Income Inequality among Americans and Immigrants - Report Example

Income Inequality among Americans and Immigrants Summary Income inequality in the United s has been changing over the years. For the past four decades, American economy has experienced an overall increase in income. A widening income gap has however accompanied this for last few years. Many factors have been indicated to bring about this inequality. Offshoring, immigration and technological change are the major factors that cause income inequality in America. Income inequality is a measure of how the revenue or wealth in the country is shared in the households. This gap has been used for long to estimate the welfare of the communities. The gap in income usually exists between the middle class and top class earners. Income inequality in America is related to other inequalities such as opportunities and education. Poor access to quality education and job opportunities continues the trend of income inequality. The disparity between the natives and the immigrants in the Unites States thus happen to be the cause of the income inequality. This is largely because the immigrants have limited rights and opportunities. Immigration is perceived to affect the economy of the country in that it changes the labor supply thus causing an increase in the population of low-skilled labor. This subsequently causes a pressure on wages and income. This paper explores the theories of income inequality between Americans and immigrants. It aims at shedding light on the issue of income inequality and the possible measures that can be taken to solve the problem. The measures explored in this paper are policy measures and, therefore, require the involvement of all stakeholders in economy and policy making. Keywords: immigration, immigrants. Inequality, income, revenue, natives. Introduction Income inequality has been widely studied and hypothesized by scholars. Kuznets proposed a hypothesis that income inequality should relate to the effects of industrialization in an inverse-U curve (Kuznets 24). In America, new industrial revolution experienced has resulted to an increase in income inequality especially in the last quarter of the 20th century. In the economic concept, inequality in income will be regarded as the results of side to side comparison of the earnings of two different persons. In this case, an American and am immigrant. This, however, becomes a challenge in the social context where the standards of living are not standardized and in most cases do not reflect the exact difference in earnings. In a study to determine the relationship between increased income inequality and an increase in legal and illegal immigration in America, there was “….overrepresentation of immigrants in lower income categories…” (Reed, Deborah et al. 72). These results indicate that the income inequality between the Americans and the immigrants and it is growing. Immigrants’ inflows in America have surged in the last 30 years. This has ignited so much concern from the economists and sociologists. The number of people coming in has doubled in just ten years a third of whom are undocumented and with low education. This means that they will compete for the same jobs with the least skilled natives. The result of this is a negative skills differentiation leading the income inequalities. John O’Loughlin hypothesized that globalization in U.S economy, with growing trade and immigration are factors that maintain income inequality (O’Loughlin 34). He presents the issue of the evident inequality in the earnings and income. By outlining the trends of the said inequality, O’Loughlin expresses the diverse views of the people. The hypothesis takes us quarter a century back to the time when Americans were starting to gain a concept of world leadership and upholding of basic American values. At this time, the income gap was between the rich and the poor. He recognizes that the economy of America experienced the greatest oscillations in the period when there was mass immigration into the country. With this, he brings out the idea that the immigration, whether legal or illegal have resulted to wage and economic insecurity. The gap existing between the middle and the upper class income earners is a good evidence of this. Most immigrants have job related skills but lack opportunities. Thus, they do not fall to the far bottom of the income scale. They tend to form most of the majority in the middle income category. The increase in the wage inequality within various groups has been indicated as an element in the overall wage inequality (Ottaviano & Peri 48). This variation has always existed due to a variety of factors. When gender, education, age and race are controlled by raising the socioeconomic equality, immigration remains the main factor. David (27) expresses an interesting finding in this group inequality. From his article, he clearly points out that immigration has had an insignificant impact on the income inequality. This follows findings that there are constant between-groups income differences. This indicates that other factors must be present. However, he still acknowledges that that the immigrants have a positive impact on the income inequality. His support for this nevertheless takes a different shape. He argues that the impact is largely because the immigrants tend to be in the top and bottom ends of work-related skills distribution (Ottaviano and Peri, 53). Comparing these two hypotheses we can clearly identify that immigration is a factor in the advent of income inequality in the U.S., however; the articles bring out the two sides of the issue. While O’Loughlin suggests a direct relationship between the immigration rate and the widening income gap, David sees it as just one of the factors that cause the inequality. The two articles thus makes us identify differences in income inequalities between Americans and the immigrants. First, the income gap among the Americans is a result of