What does a price tag mean to you? When shopping, have you ever second guessed buying something because you can not afford it? Does debt plague you? If you are a parent, have you ever felt uncomfortable sending your child to a certain school because of financial reasons? While some people live in lavish houses and never have to say yes to these questions, others can not even afford basic housing and food. There is a reason why some cannot afford to live in the United States. The economic disparity is real and income inequality is a modern crisis.
Our Society is Divided: An Overview
Income inequality can be defined as a small percentage of a population having the majority of the wealth or income in an economy (Gale). The San Francisco Bay Area has one of the highest levels of income inequality in the United States. The area is filled with people taking in a variety of wages; and in 2016 a Brookings Institution analysis showed that “families on the high end of the income spectrum earn 11 times more than families on the low end — making it the third most unequal region in the U.S.” (Kendall). The uneven distribution of income has been prevalent in the U.S. since the 1870’s and continues to be a problem today.
Income inequality has become an increasingly large problem in the U.S. and more specifically the Bay Area. I find myself drawn to this topic of study because the Bay Area, including Oakland, where I live, is a central area where income inequality is a glaring problem. The disparity between areas like Piedmont and downtown Oakland is noticeable. How can two areas, that are so close, less than two miles, seem so divided? Income inequality is a problem that needs to be solved. Through my research I was interested in answering the questions: What could be done to solve income inequality? How long would it take to adequately close the gap of income inequality in the U.S.? And what are the short-term and long-term effects of income inequality?
If you would like to read more about my interest in income inequality, click here.
The History of Income Inequality in the U.S.
Since the beginning of the Gilded Age in the 1870s, income inequality has progressively worsened throughout the United States. The Gilded Age was a time period from the 1870’s to 1900, when corrupt industrialists and those in prosperous professions such as banking earned and accumulated an extreme amount of wealth, while the working class worked for low wages. During the Gilded Age and throughout the Progressive Era, income inequality was high and stayed at roughly the same level. The Progressive Era (1890s – 1920s) was a time of many economic reforms. (Mintz and McNeil). In 1913, the Sixteenth Constitutional Amendment was passed, establishing an individual income tax (Terell). Although the Sixteenth Amendment was ratified, “due to generous exemptions and deductions, less than 1 percent of the population paid income taxes at the rate of only 1 percent of net income” (Our Documents). The Sixteenth Amendment was enacted to address the issue of income inequality but its execution during this period was not effective. However, income inequality did decrease at the end of the Progressive Era as a result of World War I (1914 – 1918) (Piketty and Saez). In order to pay for World War I, the government used taxation which mostly affected the wealthier people. The taxation covered 30 percent of World War I’s cost and helped the income gap close slightly (Zielinski). There was a substantial decrease in the income gap during the Great Depression (1929 – 1939), a period of worldwide economic depression. Businesses collapsed which “significantly reduced top capital incomes” (Piketty and Saez) The poor and wealthy were both negatively affected by the Great Depression, but the reduction of the wealthiest people’s capital led to a decrease in income inequality, narrowing the gap between the rich and the poor (Saez). Following the Great Depression, was World War II, from 1939 to 1945. This war transitioned the weak economy into a strong and profitable economy. During World War II, top marginal income tax rates, which increase with an employee’s income, were set to about 80 percent. It is possible that these tax rates led big businesses to stop increasing top wages (Soltow). From the end of World War II to the 1970s, wages were more equal for Americans. In the 1970’s, income inequality became a problem again. The wages of corporate leaders kept increasing, while those of other poorer workers stayed the same or fell. Thus “among the wealthiest one-fifth of families, the Census Bureau says that average income grew from $70,260 to $76,300– in 1986 dollars. Among the poorest one-fifth of families, average income fell from $8,761 to $8,033” (Levy). Since 1970, the gap between the rich and the poor continues to widen as social norms change to accept higher and higher wages (Piketty and Saez).
If you would like to learn more about the history of income inequality, click here.
