This project explores rising income inequality and falling social mobility within the U.S. Currently, the top 10% of Americans control over 47% of the nation’s income, up from 34% in 1962. Together with rising inequality, the nation has seen falling social mobility, as now nearly 42% of Americans born into the bottom quintile remain there as adults. My research has found that there are four major causes of rising income inequality—changes in tax structure, increased globalization, technological improvements, and reductions in real minimum wages. Regarding social mobility, there appear to be two critical drivers: a widening achievement gap and rising income inequality. More than just focusing on causes, I have also studied the policy responses that President Obama and Congress can take to address rising inequality and falling social mobility. While there are numerous steps policymakers can take, in this blog post, I will identity three important ones.
- The government should increase Pell Grant funding for post-secondary education, so that more Americans have the opportunity to attend college. Increasing the number of low-income Americans who attend college will both reduce income inequality and expand social mobility. First, given the significant college premium, graduating from college allows individuals to secure higher salaries, thereby, reducing inequality. Second, the most effective means for curbing inequality is reducing unemployment, for there is a wide gap between unemployed individuals (zero income) and the top quintile (minimum of $88,000 of income). College education can reduce unemployment, as college graduates currently experience 50% less and 66% less unemployment than high school graduates and high school dropouts, respectively. Regarding social mobility, if low-income Americans achieve a college education and earn a high-paying job they may be more likely to achieve upward mobility.
- The minimum wage should, at a minimum, be indexed to inflation so that low-income Americans do not experience a reduction in real income whenever prices rise. A more comprehensive policy of raising the minimum wage to at least $9 per hour, as President Obama outlined in his 2013 State of the Union, would play a significant role in reducing income inequality. Increasing family’s income is also associated with greater social mobility, for researchers found that “if a low-income family can make $3,000 more during a child’s first five years of life, the child is likely to make almost 20 percent more as an adult.”Some argue that increasing the minimum wage would result in job losses; however, work by economists David Card and Alan Krueger found “no large statistically significant negative impact on employment from raising minimum wage.”
- Federal and state governments should form a partnership to provide means-tested high-quality Pre-K education as President Obama outlined in his State of the Union. Pre-K should be free for all those with incomes upto 200% of the poverty line and then provided on a sliding scale for everyone else. It is important that the program be free so that low-income students can attend pre-K at a rate higher than the current 34%. The Pre-K program should also have teachers with a Bachelors degree, low student-teacher ratios, and curricula aligned with K-3. Such high-quality initiatives have a chance to reduce the achievement gap between low-income and high-income students and thereby expand equality of opportunity and increase social mobility. In fact, research has shown that high-quality Pre-K programs reduce rates of high-school dropout, teen pregnancy, crime and increase college attendance rates. These investments are also smart economic decisions, as National Institutes of Health research show they generate “up to $11 of economic benefits over a child’s lifetime for every dollar spent initially on the program.” Such an initiative may be viable through an alliance of business Republicans and progressive Democrats; both of whom have indicated their support for such a program. In fact, such a coalition emerged in San-Antonio which helped secure passage of the Pre-k 4 program.
While these are just three of the several policy recommendations I outline in my paper, these three initiatives would significantly help reduce inequality and expand mobility.