inequalities in educational opportunities that exist due to the socioeconomic disparities, age and race. Among the immigrants, however, the inequality can be attributed to differences in work-related skills and qualities. Most of the legal immigrants are skilled and in good jobs, in the country. They occupy the middle and upper income categories. However, there are the illegal immigrants and some legal immigrants who were tied along by the skilled. These makeup the low income earners category since they lack skills (OLoughlin 39). A 1990 analysis of the income inequality in America suggested that offshoring, immigration and technological change were the important factors that caused income inequality. The three factors were blamed for the widening trend of top-half and bottom –half income differences. In regard to immigration, the results were consistent with the hypothesis that immigration pushes the average income of the people at the lower end further down thus increasing the bottom-half inequality (FRBSF). In a report by Jack Martin (13), immigration is seen as the fuel for income inequality in the U.S. the report observes an expanding inequality gap between mean household earnings and the median income. This is observed to be a direct result of illegal immigration. Legal immigration contributes to an addition of both high and low income earners this shrinking the middle class. On the other hand, illegal immigrants are low skilled and hence contribute to the low-wage category. This is detrimental to the minority who are the immigrants in that they have a large population of them being low income earners and living in abject poverty. The report also compares the income variations at the state level and that in the immigrant population. This comparison suggests that, in areas with a high number of both legal and illegal immigrants, the inequality level grew faster. In the same report, we are able to note that legal immigration rules try to solve the issue of income inequality by admitting only the working age (20-64 years) and the children who are potential entrant to the job market. The illegal immigration, however, has only the unskilled and low income earners who may not be given legal immigration permits. Comparing this with the natives, a large percentage of the Native Americans (41.6%) earn more than $50000 annually. Those who earn less than half this amount are only 19.8%. This indicates a not so large income inequality among the Americans. The explanation for this could be the availability of somehow equal opportunities among the Americans that makes them have chances that are equalizing. The immigrants lack this equalization and their opportunities are not similar. This is because the opportunities depend on their previously acquired skills and their mode of entry into the country (Ottaviano and Peri 78). Cesar Gallo in his article Economic Growth and Income Inequality: Theoretical Background and Empirical Evidence, observes inequality to be a multidimensional concept. He further uses various theories of economic growth to connect economic growth and income variations. The paper defines economic growth as the rise in the per capita income and national product. He employs the Lewis’ model of economic development. This model explores the co-existence of both modern and traditional economy. The observable connection between the growth in the economy and inequality is through the evident effects of the growth to income distribution and also how this growth further results to income inequality. Referring this to the report by Jack Martin, it is clear that the inflow of the immigrants increases the workforce availability in the U.S. this in turn results to an increase in productivity of most firm. This means that there will be a growth in the domestic output. However, with the workforce available, the wages experience a downturn and many people especially the illegal immigrants with limited skills receive low earnings. The final product of this is the widening of the income gap and hence inequality. From the theories of size income distribution, two concepts develop. First, that income inequalities are out of personal choices in which case inheritance and institution play a part. Secondly, that income distribution is a result of the personal abilities which are genetic, out of chance and capacities. Taking from the first concept, we can conclude that the income inequality between the Americans and the immigrants is a direct result of choices made in the limits of the personal background. This is correct among the natives who happen to have almost equal opportunities and chances. The income inequalities between them is largely a factor of their own choice or due to aspects related to inheritance. However, among the immigrants, there are no choices apart from those in high income. The rest find themselves taking the only available opportunities in the low income jobs. The income inequality among the immigrants is, therefore, more directed to the second concept of fate and chance. Those who have a better chance get better jobs, and their income is higher. Those who are not as capable or as lucky find themselves in low paying jobs, and the result is income inequality. From these theories, it is easy to assume that economic growth will affect negatively the income distribution. A question, therefore, arises on how we can reduce income inequality while still maintaining economic growth. The immigration aspect of labor then comes to the question. Do we have to close the borders and prevent any inflow of labor in order to achieve income equality? An approach to solving this inequality is rather critical and will require policies to be made. For policies to take effect, there must be a good level of understanding of the problem by all the stakeholders and political goodwill. An empirical analysis presented by the Economic Policy Reforms 2012 describes various policies that need to be put in place. First, the