Income Inequality Today
Income inequality is prevalent in the Bay Area largely because of the tech industry. People who work in technology, receive high wage increases compared to many other professions.Technology workers “received a 69 percent salary bump to about $233,000 between 2005 and 2015. Retail workers, by comparison, got a 5 percent raise to about $41,000, and educators saw their pay increase by 9 percent to about $59,000” (Treuhaft). Though many people in Silicon Valley work in the tech industry and receive high wages, “nearly a third of Silicon Valley households don’t earn enough to meet their basic needs without assistance, and more than 10 percent of the population lacks regular access to nutritionally adequate food” (Kendall). As the tech industry grows, the income gap will continue to widen.
An area that exacerbates income inequality is the lack of fair educational opportunities. Today, good education comes with a high price tag. Top 1% (people that take in the highest incomes in America) have the capability of paying for expensive education such as at Ivy League schools; it was seen that “at five different Ivy League schools, more students came from the top 1% of the income scale than from the entire bottom 60%” (Lartey). Wealthier people in the United States typically have more opportunity for their children to receive a top notch education; they have the ability to pay for expensive schools, donate generously and pay for tutors to help their children receive impeccable grades (Manjoo).
Another current impact of income inequality is how it affects the housing market and homelessness, specifically in the Bay Area. Many people do not receive enough money to pay for affordable housing and “at the bottom of the income distribution, individual consumers must choose between the minimum quality of housing available and homelessness” (Quigley). San Francisco has one of the highest housing costs in the country and in 2017 about 25,951 people were homeless in the Bay Area. As rents rise, people with lower income cannot afford a home and “in the San Francisco area, where the median rent is $4,331, a 2 percent increase could make 67 more people homeless” (Kendall). San Francisco is a place where “10 percent of households subsist on less than $10,000 a year” which is not a strong financial standing (Glantz). People on the higher end of the income gap, like those in Silicon Valley, do not have to worry about rising rents because they are receiving high incomes. Because of the wide income gap in the U.S. today, some full-time working families have to worry about living on the streets while others live in lavish houses with excessive features.
If you would like to learn more about the current day affects of income inequality, click here.
How to contribute in you daily life:
The Bay Area does not have to wait for the government to take action. Residents can donate or volunteer to nonprofits such as Community Housing Partnership (a non-profit that secures housing for the homeless), to build programs that would help with homelessness and wage inequality. These programs would assist those in need and help them create a better and self-sufficient lifestyle. Community members can also vote and put in place political candidates that would construct and promote programs that would help to close the income gap, such as increasing the taxes on the wealthy and ensuring these taxes are invested back into the economy. In addition, citizens can vote for representatives, local and national, that support reducing income inequality like our past president, Obama.
The United States is in a constant struggle to find effective and lasting ways to decrease/address income inequality. We need the government to help. Regulations, such as rent control, are necessary to combat rising housing prices, help with homelessness, and ensure affordable housing. Rent control ordinances limit how much rent landlords charge their occupants. By strengthening rent control laws, people with lower incomes, including the homeless, would have the ability to rent homes at reasonable prices (Hemelright). Rent control would positively affect the housing crisis since there would be more affordable housing. If similar programs were implemented throughout the United States, “universal rent control would help 42 million households” (Ivanova).
Another way the government could substantially help to close the income gap is by increasing minimum wages both in California and across the United States. Increasing the minimum wage for the lowest paid workers would take about 4.6 million people out of poverty (Powell). President Obama had a goal to increase the minimum wage and acquire equal pay. An increase in wages in turn would strengthen the economy by creating more consumption. By raising the minimum wage, lower and middle class people would be able to support themselves and their families. It would also increase the likelihood that families would spend any extra money earned, which would support the economy. In past years, parts of the United States have seen an increase in minimum wages, and the “states that have raised their minimum wage since 2013 have seen stronger earnings growth in low-wage jobs compared to states that have not raised their minimum wage” (White House). The federal minimum wage in the United States is currently $7.25 and the minimum wage in California is $11. Raising the minimum wage in California and the United States would result in partially closing the income gap and ensuring a living wage.
The growing problem of income inequality in the Bay Area and the United States cannot be ignored. Solutions like rent control, increasing the minimum wage and taxing the wealthy are just some of the ways of decreasing income inequality. By making these changes now, the United States can gradually create a healthy economy where all people can prosper.
If you would like to learn more about solutions to income inequality, click here.
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