Clarksburg High School
Grand Prize Winner
How Can the Country Readily and Realistically Tackle Growing Income Disparity?
This essay offers a brief portrait of income disparity in the U.S. and examines the potential drivers behind this phenomenon. It specifically, looks at the role of globalization and technological changes, assessing what individuals, the government and corporations can do to tackle increasing income disparity.
Income disparities are a constant in human experience and are reflected in the ways individuals or social groups are differentially placed with regard to income access. Since the dawn of history, among members of seemingly egalitarian hunter-gatherer societies, dexterity, physical prowess, leadership, and standing in the community most likely fostered unequal access to material resources. Over time, social stratification crystallized in the formation of distinctive social groups vertically arranged with a bottom and a top. Our contemporary economic system of free enterprise has maintained and intermittently heightened income disparities. How, as a nation, we may feel about what constitutes an acceptable level of income disparity -high, moderate, low - is philosophically and ethically subject to contrasting interpretations.
Never since the “Roaring Twenties” - more than 80 years ago - have income disparities been so pronounced in our country.1 According to the World Top Incomes Database2, in 2010, out of 156 million tax units3 (round numbers), the top 1 per cent share (1.56 million tax units) concentrated 17.42% of total reported income. This was in a country with a population of close to 309,000,000 inhabitants. In the same year, the proportional share of the top 10% (15.6 million tax units) represented 46.26%, in other words, almost half of all the declared income. In sharp contrast, the share of the bottom 90% (143.6 million tax units) -that is, the overwhelming majority of the American people- represented only 53.74 % of the grand total.
What are the key drivers of growing income disparities in the United States?
The Organization for Economic Cooperation and Development (OECD), an NGO headquartered in Paris of which our country is a member, has identified a set of diverse factors responsible for the growing income disparity in their member countries: globalization, technological progress, changes in family formation and structure (more single-headed households with and without children), and income distribution from capital, property, investments and savings, and tax and benefit systems.4
The OECD considers that the increase of overseas operations of multinational corporations may have had a negative effect on workers in lower skilled occupations in highly industrialized countries. However, it reports that technological change is perhaps the most powerful driver of increased wage disparities.5 The information and communication revolution began in the early 1980s required newer and higher sets of skills and knowledge by workers. By favoring skilled workers, these new industries rendered increasing numbers of low-skilled workers non-competitive, thus, impacting earnings distribution.6 Therefore, the “upskilling” of the labor force through vocational training in emerging fields like biotechnology, nanotechnologies, genetics, environmental engineering, energy, and new manufacturing technologies could be instrumental in both reducing inequality and boosting employment rates. This is especially relevant for traditionally underrepresented groups like young people, older workers, women, and immigrants.
How can investments in the human capital of the workforce lower income disparity and enhance social mobility?
According to The Wall Street Journal, there are 600,000 skilled manufacturing jobs in our country with starting yearly salaries of $50,000 to $60,000 that remain unfilled for lack of qualified applicants.7 To a large extent, our nation is facing the consequences of values and practices that have historically prioritized higher education over vocational training. Germany, the economic powerhouse of Europe, has long understood that college is not for everyone; thus its public high schools offer a two-track system beginning in the junior year, allowing students to enter the technological world immediately, and to immerse themselves in their pursuits both in theory and practice.8 Germany has achieved industrial supremacy in Europe with a relatively meager 29.8% proportion of her population aged 30-34 holding college degrees.9 In the meantime, in the United States, nearly two-thirds of high school graduates will attend college. The traditional educational system in America in which we “sit down, stay quiet, and absorb...for 12 to 16 years” can no longer be our only alternative to success.10
Strong partnerships in Germany among the school systems, trade guilds, and employers allowed German companies to train about 600,000 paid apprentices last year.11 In sharp contrast, there is often a serious disconnect in our country between the actual needs of employers in emerging fields and what local learning institutions offer. It is imperative to establish enduring connections between employers, high schools, and community colleges for our nation to recover its manufacturing foundations. Parenthetically, Germany’s competitive manufacturing advantage is at the very core of her export strength. American education leaders and employers could greatly benefit from analyzing the “German model” and applying it to our own circumstances. The recent exploratory trip to Germany by Northern Virginia officials to become acquainted with the experiences of Siemens and other German companies is a step in the right direction.12 However, the successful implementation of programs along the lines of the German model will require a radical revamping of the structure and curricula of secondary and tertiary education in our country. The clear evidence on how we, as a nation, have historically placed an undue emphasis on college completion over vocational training is illustrated locally by the fact that the Montgomery County Public School system only has one technical high school (Thomas Alba Edison High School) to address the needs of students who now attend over 25 non-technical high schools!
