earn the least. Thus, the bottom 95% of wage earners cannot consume the same way they did before the downturn because their income is too low (Fletcher, 2014). Consumer spending drives a major part of the U.S. economy. Consequently, the economy of the United States suffers because of unequal distribution of income among its citizens.
Moreover, a rise in income inequality will lead to a surge in unemployment. In recent years, humanity has progressed in technology, and the request for high-skilled and more educated workers increased (Choi, 2016). However, the number of college-graduate workers has decreased due to a rise in the income inequality gap (Choi, 2016). Since more and more family households earn less money, and the cost of living increases, they cannot pay for their children’s education. Consequently, the number of uneducated or less-educated people increases, which leads to a higher unemployment rate. Economic mobility decreases as well, and people cannot change their wealth (Amadeo, 2018). They cannot break the cycle of low income, lack of education, and unemployment, and the whole economy suffers.
What is more, low-wage workers usually have no health insurance and do not receive sick days and pension plans from their employers. They cannot miss their jobs when they are ill, and they do not hope to retire eventually (Amadeo, 2018). As a result, health care inequality occurs, and the cost of medical care increases for everyone (Amadeo, 2018). Despite their income size, all people need to pay more for health care services and save on other things. Consequently, the income gap will continue to increase, negatively affecting the U.S. economic growth.
The Gap Between Those Who Hold Bachelor’s and Higher Degrees and Those Who Do Not
Having a high degree is a privilege that opens the doors to the world, which is not available to those with lower educational degrees. People with bachelor’s, master’s, and doctoral degrees have higher wages and better career opportunities than those with no degree. Research showed that college graduates earned 56% more than those who graduated high school in 2015 (Rugaber, 2017). Such a large gap in an average income demonstrates that people with higher education are in demand in the labor market. Those who do not have any degrees find jobs in low-paying sectors, which leads to financial problems and further inability to pay for college or higher education. In comparison, people with higher income have more chances to pay for their children’s education, and the gap between these two categories of the population continues to grow.
Moreover, the gap between people with higher degrees and those without any degree is accelerating too. For example, in 2016, “a larger proportion of workers were college grads (36%) than high school-only grads (34%)” (Rugaber, 2017, para. 7). Since 2007, the number of working college-degree individuals has risen by 21%, while the number of laboring high school graduates “has dropped nearly 8%” (Rugaber, 2017, para. 7). One can see that people with high school degrees only had more chances to find a job in 2007 than they have today. If income inequality is not addressed in the nearest future, the gap between those with higher degrees and no degree will continue to increase.
Reasons Why the Inequality Between Educated and Less-Educated Employees Has Been Widening
The inequality between educated and uneducated employees has been spreading due to several reasons. First, many people believe that employers demand more educated workers in this technologically advanced world (Choi, 2016). That is why schooling and higher education are the primary factors that affect income inequality (Choi, 2016). Another reason why this gap has been widening is the “basic supply-demand relationship” (Choi, 2016, para. 6). The number of educated workers decreases while the demand for their skills increases. As a result, high-skilled professionals earn more, and the gap between them and those with no degrees is widening.
At the same time, some people argue that education has no impact on income inequality. Thus, according to Gould (2015), “college-educated workers and workers with advanced degrees are not in demand” (para. 1). Moreover, the real wages of college-degree and higher-degree workers have not increased and even decreased after adjusting the inflation (Choi, 2016). Nevertheless, this decrease was smaller than the decrease of real wages of less-educated workers (Choi, 2016). One can see that a greater request for educated workforces exists, which leads to the increase of inequality between these two groups of workers.
Evaluation Whether Increasing Opportunities for Higher Education Can Reduce Income Inequality
Having analyzed the impact of education on one’s career growth and real wages, one can suggest that increasing opportunities for higher education may positively influence the average income of U.S. households. Carnevale and Rose argue that “the income inequality would decline if 20 million postsecondary-educated workers were added to the workforce” (as cited by Choi, 2016, para. 10). If the number of more-educated workers increases, the number of less-educated workers will decrease, and the gap between them will be reduced.
At the same time, research showed that increasing educational opportunities for higher education would not change overall earnings inequality. Thus, Hershbein et al. (2015) empirically simulated what could happen if more people attained college or higher degrees. Their simulation showed that “increasing educational attainment of men without a college degree will increase their average earnings and their likelihood of being employed” (Hershbein et al., 2015, p. 5). However, the overall earnings distribution will not be affected significantly. At the same time, the disparity in the lowest half of the earnings dispersal will be reduced (Hershbein et al., 2015). Even though these changes are small, the government should try to increase opportunities for higher education to reduce the income inequality gap.
In addition, if more people have access to higher education, the economy of the United States will grow. According to Rothwell (2015), people with higher education degrees would generate “more business owners, IPOs [Initial Public Offerings], and major financial deals” (para. 9). It will lead to capital decentralization and consumer prices reduction. As a result, income inequality will be reduced, and everyone will benefit from such changes.
