Explaining the Reasons for Income Inequality in the US - Research Paper Example

ID Number: Explaining the reasons for income inequality in the US Introduction and background of the research The income inequality within the population of the United States of America has been a major concern for economists and analysts across the world because it has been growing at an accelerated manner over the last 30 years. The level of income inequality in the country has been increasing at an uncontrollable rate as measured by every type of statistical measures. The main reasons for the growing level of income inequality among the population of the country are important to be identified and prevented because a long term inequality in income within the population is likely to lead to instabilities in the macroeconomic structure of the nation. The causes of the increasing levels of income gaps and inequalities in the United States of America, which is one of the largest and most developed nations in the world has been a topic which is subject to a number of extensive researches, political interests and media attentions because this aspect involves how the income of the nation is divided among the people of the country and thus, is a primary factor involved in the development of economic consistency and stability of a country. Therefore, the topic of identifying and analyzing the main reasons which are driving the exponential growth of the inequalities in the financial and economic positions of the rich and the poor classes of the society has become an interesting area of study and research. Statement of the Research questions This research is aimed at identifying and analyzing the primary and secondary reasons that have caused the high level of income inequalities in the United States of America. For this purpose, the macro economic backgrounds of the company as well as the different sources of income among the rich and the poor classes of the American society are studied in depth. Additionally, the main drivers of the income inequalities in the society and economy of the United States are identified so as to understand how these income gaps can be reduced in the future by the government of the United States of America and the various other governing authorities and institutions functioning in the country. Thus, the main research question formulated for the study is given as follows What are the primary reasons that have caused the increase in the income inequality among the population of the United States of America over the last three decades? The secondary research questions for the study would include What are the linkages between income inequality, economic growth and redistribution? What are the external macroeconomic factors in the United States that are contributing to the increasing income gap in the society? How can these factors be controlled or negated so as to reduce these gaps in the economy? Literature Review As per the work of Galbraith and Hale (2008), income inequality refers to the degree to which income within a population is distributed in a disproportionate and uneven manner. Income inequality can also be described as the gap between the income of the rich and the poor classes of people within a society or a nation (Galbraith and Hale, 2008, p.344). Duncan and Murnane (2014) have argued in their work that the consistently increasing level of wealth inequality in a nation can lead to severe repercussions for the economy and the society. Hence, identifying the main factors which are triggering the income gaps or wealth inequality among the different segments of the population is deemed to be an imminent necessity (Duncan and Murnane, 2014, pp.100-102). Figure 1: Interrelationships between redistribution, income inequality and growth (Source: Bartels, 2008, p.160) As per the study of Bartels (2008), income can be measured in different terms including family and household income and real median household income (Bartels, 2008, p.160). Income includes the earnings and revenues that are derived from salaries, wages; dividends form shares or stocks, profits from the sale of any product or service, interests gained from the savings in a bank account and so on. As per the United States Census Data, the median household income in the United States was USD 51017 in the year 2012. More than half of the households in the country had an income which was greater than this value and half had earnings lesser than this. This signified an increasing level of inequality in the way income was distributed within the different segments of the society. The regulatory and economic policies of the United States can also be termed to be one of the triggering factors of the widening income gap. These policies have led to a social and economic system in which the rich gets the scope to get richer while the poor class of the society has lesser means to improve their economic and financial conditions. Apart from this, the increasing level of immigrants into the United States has led to the development of a workforce which is comparatively low skilled and as such their income levels also remain low. Other than these, the predictive lending and credit policies and the tax systems of the country are also argued to be significant contributors to the problem of wealth gap. According to the study prepared and presented by Barnes (2013), the absence of suitable forms of taxation like consumption taxes and progressive wealth taxes is another hindrance in the way of developing sustainable and broad based economic growth in the country because the present taxation system in the country is not an all inclusive system and the low to medium income group of people are often the ones who have to bear the brunt of the taxation policies in the country (Barnes, 2013, p.62). Research Methodology The research follows an explorative secondary research methodology in which both the qualitative and the quantitative research methodologies are adapted. The quantitative research design assumes a more significant role in the research methodology as compared to the qualitative research design because the numerical data are more important for the analysis purpose in the research. The concepts of human motivations in relation to earning and saving are also studied as an important behavioral or qualitative data for the research. The collection of quantitative data is done so that the implications and inferences can be drawn through the analysis and interpretation of quantifiable information (Bryman and Bell, 2003). The data collection methodology for this research primarily includes secondary data collection techniques. The secondary data for the research would be collected from various authentic secondary sources like previous research works, published contents, and government data, NGOs