Income Inequality

When Karl Marx began to hypothesize that an
economic revolution would occur, one of his primary concerns was the
unequal distribution of wealth. He saw a capitalist society where
there was terrible inequality. A small amount of people possessed a
high percentage of all the money and income. What this did was create

a larger and larger poor underclass. Marx theorized that this unequal
division of wealth would eventually lead to a class revolution. While
Marx’s revolution failed his essential problem still exists. In
America about 5% of the people possess 95% of the wealth. This
leads to certain problems, foremost among them poverty and income
equality. All of this eventually leads to the problem of lack of
spending in an economy.

Analyzing the Problem

The most common method of analyzing economic
distribution is to use the family as the basic income unit and then
rank all families from lowest to highest. After the incomes are
ranked, they are then divided into fifths, and then examined. This
data is then plotted on the Lorenz curve– a curve that shows
how much the actual distribution of income varies from an equal
distribution- by adding the percentage the lowest fifth earned to
that of the next highest fifth, and then plotted as the first point
of the graph. This number is then added to the middle fifth and
plotted as the second point. This process continues until the
cumulative values of all fifths are plotted. If all families earned
the same income then the graph for the Lorenz curve would be a
diagonal line beginning in the lower left-hand corner and moving
towards the upper right hand corner. But because all families don’t
receive the same income, the curve showing the actual income
distribution is curved. Thus the area between the ideal diagonal
line and the curve shows the degree of income inequality.

Reasons for Income
Inequality

There are numerous amounts of reasons as to why
incomes of various groups may be different. The first reason has to
do with education. Some people have higher incomes than others do
because they obtained a higher level of education. Thus they are put
in better positions to get higher paying jobs that require higher
levels of skills.

The second reason for income inequality has to
do with the fact that some people hold more wealth than others and
that the distribution of wealth is more uneven than that of income.
This inequality gives the wealthy the advantage to send their
children to expensive colleges and universities, and to set their
children up in business so they can earn a better income.

Discrimination is another reason that there is
an inequality with regards to income. Women may not be promoted to
the higher positions in their business because of the “glass
ceiling”. Certain unions may deny immigrants or minorities
membership o the grounds that certain groups are not fit for certain
professions.

Another factor that influences the distribution
of income is the ability that some people possess. Professional
athletes and popular performers all have natural abilities that allow
them to earn more income.

Finally, another reason for differences in the
distribution of income is the amount of monopoly power certain groups
hold. Unions have considerable power and have been able to obtain
higher wages for their members. Therefore these workers are more
likely to earn higher wages than a person in the same profession who
is not a union member is. For white-collar workers, monopoly power
comes in the form of quotas placed on the number that can enter a
profession. The American Medial Association, for example, has been
successful in limiting the number of people in its profession by
limiting enrollments in medical schools.

Solving The Problem

There are six types of antipoverty programs,
all with different channels to help the poor.

Income assistance is the first type.
Basically is provides direct cash assistance to those in need. One
such program is Aid to Families with Dependent Children (AFDC) under
which a family in need because of the death, continuous absence, or
permanent disability of a parent can receive cash payments.
Individual states can determine whether a family is eligible for
benefits and how large the benefits should be; this is done under the
guidelines of the federal government. Another income assistance
program in the Supplemental Security Income (SSI), which makes

payments to blind or disabled persons age 65 or older.

The second type of antipoverty program is
General Assistance, which contains programs that assist poor
people but do not provide direct case assistance. One example is the
food stamp program because a person will pay a fraction of the worth
of a coupon administered by the government. Another general
assistance program is Medicaid. Under this, the federal government
pays a majority of healthcare costs and the state governments pay the
rest.

The third type of antipoverty program are the
social service programs. These include areas as child abuse
prevention, foster care, family planning, job training, child
welfare, and day care. Although the state has final say in the kids
of services provided by the programs, the federal government matches
part of the cost. To be eligible for federal funds, a state is free
to select the social issues it wishes to address, set the eligibility
requirements, and decides how the program is to be carried out.

The fourth antipoverty program is the
negative income tax, which would make cash payments to certain
groups below the poverty line. Under the negative income tax, the
federal government would establish an income level below which people
do not have to pay taxes. Then, the government would pay a certain
amount of money to any person who earned less than that level. Such
a program would be more cost-effective for the government than the
current welfare programs are.

The fifth type of antipoverty program is
enterprise zones, which are areas where companies can locate
free of certain local, state, and federal tax laws and operating
restrictions. The zones benefit businesses and are residents
because people can find work without traveling far and rundown areas
can begin to grow.

The final antipoverty program is the
state-controlled workfare program. Under workfare, welfare
recipients are required to exchange some of their labor for benefits.
People on workfare often assist law enforcement officials or
sanitation and highway crews. In New York City, many people on
workfare clean subway cars and stations. The work is required of
almost everyone except those with very young children, the disabled,
and the elderly.