Other Factors Causing Income Inequality to Widen
Although education is important for employment and economic growth, it is not the only factor influencing income inequality. Such factors as global integration, technological transformation, “the decline of unions and the eroding value of the minimum wage” lead to the rise in economic inequality (Horowitz et al., 2020, para. 9). Thus, rising trade relationships between the U.S. and China, or other countries, has augmented the quantity of imported products and decreased the number of job positions in manufacturing that produced similar products in the USA (Baranoff, 2015). People order goods from China since they are much cheaper there than in the U.S., and the economy suffers. Consequently, those who produce these things in America lose their occupations, and income disparity widens.
Offshoring is another factor causing income inequality to grow. Thus, offshoring leads to declining employment and wage growth and reduces participation in the labor force (Baranoff, 2015). Moreover, offshoring is a threat to domestic production because it negatively affects the choice of location where the company wants to produce its goods. According to Jeon and Kwon (2019), a firm aimed to maximize its profits will choose the area “that will generate a higher profit” (p. 11). As a result, unskilled domestic workers will be threatened because the firm can reduce their wages and produce goods in another country.
One more factor influencing income inequality is governmental regulations. The government of the United States created such a framework that led to the rise of inequality. Thus, de-unionization, deregulation, “tax changes, federal monetary policies, ‘the shareholder revolution,’” and many other policies caused the reduction of wages and unemployment (Baranoff, 2015, para. 6). Over the last four decades, the number of labor unions has dropped by half, and now it is only 10% of all workers (Harwood, 2019). The decline of organized labor decreased workers’ chances to demand higher wages and other benefits. The minimum wage per hour has not been changed, and the government made nothing to influence this change. As a result, the buying power of those workers who earn minimum wage declined while income inequality continued to grow.
What is more, those who have more money often break the rules, thus generating inequality among the population. For example, economic winners have access to political power, and they reward themselves with different policies, such as the GOP 2017 tax cut (Harwood, 2019). Children of wealthy people have access to the best colleges and private institutions. Moreover, those with money can buy advantages almost everywhere, which causes inequality to widen. All these factors stimulate the growth of the disparity gap between educated and uneducated employees.
Recommendations on How to Reduce Educationally-Based Income Inequality or Other Factors
Educational equality is of high importance for the economic wealth of the United States. If all children have equal access to higher education, they will have better opportunities for their future career growth. As it was already mentioned, high-skilled workers are in demand, and they earn more money than those who have no degree. Nowadays, the education system of the United States is highly unequal because children from wealthy families can afford private education while those living in poverty are “seven times less likely to finish secondary school” (Walker et al., 2019, p. 4).
Therefore, the first step to decrease this imbalance between the deprived and the wealthy is increasing educational attainment, making education affordable. The government of the United States should invest money in higher education, taking the price of a good education away from American families. According to Choi (2016), such a change in the education system will decrease inequality “in the bottom half of the earnings distribution” (para. 12). As a result, poverty will be reduced because the number of high-skilled workers will increase, and their income will become higher.
Another step the government can take to reduce inequality is investing in employee training. Nowadays, many barriers keep people from building career paths in high-opportunity fields. A worker may have valued talents, but the absence of an educational degree does not allow them to find a good job and use their talent. If the government invested more in job training and allowed companies to create programs that train workers and help them overcome personal obstacles, the income inequality gap would decrease (Jones & Skyler, 2020).
For example, in Detroit, robotics training was incorporated into technical employment, creating more opportunities in the fields of automation and production (Jones & Skyler, 2020). Similarly, the local government of San Diego included the installation of solar panels in the existing training programs, thus opening doors to this industry for low-skilled workers. One can see that job training is important for reducing income inequality because it can help low-paid workers improve their skills in the short term and build better careers.
One more recommendation that will help reduce inequality is a tax regulation. The Earned Income Tax Credit (EITC) expansion can positively affect poverty reduction and employment. Research shows that the EITC lifted about “4,7 million children above the poverty line on an annual basis” (Powell, n.d., para. 7). If the government reduces taxes for low-income families and increases taxes for wealthy families, the income inequality gap will decrease. In 2015, the lowest-income 20% households paid the highest local and state taxes, while the most affluent households paid the lowest taxes (McNichol, 2016). A more progressive tax system could change the situation and reduce inequality. Consequently, people will have more possibilities to attain higher education, and educationally-based inequality will also decrease.
Conclusion
Education and income inequality are interrelated and interdependent. People with no degrees have fewer chances to find well-paid jobs and build good careers. In comparison, those who hold bachelor’s or higher degrees earn up to ten times more than people without any degree. The problem of education is urgent and crucial in the United States. Many children have no access to high-quality primary education. In the upshot, many of them do not graduate from high school and never obtain a college degree. As non-educated workers, they receive minimum wages and live below the poverty line. Later on, they give birth to children who experience the same problems because their parents cannot afford to pay for their education. This poverty cycle never ends, and income inequality widens.
However, the situation can be changed if the government regulates some policies and makes education affordable for all people. Increasing educational attainment will give more opportunities for children from low-income families. Employment training is another solution to the problem of income inequality. Unskilled workers should have the possibility to improve their skills or gain new knowledge in such training sessions. High-skilled employees have higher wages and can build better career paths, which will lead to the reduction of income inequality. Finally, tax policies should also be reconsidered and modified. Suppose the government of the United States implements at least part of these recommendations. In that case, the income inequality gap will be reduced, and more people will be able to live a worthy life.
References
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