Other than embarking on the Herculean task of reinventing public schools systems across the nation, the 1,200 community colleges, enrolling 11.5 million students annually, and representing 46 percent of all U.S. undergraduates, are uniquely positioned in the “upskilling” or retraining of potentially millions of technologically displaced Americans.13 These institutions have the great advantage of being affordable and ubiquitous. However, they too have to boldly move beyond their “comfort zone” in traditional vocational areas (automotive technology, electricity, masonry, plumbing, etc.). In this regard, it would be worthwhile to study the experience of cooperation between Central Piedmont Community College in the Charlotte, North Carolina region and German and American firms aimed at creating a school-to-workplace high talent pipeline through its recently launched program, Apprenticeship Charlotte.14
Can income disparity be reduced without American corporations playing a major role?
We have to acknowledge that a highly trained labor force is not a panacea for the reduction of growing income disparities without more and better jobs at home. We should also keep in mind that no employee ever allocates a job to himself: companies do the allocation and they always have. Thus, how, in the context of a global recession and dwindling American exports, can our nation create more and better jobs? Undoubtedly, globalization can be a great transformational force. While we cannot impede corporations from offshore outsourcing, our government could perhaps create an effective rewards system that would make it more attractive for them to keep substantial parts of their operations at home. This “insource” campaign, in the spirit of Alexander Hamilton - who used tariffs on foreign goods to encouraged domestic manufacturing and economic growth - could be a progressive system of tariffs on firms choosing the outsourcing route and advantageous tax breaks to those which decide to make goods or offer services on U.S. soil. Additional fiscal incentives could be offered to companies which create good jobs, in economically depressed cities like Detroit, Buffalo, Pittsburgh, Baltimore, or New Orleans.
Should policymakers use fiscal policies to tackle the growing income gap?
The math is relatively simple: the federal deficit stands at $1.1 trillion dollars for the 2012 fiscal year. The Treasury Department announced in September that the national debt had surpassed the $16 trillion mark.15 In the context of declining revenues and interest groups passionately defending their own entitlement programs(defense, social security, health insurance programs, safety net programs, tax exemptions, etc.), how can the federal government use fiscal tools - or social expenditures - to reduce extreme income disparities without drastically compromising its allocation to defense and non-defense categories or without reassessing the fiscal burden on individuals and firms according to their income/earnings?
Our postindustrial society seems light-years away from the agrarian republic envisioned by Thomas Jefferson nearly two hundred years ago: a nation based on independent farmers living off marketing the fruits of their labor to “the rich” at competitive prices, so “...as (to) enable them to be fed abundantly, clothed above mere decency, to labor moderately and raise their families.” However, even in the context in which the majority of Americans are now wage and salary earners, the pursuit of happiness... the fulfillment of the American Dream, is still possible as long as we never forget the words of Dr. Martin Luther King, that we are all “... caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly, affects all indirectly.”17
- Huff Post Business. Income Inequality Is At An All-Time High. Retrieved on October 30, 2012, from http://www.huffingtonpost.com/2009/08/14/income-inequality-is-at-a_n_259516.
