Rising Income Inequality, Falling Social Mobility, and How the US can Respond

The U.S. currently faces significant income inequality, as the top 20% of Americans control 74% of the nation’s income and 93% of the nation’s wealth. This huge income disparity has been coupled with falling social mobility, and the twin challenges have left the American Dream, once the hallmark of this country, as an illusion for many Americans.

I will examine the rise in income inequality since 1979 and evaluate some of the potential causes. The project will also compare the U.S. to other OECD nations data, and it is clear from preliminary results that that the U.S. has significantly more income disparity than other nations. Since all nations have faced similar market pressures, the difference in inequality suggests that market forces are not the only cause. Put differently, there is a role for public policy to reduce income inequality.

It is certainly fair to ask, however, whether governments should worry about income inequality—does it have any negative consequences? I will research the correlation between income inequality and poor education, sub-par health, increased crime, and reduced economic growth. If there is robust correlation, it would provide some support for government action to reduce inequality. I will also examine the extent to which income inequality stifles democracy, as wealthy campaign contributors and lobbyists have increased access to politicians and greater opportunities to shape legislation.

Despite the potential negative intrinsic effects of income inequality, with significant social mobility, low-income Americans would have the chance to escape poverty and its negative consequences. Unfortunately, as my research will show, upward mobility has been stagnating in the U.S., and many underserved Americans remain in the lowest income quintile and are unable to reach the middle class. The lack of opportunity is particularly troubling because the U.S. is the most immobile of all Western nations. The social inequality also creates a cycle of poverty, wherein, low-income children cannot escape their parents’ income quintile.  

Because rising income inequality and falling social mobility are due in part to policy decisions, my research paper will end with a discussion of government’s role in reducing wealth disparities and expanding equity. The paper will enumerate policies such as investing in education, reforming the tax system to be more progressive, reducing urban poverty, correcting market failures, and ensuring wealthy interests do not dominate the policy discourse, that can  ensure that equality of opportunity, a fair distribution of income, and a vibrant American Dream are realities.   


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6 Responses to Rising Income Inequality, Falling Social Mobility, and How the US can Respond

  1. vivian0405 says:

    Hey I’m interested in your topic very much because the rising income inequality and falling social mobility have also been the serious social problems in China (where I’m from). Also, as an urban planning student, I understand that these phenomena rises with the process of urbanization. My question is that how you gonna develop your research in regard to Presidency and Congress, since these problems have already attract extensive social attentions?

    • rajsalhotra says:

      @Vivian thanks for the comment, and I think you are exactly right that these problems do exist and we definitely need to make headway on them. I think the key in my research is focusing on what exactly the data show as problems and then looking at specific policy implications of those problems. By focusing on policy recommendations that either Congress or the President could focus on, I think I tailor the research more to the Presidency and Congress. Having said that, I think your point is exactly right that for too long many of these issues have been relatively ignored.

      Also, I would love to hear more about the situation in China when you get a sec

  2. lhernandez13 says:

    Hey, I love the idea of this paper. I have a question though regarding your plan to research the correlation between income inequality and factors such as education. I know for a fact that you will find that income inequality will be directly correlated to poor education as poorer areas receive the lowest amount of resources for areas such as education. If a student receives a poor education they are most likely to drop out and as stats show high school drop outs enter economic abysses. My question is how this correlation will result in a call to action on a federal level considering how the education system (and many other social programs) is so localized and protected from Congressional and Presidential influence? It appears that the core question of the have-have nots in our society is so heavily influenced by local control of politics I would be curious how you would navigate this potential stumbling block.

    • rajsalhotra says:

      great point..and i think that you are exactly right on education, but there may be scope for federal action…

      1. reforming tax code to reduce inequality and increase Earned Income Tax Credit, for example

      2. remit more money to low-income school districts

      3. invest more in programs that train low-income workers so they can get jobs.

      4. invest money in creating jobs, because reducing unemployment is the best way to reduce income inequality.

      5. reforming Head Start which provides largely sub-par Pre-K education and neglects lot of students.

      While none of these will by themselves reform education or wipe out incoem inequality, each may make small changes to better the situation and expand equality of oppurtunity.

  3. Hey Raj, I’m very interested to learn more about your project. I focus primarily on low-wage work and income inequality across the OECD; for the CSPC paper, I’m looking at organized labor—a particular labor market institution thought to reduce inequality—and how it has failed (in the United States) to address problems of rising low-wage and precarious work. What do you think are the most realistic ‘next-steps’ for the United States on these issues, particularly as we emerge from the Great Recession? What do you think of David Brooks’ recent column on the side-by-side existence of the tradable sector economy (streamlined, competitive; with implications of fewer workers and less pay) and the non-tradable sector economy (bloated, inefficient; made up of government-led sectors—health care, education, prisons, homeland security)? (http://www.nytimes.com/2012/09/14/opinion/brooks-apres-rahm-le-deluge.html?partner=rssnyt&emc=rss).

  4. rajsalhotra says:

    Hey Emily,

    Wow–your paper topic sounds amazing. I am looking forward to meeting you and hearing more about it. Regarding policy options, I think we have to strengthen the minimum wage firstly to ensure that real incomes for low-income Americans don’t fall. Secondly, we have to realize that unions are an integral part of society and rather than simply vilifying them we should work with them.

    So Brooks’ point is well-taken but let’s just be clear–Medicare and Medicaid are, at least according to some data sources, more efficient than private insurers at controlling costs (http://www.nytimes.com/2011/06/13/opinion/13krugman.html). But, is there a problem with privatizing prisons and these other non-tradable sectors? Yes, in NJ private prisons (http://www.nytimes.com/2012/06/17/nyregion/in-new-jersey-halfway-houses-escapees-stream-out-as-a-penal-business-thrives.html) have been really troubling and they also lead to private companies lobbying politicians to increase incarceration. Finally, completely voucherizing education would supposedly reduce costs and increase effeciency–not sure since, as we have seen with college education, colleges form essentially a collusion and bid up the price of education. But, I will agree 100% that the non-tradable sector can be made more effecient and we should look for ways to do that.

    Would love to get your thoughts on the piece as well!


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