Income

Topics: Income, Economic inequality, Distribution of wealth Pages: 3 (954 words) Published: November 2, 2013
Income Inequality Paper
The distribution of income in the United States has been growing more and more unequal since the 1980s, although there has been a slight decrease in the this distribution in the past decade. When focusing in on the 2nd and 4th quintile, it can be observed that the earnings gap increased between 1980 and 1990, but has continued to shrink since. Our text tells us that the three major market factors leading to income inequality are changes in supply ( the supply of less-educated workers rising faster than supply of college graduates), changes in demand ( the demand for more-educated workers increasing relative to the demand for less-educated workers), and institutional forces, such as the minimum wage and the decline of unions (Ehrenberg, 2012). The main cause driving this unequal distribution of earnings is the rising demand for workers with high amounts of human capital (such as more experience and higher education) and the falling demand for workers with less human capital (individuals with less experience and less education). In other words, the returns of receiving an education have increased, and the more educated individuals are experiencing faster wage increases and faster career growth than individuals without these amounts of higher human capital (Gottschalk, 1997). The rising returns to education are related to “skill-biased technological change”, which is technological change that increases the productivity of experienced or skilled workers and therefore, reduced the demand for lower skilled workers. Because the more skilled workers are now more in demand, their earnings have increased. However, it is important to note that although this is the main cause behind income inequality, there are other market factors that could very well be contributing to this unequal dispersion of earnings as well. Another possible reason for the observed earnings inequality gap is the differences observed among the 2nd and 4th quintiles is the fact...

References: Ehrenberg, R. G., & Smith, R., (2012). Modern Labor Economics: Theory and Public Policy. New York: Prentice Hall.
Gottschalk, P., (1997). Inequality, income growth, and mobility: the basic facts. The Journal of Economic Perspectives, 11. Retrieved from http://pirate.shu.edu/~rotthoku/Liberty/inequality_income_growth_jep1997.pdf
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