Great Divergence (inequality)

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This article is about the post-1970 growth in inequality. For era of dominance of Western Civilization, see Great Divergence.

The Great Divergence is a term given to a period starting in late 1970s when income inequality grew substantially in the United States and to a lesser extent in other countries such as Canada and the United Kingdom. The term originated with Nobel laureate, Princeton economist and New York Times columnist Paul Krugman,[1] and is a reference to the "Great Compression", an earlier era in the 1930s and 40s when income became dramatically more equal in the United States and elsewhere.[2]

Share of pre-tax household income received by the top 1%, top 0.1% and top 0.01%, between 1917 and 2005.[3][4]

A 2011 study by the CBO on the distribution of income in the US from 1979 to 2007 found that after federal taxes and income transfers, the top earning 1% of households gained about 275% and that the bottom 18% only grew 20%.[5] As of 2006, the United States had one of the highest levels of income inequality, as measured through the Gini index, among similar developed or high income countries.[6]

Scholars and others differ as the causes and significance of the divergence,[7][8] which in 2011 helped ignite the "Occupy" protest movement. While education and increased demand for skilled labor is often cited as a cause of increased inequality,[9] especially among conservatives, many social scientists[10] point to conservative politics and public policy as an important cause of inequality; others believe its causes are not well understood.[11] Inequality has been described both as irrelevant in the face of economic opportunity (or social mobility) in America and as a cause of the decline in that opportunity.[12][13]

Journalist James Surowiecki, points out the changes in the US economy in the last 50 years and how important low wages are now to big employers in the US.

In 1960, the country’s biggest employer, General Motors, was also its most profitable company and one of its best-paying. It had high profit margins and real pricing power, even as it was paying its workers union wages. And it was not alone: firms like Ford, Standard Oil, and Bethlehem Steel employed huge numbers of well-paid workers while earning big profits. Today, the country’s biggest employers are retailers and fast-food chains, almost all of which have built their businesses on low pay—they’ve striven to keep wages down and unions out—and low prices.[14]

While these retailers and fast-food chains are profitable, their profit margins are not large, which limits their ability to follow the lead of successful companies in high growth industries that do pay relatively generous salaries -- such as Apple Inc..

The combined profits of all the major retailers, restaurant chains, and supermarkets in the Fortune 500 are smaller than the profits of Apple alone. Yet Apple employs just 76,000 people, while the retailers, supermarkets, and restaurant chains employ 5.6 million.[14]

The International Labour Organisation's (ILO) annual "World of Work Report", predicted that the intensification of extremes between the wealthy and poor continues to widen in the European Union where it is the highest in the world, and that this "gap is the major trigger for social unrest." [15]

See also[edit]

References[edit]

  1. ^ Krugman, Paul, The Conscience of a Liberal, W W Norton & Company, 2007, p.124-8
  2. ^ The Great Divergence. By Timothy Noah
  3. ^ Saez, E. & Piketty, T. (2003). Income inequality in the United States: 1913–1998. Quarterly Journal of Economics, 118(1), 1–39.
  4. ^ "Saez, E. (October, 2007). Table A1: Top fractiles income shares (excluding capital gains) in the U.S., 1913–2005.". Retrieved 2008-01-17. 
  5. ^ Congressional Budget Office: Trends in the Distribution of Household Income Between 1979 and 2007. October 2011. Figure 3.
  6. ^ Weeks, J. (2007). Inequality Trends in Some Developed OECD countries. In J. K. S. & J. Baudot (Ed.), Flat World, Big Gaps (159–174). New York: ZED Books (published in association with the United Nations).
  7. ^ Krugman, Paul. "The Rich, the Right, and the Facts: Deconstructing the Income Distribution Debate"prospect.org, 19 December 2001
  8. ^ Sowell, Thomas. "Perennial Economic Fallacies," Jewish World Review 07 February 2000, URL accessed 3 November 2011.
  9. ^ "CIA. (June 14, 2007). United States: Economy. World Factbook.". Retrieved 2007-06-20. 
  10. ^ such as economists Paul Krugman and Timothy Smeeding and political scientists Larry Bartels and Nathan Kelly
  11. ^ Congressional Budget Office: Trends in the Distribution of Household Income Between 1979 and 2007. October 2011.
  12. ^ Here is the source for the "Great Gatsby Curve" in the Alan Krueger speech at the Center for American Progress on 12 January
  13. ^ White House: Here's Why You Have To Care About Inequality Timothy Noah | tnr.com| 13 January 2012
  14. ^ a b Surowiecki, James (August 12, 2013). "The Pay Is Too Damn Low". The New Yorker. 
  15. ^ Evans, Robert (3 June 2013). "EU potential for social unrest is world's highest: ILO". International Labour Organization. Reuters.