Income Inequality



Income Inequality

Background

Economic inequality is the gap between the wealth of the richest people in a country and the wealth of the poorest people. Economic inequality was one of the causes of the Great Depression of the 1930s: although there were a few very rich people in the country, many people did not have enough money to buy the necessities of life, let alone any luxuries. Since people did not have the money to buy what factories and farms were producing, those factories and farms lost money, causing them to lay off employees, which then caused even more poverty. As a result of new laws passed during the New Deal in the 1930s, such as the legalization of labor unions, minimum-wage laws, and Social Security, economic inequality declined in the United States from the 1940s to the 1970s. Since then, however, economic inequality has worsened in the country.

Wealth inequality is growing in the United States for several reasons. Labour unions have lost power, causing wages to decline. At the same time, the pay for managers and executives has gone up. In the 1950s, about 35 percent of U.S. workers were represented by labor unions. By the start of the twenty-first century, this percentage had dropped to less than 14 percent. Higher unemployment causes a greater wealth inequality, because the lowest-paid workers tend to suffer disproportionately from unemployment, causing their income and wealth to decline even more. Globalization—which has contributed to the loss of well-paying jobs in the United States to other countries—also fueled increased wealth inequality. The tax burden has shifted toward lower-income Americans. The tax rate of the wealthiest Americans fell from 70 percent in 1980 to 28 percent in 1987. Their tax rate rose in 1991 and 1993, but fell again in the early years of the twenty-first century to 35 percent. Another reason for the wealth inequality is that the United States does not have a program of “social insurance” for everyone: Social Security, the nation's main type of social insurance, is only for the elderly. Therefore, it is difficult for poor Americans to escape poverty.

Economically Inefficient

Debt has always been a difficult part of the reality of developing countries. Defaults on debt payments have existed for as long as credit itself. Indeed, the problems of debt servicing preceded Mexico's first foreign loan after independence in 1827. However, debt has become a particularly prominent issue in international debates on economic development in recent decades.

Much of that has to do with the strong activism emerging from transnational social networks and campaigns which have not only brought the issue to the forefront of economic discussions but have stressed the link between debt and human rights. Thus, the reasons for the current salience of debt in the global economy are intimately linked to the emergence and recognition of movements such as the Jubilee 2000 Coalition (now the Jubilee Research) and the recent technological advances that have permitted the proliferation of information via the Internet. Using this last is a core ...