Tag Archives: income inequality

Income Inequality Levels Rising

Thesis: Pay inequality is at exorbitant levels and something must be done to stop this rising inequality.

The income inequality in America has gotten a lot of attention and press for a few years now, so one would think that all of this negative publicity surrounding it would cause this inequality to go away. However a recently released Harvard Business School study proved that “Americans might think they know how bad inequality is, but it turns out they actually have no idea. [This study] found that Americans believe CEO’s make roughly thirty times what the average worker makes in the United States, when in actuality they are making more than 350 times the average worker.” This disparity in incomes is at historic highs, and truly sad how uninformed Americans truly are at just how high this income inequality levels have reached.

The Average annual compensation for CEO’s is by far the highest in the United States.  Supporters of this pay gap may justify this by saying that they need these levels of compensation to remain the number one innovator and country and to attract and retain the most talented and successful CEO’s and businesses. But if this argument were to hold, then the bosses of Wall Street, long considered an area where some of the most successful and smartest people go, should have some of the highest disparities between the top bosses and the average low level employee. However as the Wall Street Journal reported, “The gap between what bank CEOs and their staffs take home in pay has narrowed significantly since the financial crisis, driven mostly by a drop in compensation for the leaders of the five biggest Wall Street firms, according to a Wall Street Journal review of bank regulatory filings.” This is a good sign as the average pay for worker at the top Wall Street Banks rose to new highs, the pay of the CEO’s remained well below their 2006 pre-recession highs.

As explained later in the article, “Wall Street CEO pay “just doesn’t have the leverage that it used to because in many cases the businesses themselves don’t have the leverage,” said Todd Sirras, a managing director at Semler Brossy Consulting Group LLC.” Another possible reason for the lower ratios of CEO to average worker pay for Wall Street is that everyone on Wall Street “even middle-tier finance workers are generally well paid.” While in comparison an analysis from last year, “estimated that it takes the typical worker at both McDonald’s and Starbucks more than six months to earn what each company’s CEO makes in a single hour.”

The income inequality is still high all over America, and must start to dissipate in order to not enrage all American workers. This can be done in many ways, raising the minimum wage paid to low level employees, or lowering the pay of top CEO’s. Either way, something must be done about the widening gap between America’s ellite and the average worker.

Who can be a Middle Class?

Feb 23rd 2015

middle

(http://communityjournal.net/dying-middle-class-neighborhoods-being-replaced-by-a-segregated-society-study/)

Nowadays, many countries try to make policies for middle class which decreased its number significantly during the recession. Some people argue that strengthening America’s middle class should be officials; top priority. I agree with that statement, however, I believe that before generating policies for middle class, the government should define what the middle class is. If the government cannot clarify the middle class, how come new policies (which stand for the middle class) can be effective?

Normally, people use the middle class as a term which constitutes anywhere from roughly 25% to 66% of households. Clearly, it is a “middle” class, standing in the middle of a distribution graph in terms of the U.S. citizens’ wealth. It is a basic way that most countries use, but, I wonder that this method is too simple for the U.S. Why the U.S. should be different? As Wall Street Journal mentions in “Middle Class, Undefined: How Purchasing Power Affects Perceptions of Wealth,” the U.S. is so large that regional living costs vary. For example, a person in lower-middle class in the New York City can have a same purchasing power with people in upper-middle class in Missouri.

region

(http://www.wsj.com/articles/middle-class-undefined-how-purchasing-power-affects-perceptions-of-wealth-1424449343)

Another example is that the President Obama categorizes the top earners who are earning more than $200,000 a year or individuals making more than $250,000. The gap, $50,000, shows the regional difference which can affect on the government’s monetary and financial policies. For example, let’s assume that the government tries to increase the progressive tax (in terms of the wealth a person holds), which is often suggested as a way to mitigate the higher income inequality. If the government only cares about the absolute amount of the income or wealth, income inequality problem will be worse because of the variance between regions. More specifically, a person who earns about $80,000 a year, living in Kentucky, pays less than a person who earns about 100,000 a year, who is living in District of Columbia. However, it is possible that the one from Kentucky has more purchasing power than the other one from D.C. Furthermore, Wall Street Journal gives another example. “Hawaii’s rents were the most expensive, coming in at 59% more than the national average, while Mississippi had the cheapest rents at 38% below the national average. That means if the national average were $1,000, someone in Mississippi would pay $621 for the same type of dwelling, while someone in Hawaii would pay $1,590.” These examples show that different purchasing powers in various regions can distort the purpose of progressive tax as well as that of monetary and financial policies.

In general, the U.S. government has three tax systems, consisting of Federal, State and local governments. Although states and local governments impose different amount of taxes, I believe that the U.S. government should expand those local institutions’ influences on tax system to mitigate the differences in real purchasing powers. Additionally, I think categorizing regions could be another solution to alleviate the gap between the amount of earnings and real purchasing powers. To illustrate with, the U.S. government can categorize the regions by three types by cost of livings and impose the Federal tax differently.

Who can be a middle class: more earners or more purchasing power holders? I think the later ones are more fit to the category.