Great Divergence (inequality)

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The Great Divergence is a term given to a period, starting in the late 1970s, during which income differences increased in the US and, to a lesser extent, in other countries. The term originated with the 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 the 1940s when incomes became more equal in the US and elsewhere.[2]

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

A 2017 report by the Congressional Budget Office 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 20% grew by only 41%.[5] As of 2006, the US had one of the highest levels of income inequality, as measured through the Gini index, among similar developed or First World 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 labour is often cited as a cause of increased inequality,[9] especially among conservatives, many social scientists[10] point to conservative politics, neoliberal economic and social policies[11][12] and public policy as an important cause of inequality; others believe its causes are not well understood.[13] 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.[14][15]

The 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.[16]

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 pay relatively generous salaries, such as Apple Inc.

The combined profits of all the major retailers, restaurant chains, and supermarkets in the Fortune 50] 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.[16]

The International Labour Organization's annual "World of Work Report", predicted that the potential for social unrest in the European Union is the highest in the world.[17]

See also[edit]

References[edit]

  1. ^ Krugman, Paul, The Conscience of a Liberal, W W Norton & Company, 2007, pp. 124–128
  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 US, 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 (159–74). New York: ZED Books (published in association with the UN).
  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 7 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. ^ Stephen Haymes, Maria Vidal de Haymes and Reuben Miller (eds), The Routledge Handbook of Poverty in the United States, (London: Routledge, 2015), ISBN 0415673445, p. 7.
  12. ^ David M. Kotz, The Rise and Fall of Neoliberal Capitalism, (Cambridge, Massachusetts: Harvard University Press, 2015), ISBN 0674725654. p. 43
  13. ^ Congressional Budget Office: Trends in the Distribution of Household Income Between 1979 and 2007. October 2011.
  14. ^ Here is the source for the "Great Gatsby Curve" in the Alan Krueger speech at the Center for American Progress on 12 January
  15. ^ White House: Here's Why You Have To Care About Inequality Timothy Noah | tnr.com| 13 January 2012
  16. ^ a b Surowiecki, James (12 August 2013). "The Pay Is Too Damn Low". The New Yorker.
  17. ^ Evans, Robert (3 June 2013). "EU potential for social unrest is world's highest: ILO". International Labour Organization. Reuters.