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Causes of Inequality

Some observers explain our rising inequality as the inevitable result of advancing technology, with its attendant rewards for the skilled workers who are able to perform high-tech jobs. Others explain it as the inevitable result of increasing globalization in the world economy. These two factors are certainly implicated. Both have helped to increase global output and global incomes, but both have also imposed costs on some people in some places. Both have also shoveled generous rewards to the favored few. Those bearing the highest costs have been the middle and lower classes in the developed world. Those favored include those with capital and those who are highly educated in fields that allow them to take full advantage of globalization and technological advances.

Endless examples of “outsourcing,” job loss, and downward pressure on working-class Americans have become the staple of economic conversation for three decades.

Public policies could have largely or completely mitigated the effects of technological changes and globalization. Government policies enacted over the last thirty years have not only failed to mitigate the effects, but have independently increased poverty and inequality. We are hopeful about the possibility of policy action mitigating inequality and believe past and future increases in inequality and poverty are not inescapable and can be reversed.

To examine this, let us look at the experiences of some other industrialized democratic countries. They have faced the same forces of globalization and technological change. Yet inequality and poverty in many of these countries has not changed appreciably. When comparing the US to Japan, France and Australia, the US is seen to be alone in its dramatic rise in the top income share.

Overall inequality as measured by the Gini coefficient similarly demonstrates that the US is more unequal than other high income countries. Other developed countries like France, Canada, and Norway all have substantially lower inequality than the US. In fact, these countries have Gini coefficients not seen in the US since the 1970s.

Other high income countries have faced globalization and technological changes without a rapid proportional rise in incomes at the top, dramatic increases in overall inequality, or similar levels of poverty. Canadian household income is at least comparable to that in the US, but Canada now has lower unemployment and growth rates similar to ours. Canada is doing as well as we are economically, without high levels of inequality and poverty.

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