and other organizations’ data and reports which are accessible in the public domain. Apart from these sources, journals, magazines, newspaper publishing, valid and verified internet contents, economic reports and reports prepared and published by significant institutions like the United States Census Board and the International Monetary Fund (IMF) are other significant sources of data for the research on the income equality in the United States of America. The secondary data as collected for the research are carefully analyzed and interpreted so as to meet the research objectives and answer the research question in the most appropriate manner. The data analysis methodology uses popular Meta analytic statistical data analysis techniques. A trend analysis would also be done to understand how the income gaps in the country have widened in different scenarios under the effect of various changing internal and external conditions (Creswell, 2003). Timetable for the research The research work will be carried out over a period of 10 months. The timetable for the research is designed with the help of a Gantt chart which is an important statistical tool that helps to develop a project schedule. The research study is divided into significant phases and the time duration for each of them is put into the chart after allocation. The time table for the case research is given below. Months 1 2 3 4 5 6 7 8 9 10 Identification of the research domain and the scope of the research work Formulation of research questions and objectives Collection of relevant background information and theoretical studies Formulation of the research approach and methodology Implementation of the formulated research methodology Primary and secondary data collection by focusing on assumptions and hypothesis Analysis and interpretation of the collected data while setting the ethical parameters for the research work. Findings and learning outcomes from the research Findings and analysis One of the main reasons that have been indentified to be the primary cause of the accelerating income inequality among the American population is the Great financial Crisis (GFC) of 2008-2012. The Great Financial Crisis (GFC) has led to sever economic and financial downturns in the economy which has triggered several disparities and fallouts within the economy. Because the financial crisis started in the United States of America, this nation was perhaps the most severely impacted one by the crisis. It has been recorded that the median household income of the population of the United States of America decreased by 8.1% from the year 2007 to the year 2012. This undoubtedly was one of the main negative effects of the financial crisis which was experienced by the economy in 2008. As adjusted over inflation, the household incomes in the country were at the lowest possible since the year 1996. Apart from the Great Financial Crisis, several existing internal and external market factors have been identified over the years by scholars and practitioners as the primary drivers of income inequality within the American society. The disparities in the wealth distribution among the American population can be explained by the fact that the combination of the lesser abilities of saving their income with that of increasing difference in the income sources between the rich and the poor is further fuelling the level of explosions in the income inequality of the population. While, the bottom 90% of the families in the country have access to limited real wage gains, the counterparts of the society have experienced high growth in real wages over the last three decades. In addition, the saving capacity and rates of the lower to middle class income group families of the country over the same period has collapsed while that of the high income groups of people have remained at a substantial level. In the present day scenario, 90% of the lower income group families of the United States are able to save only 0-1% of their total income. In contrast, the crème layer of the society are able to save approximately 35% of their income which also leads to an increase in their wealth, thereby further widening the wealth gaps between the two extreme classes of the society. Factors like unemployment and poverty, low earning capacities, biased taxation policies, monetary and fiscal policies of the country and the individual roles related to earning options are other key factors that have played a crucial role in affecting the wealth gaps in the country. Practical issues and Ethical considerations All types of legal, ethical and moral considerations would be done in the process of conducting the study. The economic aspects as well as the human factors related to the research objective would be included in the research process. The basic principals related to ethical considerations in any research work would be adequately implemented in the study. Some of the main ethical considerations like including fair and just practices of conducting the research, taking the consent of people who are involved in the work, addition of all kinds of professional accreditations, maintaining confidentiality, respecting the privacy and confidentiality of information and people involved in the construction of the study and the maintenance of integrity would be adequately done so as to ensure that the research is conducted in an ethically and socially compliant manner. Also, intellectual property infringements and any other types of legal complications would be avoided and proper permissions would be taken before accessing any kind of content that has copyright or is protected by any other method by the individual or institutional owner of the information. Works cited Barnes, Lucy. Does Median Voter Income Matter? The Effects of Inequality and Turnout on Government Spending. Political Studies, 61(1), pp. 82-100. 2013. Print. Bartels, Larry. Income inequality in the United States. Princeton: Princeton University Press. 2008. Print. Bryman, Allan. & Emma Bell. Business Research Methods. Oxford: Oxford University Press. 2003. Print. Creswell, John. Research Design: Qualitative, Quantitative, and Mixed Methods Approaches. California: Sage. 2003. Print. Duncan, Greg. & John Murnane. Growing income inequality threatens American education. Phi Delta Kappan, 95(6), pp. 8-14. 2014. Print. Duncan, Greg. & Richard J. Murnane. Restoring Opportunity: The Crisis of Inequality and the Challenge for American Education. Cambridge: Harvard Education Press. 2013. Print. Galbraith, John Kenneth. & Daniel Hale. State Income Inequality and Presidential Election Turnout and Outcomes. Social Science Quarterly, 89(4), pp. 887-901. 2008. Print. Kelly, Nathan. The Politics of Income Inequality in the United States. New York: Cambridge University Press. 2009. Print. Read More