- The World Top Income Database, Alvaredo, Facundo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez. Retrieved on October 1, 2012, from http://topincomes.parisschoolofeconomics.eu/#Database:
- “A tax unit is an individual, or a married couple who file a tax return jointly, along with all dependents of that individual or married couple. A tax unit is therefore different than a family or a household in certain situations. For example, two persons cohabiting would be considered one household but if they were not legally married, they would file separate tax returns and thus be considered two tax units. A family could consist of a married couple and the wife's elderly mother who lives with them. That family would be considered two tax units since, if the elderly mother had a large enough income, she would be required to file a federal income tax return on her own. Thus the number of tax units will tend to be larger than the number of families or households reported elsewhere.” Tax Policy Center, Urban Institute and Brookings Institution. Retrieved on October 2, 2012, from http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=1535
- Organization for Economic Cooperation and Development (2011). An Overview of Growing Income Inequalities in OECD Countries: Main Findings. Retrieved on September 15, 2012, from shttp://www.oecd.org/els/socialpoliciesanddata/49499779.pdf
- Organization for Economic Cooperation and Development (2011).Growing Inequality in OECD Countries: What Drives it and How Can Policy Tackle it? Paris, France. Retrieved on September 14, 2012, from http://www.oecd.org/social/socialpoliciesanddata/47723414.pdf
- “The knowledge economy is transforming the demands of the labor market in economies throughout the world. In industrial countries, where knowledge-based industries are expanding rapidly, labor market demands are changing accordingly. Where new technologies have been introduced, demand for high-skilled workers, particularly high-skilled information and communication technology (ICT) workers, has increased. At the same time, demand for lower-skilled workers has declined”. The World Bank Group (2003). Lifelong Learning in the Global Knowledge Economy: Challenges for Developing Countries.Retrieved on September 15, 2012, from, http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTEDUCATION/0,,contentMDK:20283504~menuPK:540092~pagePK:148956~piPK:216618~theSitePK:282386~isCURL:Y,00.html
- Wall Street Journal, Germany's New Export: Jobs Training U.S. Companies Embrace Apprenticeships Introduced by VW, Siemens Factories. Retrieved on October 6, 2012, from http://online.wsj.com/article/SB10001424052702303665904577452521454725242.html#printMode ; see also Money News, The Rebirth of Vocational Schools. Retrieved on October 5, 2012, from http://www.moneynews.com/NealAsbury/Vocational-school-manufacturing-jobs/2012/08/16/id/448791
- European Center for the Development of Vocational Training (2007). Vocational education and training in Germany: Short Description. Retrieved on September 28, 2012, from http://education5.net/v/vocational-education-and-training-in-germany-w697
- German Missions in the United States, The German Vocational Training System: An Overview. Retrieved on October 6, 2012, from http://www.germany.info/Vertretung/usa/en/06__Foreign__Policy__State/02__Foreign__Policy/05__KeyPoints/Vocational__Training.html; see also Eurostat (2011). Europe 2020 Target: Tertiary Education. Retrieved on October 7, 2012, from http://ec.europa.eu/europe2020/pdf/themes/20_tertiary_education.pdf
- The Chronicle of Higher Education, “Tuning In to Dropping Out”, March 4, 2012. Retrieved on October 6, 2012, from http://chronicle.com/article/Tuning-In-to-Dropping-Out/130967/
- Wall Street Journal, Germany's New Export: Jobs Training U.S. Companies Embrace Apprenticeships Introduced by VW, Siemens Factories. Retrieved on October 6, 2012, from http://online.wsj.com/article/SB10001424052702303665904577452521454725242.html#printMode.
- College Board (2008). Winning the Skill Race and Strengthening America’s Middle Class: An Action Agenda for Community Colleges. Retrieved on September 24, 2012, from http://professionals.collegeboard.com/profdownload/winning_the_skills_race.pdf
- Central Piedmont Community College, Apprenticeship Charlotte. Retrieved on Oct. 16, 2012, from http://www.cpcc.edu/apprenticeships?searchterm=apprenticeships++
- Center on Budget and Policy Priorities (2012). Where Do Our Federal Tax Dollars Go? Retrieved on September 27, 2012, from http://www.cbpp.org/files/4-14-08tax.pdf; see also U.S. Department of the Treasury, Treasury Direct. Retrieved on September 9, 2012, from http://www.treasurydirect.gov/NP/NPGateway
- Jefferson's letter to Dr. Thomas Cooper, from Monticello, February 10, 1814. Retrieved on September 28, 2012, from http://www.stephenjaygould.org/ctrl/jefferson_cooper.html
- "Letter from a Birmingham Jail [King, Jr.]" Retrieved on October 20, 2012, from http://www.africa.upenn.edu/Articles_Gen/Letter_Birmingham.html