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By Alan K Rudi
In the 1980’s, the top 20% of people earned 44% of all income in the United States. In the 1990’s, the top 20% earned a higher proportion of all earnings at 46%. By 2002, the top 20% of wage earners accounted for 50% of all earnings, and it has remained at about that level since. Part of the growing disparity is due to the amount of work done. The top 20% of wage earners also account for about a third of the labor in the economy. The Heritage Foundation points out that the top 20% “contain the best educated and most productive workers, and they provide a disproportionate share of the investment needed to create jobs and spur economic growth. Nearly all are married-couple families, many with two or more earners. Far from shirking the tax burden, these families pay 67% of federal taxes overall. By contrast, the bottom quintile pays 1% percent of total federal taxes.”
There, of course, is debate about whether or not the rich are getting richer and the poor poorer. The simple fact is that about two-thirds of the world population lives in poverty conditions. In addition, the Census Bureau data shows that between 1979 and 2005, the top 20% of wage earners had real income growth of 3.8x, but in the same period, the lowest 20% of wage earners had real income growth of 2.5x. Why the growing inequality? During the last 25 years, the nature of the job market has changed significantly, requiring workers to have more brains than brawn. The demand for low skill labor is down, yet the supply of low skill labor has increased (e.g., immigration, reduced success in education). At the same time, the demand for high skill labor has increased during the last 25 years (e.g., IT workers), and there are growing signs of shortages for high skilled labor as well. Using a measure of real median earnings by education level (with 1979 at 100%), by the start of this decade, college graduates median earnings were 115% of 1979 levels, but high school graduates were at 88% of 1979 levels and high school dropouts were at 73%. Education matters in a global, information-based society.
According to Morgan Stanley (Globalization’s New Underclass), “An increasingly integrated global economy is facing the strains of widening income disparities — within countries and across countries. This has given rise to a new and rapidly expanding underclass that is redefining the political landscape. The growing risks of protectionism are an outgrowth of this ominous trend.
It wasn’t supposed to be this way. Globalization has long been portrayed as the rising tide that lifts all boats. The surprise is in the tide — a rapid surge of IT-enabled connectivity that has pushed the global labor arbitrage quickly up the value chain. Only the elite at the upper end of the occupational hierarchy have been spared the pressures of an increasingly brutal wage compression. The rich are, indeed, getting richer but the rest of the workforce is not. This spells mounting disparities in the income distribution — for developed and developing countries, alike.”
The potential consequences for business management and society could be significant. Any thoughts?
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