Category Archives: Work

The Problem of Wealth Inequality

My first post on the Productivity-Wages Dilemma seemed to create a bit of a stir, and I am fairly satisfied with the start to the blog. With this post, I’d like to talk about another problem related to economics.

First, take a look at this chart.

Source: Edward N. Wolff, Working Paper No. 589: “Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007”, Levy Economics Institute of Bard College, pp. 44, March 2010.
Web source: http://www.levyinstitute.org/pubs/wp_589.pdf

I doubt this will come as a shock to anyone, but there is massive inequality in the distribution of wealth in the United States. Just looking at this handy chart, which is a pretty non-controversial representation of wealth distribution, you can see a few things.

1) The top 1% control more than a third of the wealth in this country (hence the Occupy Movement’s “99%” buzzword).

2) All together, the top 20% control roughly 85% of the country’s wealth.

3) The bottom 40% control a measly 0.2 percent of the country’s wealth.

Is this a problem?

I think it is important to know why wealth inequality is a problem if we are going to spend a huge amount of time and effort arguing about it. If the only consequences of wealth inequality are simply that a few people have really really big houses, and most everyone else has a reasonably sized house, then wealth inequality simply becomes an issue of luxury. Beyond being jealous of people that have more, this would not seem to be a huge problem.

However, Richard Wilkinson, a social epidemiologist (someone who studies social determinants of health and disease), points out that wealth inequality is a direct cause of some big society level problems that are worth worrying about. His TED talk on the matter is below (don’t worry, it’s only 17 minutes long).

If you trust Wilkinson’s data, you can draw two basic conclusions

1) Having an overall wealthy country does very little to impact health and well-being in a country.

2) More income inequality in a country has all kinds of impacts on health and wellbeing, such as – Worse Life Expectancy, More Murder, More Obesity, More Mental Illness, and Less Trust

I hope it is easy to agree that income inequality is a problematic phenomenon in the US, if for no other reason than it breaks down trust and erodes the general well-being of individuals living in our society.

Wilkinson points out that there are numerous ways to diminish wealth inequality. Some do it through welfare programs, and some through economic policies that reinforce more even distribution of income before taxes.

How should the US deal with income inequality?

Should we leave it alone? Should we use taxes to redistribute wealth? Should we do something to reduce income inequality before taxes?

These are important issues that sociologists, economists, and the general public as a whole are wrestling with.

So what do you think?

What should the US do (if anything) to address the wealth inequality issue?

Leave a comment

Filed under Economics, Inequality, Work

The Productivity-Wages Dilemma

This is a problem…

Cumulative change in hourly productivity, real average hourly compensation, and median compensation, 1973–2011*

Image

I’ve been stewing over this chart for the last couple of days, racking my brain as to how we can better ensure that workers’ wages reflect their actual output. I am not alone in this endeavor, as Lawrence Mishel, an economist, has an excellent blog post outlining his research on this phenomenon over the last twenty years.

As a sociologist, I am no stranger to the concept of alienation, popularized by Karl Marx (yes, that Karl Marx). I’m not a huge Marx fan, and generally think his solutions to problems of inequality lacked consideration of the human element. However, I think his summation of the problem of labor and wages still has merit; workers do not get paid for what they make, but instead for the time they spend working. Workers are alienated from their work because they do not directly benefit from what they produce.

I think Mishel’s work on the productivity-wage disconnect is a perfect expression of this problem. When workers are paid for “putting in their forty hours”, it is perfectly logical that, as technology makes work more efficient, those forty hours would be more profitable to employers. However, since the worker is compensated for time, rather than production, it is not surprising that increases in wages lag behind increases in productivity.

Policy-makers have attempted to fix this problem with varying degrees of wealth redistribution, minimum wage increases, and other solutions that do not address the fundamental problem of alienation; workers are paid for their time, not their labor. If we, as a society, are going to fix the gap between productivity and wages, we have to reconnect work to compensation.

How do we do this? I am a sociologist, not an economist, so I do not have a precise answer. I do have an idea for discussion. Instead of compensating time, can we not instead attach production directly to payment? This already happens in some fields. For example, freelance journalists are often paid a rate per story or per word. We could do something similar in other fields.

There are some obvious roadblocks to this. Establishing how much an individual worker’s efforts contribute to a company’s profits will take a lot of work (pun intended). Paying for hours at work is no better, though. I think most wage-workers inherently understand that what they do in an eight hour work day does not capture how much they have accomplished. Paying for productivity is a better deal for everyone. Lazy employees who drag out their tasks will receive less compensation than harder working peers, which will make it easier for employers to put their payroll to its most efficient use. For employees, working quickly and efficiently would be rewarded with more free time, helping people who work hard be able to spend more time with their families, work on personal projects, and invest in social relationships. I don’t have data for this, but those sound like things that increase overall well-being, which is something we definitely need.

Thoughts?

*Note: Data are for compensation of production/nonsupervisory workers in the private sector and productivity of the total economy.

Source: Economic Policy Institute. Analysis from Total Economy Productivity data from the Bureau of Labor Statistics Labor Productivity and Costs program, data from the Bureau of Economic Analysis National Income and Product Accounts, and Current Population Survey Outgoing Rotation Group microdata.

5 Comments

October 22, 2012 · 6:27 pm