country requires an educational policy that will increase the educational opportunities for all people living in America. These will have to include the aliens and the immigrants who presently lack equal opportunities. The policy will increase the graduation rate to high level education and, therefore, increase the skilled workforce. Secondly, the country needs to reform the labor market policies. This will ensure that the minimum wage is increased to a level that is high enough to reduce the inequality and at the same time not so high to reduce employment. These labor policies will require sober involvement of the policy makers and the employers as well as the trade unions. The third policy that can be implemented is the market policy. The state should reduce unnecessary market regulations to stabilize the competition and give relatively equal chances for all the people of America. The improvement of the product market will encourage investments and boost employment and income. Fourthly. There should be policies that enhance the positive integration of immigrants and the minority in all areas of the economy. This, together with an equal opportunity policies will enhance their relative participation in the economy. They will have better earnings and the income inequality will reduce. Other policies that require address are the tax and transfer policies whose streamline will lower the income inequality through redistributive policies. According to this report the implementation of these policies will require an understanding of the factors that shape the inequality of income. Factors such as individual labor income and its variations among people in the same working age, household income, market income, and disposable income are all to be considered in the policy-making. Policies that have been put to boost the GDP have been found to have an impact on the inequality, the country, therefore, needs a review of these policies to ensure that income inequality is reduced. America has to ensure that it takes advantage of the inflow surge of immigrants. According to Enrico Moretti, evidence shows that an additional visa issued to highly skilled immigrant does not necessarily mean one jobless for the natives. The country needs the skilled immigrants to help in investments and to increase not only an economic growth but also the employment levels and the income of its people. Therefore, a move directed to change of immigration policies should be aimed at favoring highly skilled immigrants who will benefit the country. Increasing the number of skilled immigrants is expected to solve the issue of rising income inequalities in the U.S. (Moretti 20). In his article, he further suggests that this reform will be of particular benefit to Americans in that it will boost the innovativeness and job creation ideas. This is from the results of a survey that indicated that, in states with a high level of skilled immigrants, the immigrants’ college graduation rates and consequently the innovation levels increased. Another observation made in this article is that there are the foreign based labor force in America lies at 15% of all workers. However, the first immigrants makeup over a third of the American scientists and engineers. This means that for America to retain dominance in sciences, the country must have policies not only to e allow skilled immigrants but also to attract the highly qualified immigrants. This will help in reducing the income inequality gap by creating innovation and employment opportunities (Moretti 28). Conclusion The dynamics of income inequality in America have been studied for long. The relationship between immigration and the income gap has been widely suggested by scholars. This has led to the focus being directed on the effects of immigration on the economy and the income gap. Whereas many people will view inequality as a result of inflow of legal and illegal immigrants into America, there are factors to consider. First, income inequality is not a result of immigration per se, there exist inequalities even in groups where immigration is close to zero. Secondly even among the immigrants themselves, there are gaps in the income. However, theorists have suggested a difference in the income inequality between the Americans and the immigrants. While, for the Americans, this might be a result of simple choice, the immigrants’ case is different. The lack of equal opportunities and the low skills make them have limited choices. The other difference is that the gaps are different; that between Americans is not as large and can be explained by the theory of choice and inheritance. However, that between the immigrants is large, and the only explanation is legality and opportunities. Policies have, therefore, to be made to address the issue of income inequality. These are to focus on ensuring equal opportunities and streamlined labor force. The importance of skilled immigrants has also to be considered. Making it easy for the highly skilled immigrants to come to America will enhance innovativeness, increase production and boost the domestic employment opportunities (Moretti 2008). Education policies are also important in ensuring that income inequality is solved. References Jack martin Immigration: Fueling U.S. Income Inequality Directorate of special projects the federation for American immigration reform.2013 Kuznets, S."Underdeveloped countries and the pre­industrial phase in the advanced countries" in A.N. Agarwala, and S.P. Singh (eds), The economics of underdevelopment, 1954, Oxford University Press, New York. Moretti, Enrico. Real Wage Inequality London: Centre for Economic Policy Research, 2008 Internet resource Ottaviano, Gianmarco and Giovanni Peri Rethinking the Effects of Immigration on Wages 2006 NBER Working Paper Number 124 OLoughlin. Economic Globalization and Income Inequality In The United States, Thousand Oaks, CA: Sage Publications, 2008. p. 21-40. (Urban Affairs Annual Reviews 48). Read More