Income Gap Between the Rich and the Poor of America Term Paper

  • Length: 4 pages
  • Subject: Economics
  • Type: Term Paper
  • Paper: #13545078

Excerpt from Term Paper :

Income Gap

Income disparity does not allow those living in poverty to climb out and join the middle class, and keeps the most wealth, power, and privilege in the hands of a select few.

Topic Sentences to introduce references

Census Income Data

Worsening American Income Inequality: Is World Trade to Blame?

Income and Wealth Inequality in the United States

A Tool for Measuring Income Inequality

The Two Nations

This paper analyzes income levels in the United States. Specifically, it discusses how there are two distinct nations in the United States, one with people who have income levels in the top 20%, and those with income levels in the bottom 20%.

As the disparity grows between rich and poor in America, so does the inequality in our country, which threatens the very fabric of our lives. Income disparity does not allow those living in poverty to climb out and join the middle class, and keeps the most wealth, power, and privilege in the hands of a select few. Until this disparity begins to turn around, there will always be two distinct nations in America, the very rich, and the very poor. Using U.S. census data and information from three other sources, the topic of income disparity between the wealthiest and the poorest will be established, discussed, and evaluated, including information from economists and political experts.

The 2002 United States Census Income data sums up the country's income in a wide variety of formats and breakdowns, including the top percentages of wage earners and the bottom percentages. According to the data, authors Carmen DeNavas-Walt, Robert W. Cleveland, and Bruce H. Webster, Jr. Of "Income in the United States: 2002," published in Sept. 2003, the bottom 20% of America's income earners fall far below the poverty line, with 3.2% of wage earners earning less than $5,000 per year (DeNavas-Walt et al. 23). This income inequality continues to play an important role in the economy and fabric of the nation. Those living in poverty have more difficulty removing themselves from their environment, and when the economy worsens, these income earners are often the hardest hit. For example, many low- and under-skilled workers lose their jobs when the economy worsens, and many more lose their jobs as more companies outsource their resources and workforces overseas. In 2002, 27.1% of the wages earned in the United States were earned in the lowest three quintiles of income, while 49.6% of the wages were earned in the highest quintile, with 21.7 of the nations wealthiest earning the very top 5% of income. Those lowest three quintiles encompass income less than $25,000 per year, and indicate just how poverty ridden fully one-quarter of our population is (DeNavas-Walt et al. 23). The U.S. Census data may be the most valuable in actually determining the income inequities between America's rich and poor, because it breaks the data down into sectors, and uses the Gini formula (see selection four) as one of the determinants for economic inequality.

The next source examines America's income inequality through the eyes of an economist concerned with a growing disparity between rich and poor, and what is causing that disparity. He refutes the idea that world trade alone is to blame, and examines other factors that can lead to a widening disparity between the top 20% of wage earners and the bottom 20%. In "Worsening American Income Inequality: Is World Trade to Blame?" By Gary Burtless, published by the Brookings Institute in 1996, the author notes, "In a competitive and efficient labor market, pay premiums for skill and education should eventually rise and fall together across industries, whatever the reason for the change in pay premiums" (Burtless). However, this equality between skill level and education has not been happening, and many believe foreign trade and outsourcing, and its effects on the economy, are one reason these pay premiums are not equalizing, nor trickling down to the lowest levels of wage earners. Many other economic and social factors figure into the poverty problem in America. Economist Burtless continues, "Economic deregulation, new patterns of immigration into the United States, declining minimum wages, and the dwindling influence of labor unions have also contributed to the job woes of unskilled and semi-skilled workers" (Burtless). Thus, poverty in America follows a whirlpool effect. The continued problems with the economy and the unskilled workforce act as a whirlpool, creating a vortex that is impossible to navigate for those at the lowest levels. Our poverty is getting worse, and so is the inequality between the very rich and the very poor.

This source is from a Democratic think tank, and discusses some of the income disparities between Americans, but also considers some legislative and governmental solutions to the problem, including creating more jobs that pay better, stopping cutbacks to social and healthcare services, and an equalization of benefits between rich and poor. "Income and Wealth Inequality in the United States," by an unknown author and published by the Americans for Democratic Action in 2002 notes, "Income inequality is worse in the United States than in other major industrial countries. Austria, Canada, and 10 European countries have much more equal distribution of income" ("Income and Wealth"). The report continues, "Extreme inequality of income and wealth gives huge economic and political power to big corporations and wealthy families and weakens the sense of community and common purpose essential to a democracy" ("Income and Wealth"). While we are one of the richest nations on Earth, we do not share the wealth equitably, and the poor in America continue to struggle to make ends meet. These people at the lowest income levels not only lack basic necessities, such as health care and even decent housing conditions, they also drain the country's social and welfare services, for most of them simply cannot afford to live on the income they earn. As the nation's economy and tax structure changes, there are fewer resources available for these social services for the poor, and so, while the wealthy get wealthier, the poor suffer with fewer healthcare services, lower welfare payments, and a further reduced standard of living. As such, it becomes even more difficult for the poorest wage earners to ever better their position. All of their wages go to basic necessities, and they do not have enough money to save for their futures, a home, or an education for their children. Thus, the cycle continues, and the whirlpool continues to turn.

The final source easily explains the Gini formula used to measure income inequality. Named for an Italian economist, the Gini uses a scale of zero to one to measure the inequality of incomes. It is simple to use and simple to understand, even for non-economists and financiers. In "A Tool for Measuring Income Inequality," published by Nieman Reports in 1997, reporter J.J. Thompson states, "The Gini formula's precision also gives it a huge advantage over other common methods of talking about income inequality" (Thompson 42). One of the reasons the Gini is so effective is because it has the ability to measure all extremes of inequality data, from high to low and in between. The author gives the formula for Gini, and the Gini formula is one of the measurements used in the U.S. Census data mentioned in the first source. The Gini is simple to use, and even better, any income data will fit into the formula. Reporter Thompson continues, "income data at any level can be used, from country on down to county or even census track" (Thompson 42). Thus, the Gini is a nearly perfect model for analyzing and measuring income disparity within a wide variety of wage earners, and this is one reason it is so popular among economists and data analysts.

While world trade continues to grow, and companies continue to outsource, the fate of…

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