Blog 6: Income Distribution in an Economy with 4.5 Million Dollar Raises

The type of income distribution a country faces can provide insight on its economic and social environment. Optimally, the distribution will display a strong middle class to disseminate the negative externalities created by concentrated wealth. When wealth is concentrated unequally, issues such as access to education, are amplified and the future economy is likely to suffer. According to the US Census in 2013, we see this breakdown of income:

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In 2012, the Census shows that 50% of Americans were earning an income below $27,000 each year. Using this income calculator, you would need $36,700 to live in a modest single family home, drive a Honda Civic, not travel, rarely buy clothing and have no kids. This is a pretty meager existence and considering half of the US was making roughly $10,000 less than this in 2012, I would say this is a major problem.

The situation is even more problematic as it continues with the rich getting richer. Perpetuating the unequal distribution, the Wall Street Journal notes, “For the second consecutive year, Morgan Stanley’s chief executive got a raise.” The 4.5 million dollar “raise” was accompanied by raises to other executives as well. When our economy is allegedly growing and improving in this post-recession era, are the benefits universal, or merely being reaped by those heading distribution?

During my Freshman year, (Fall of 2011), here at the University of Michigan, the Grad Student Instructor in one of my discussions proposed an income distribution of students at the University of Michigan in comparison to that of the US in general. It was a surprise to me that the distribution on campus was so heavily skewed towards higher income families. This alone began to open my eyes to the real effects of unequal distribution. Enrollment at this notably ranked school was limited to the pockets with enough depth. This study by Stanford, done in 2014, analyzed 2004 graduates from a variety of schools including the University of Michigan.

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We see that for the people with family incomes below $35,000, less than 10% are able to go to college. Granted, this study is relatively dated and since its publication there have been more programs created to aid students with loans. However, it is still a large problem that will take much effort to correct. If the rich keep getting richer, the country as a whole is not advancing. Moving forward together is what helps alleviate social problems such as poverty and economic issues such as debt. A healthy economy lies hand in hand with a healthy income distribution.

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