As we are utilizing this blogging format for the course, I wanted to find some interesting and relevant topics to explore through multi-part series that will dig into an issue in greater depth than could be done through one post or paper alone. The first issue I want to address is economic inequality.
First, why do I think inequality is an important issue to discuss? Since the Great Recession, observers have noted a sharp increase in economic inequality. While everyone felt the immediate effects of the recession, the recovery has greatly increased the wealth for the highest income earners while the poor and middle class has stalled. High income earners had a high percentage of their wealth invested in the stock market, which tanked in 2008, but has rebounded to nearly the same level since, with a little help from the Federal Reserve’s expansionary policies. Their wealth has essentially fully recovered and for many, has reached new highs. The middle class and the poor have faced a much more difficult path. They rely primarily on wage income – they are the backbone of our countries labour force. And since the recession, unemployment has remained high – above 7% until the end of 2013 – as shown in the chart below from the St. Louis Fed.
The unemployment rate does not necessarily tell the full story even as many long-term unemployed have quit looking for work altogether and so no longer are counted in the Bureau of Labor Statistics official statistic.
The issue has also made news as law makers have argued over reforms that would help the poorest Americans. Last month, Congress failed to extend long term unemployment benefits as the WSJ reported. There has also been wide spread discussion about increasing the minimum wage, to improve living condition for the lowest level of income earners. President Obama made a move in this direction by introducing legislation that would boost the federal minimum wage from $7.25 to $10.10 by 2015 according to the New York Times. However, raising the minimum wage is seen as controversial by some because they believe it could raise unemployment as employers are forced to pay low income employees more. I will explore the topic of minimum wage and the different viewpoints in an upcoming blog post.
Finally, the one of the most interesting questions related to the rise of inequality is what is the cause? Some people believe that we are facing a structural change in society as tasks which previous required low skilled workers to perform rote tasks are becoming automated by computers and machines. Economists typically see such arguments as naive “Luddite” theories because technology creates newer, more advanced jobs while making society more productive with the same resources, but the current inequality problem could be a symptom of this shift to automation. I will explore the causes of inequality in an upcoming post.
In the end, why is inequality an important concern? While it is true that there are winners and losers in a capitalist society, a rich country like the United States should find ways to share the wealth its productive population creates amongst as many people as possible. Extreme inequality can lead to unrest and political upheavals. Now is the time to dig into how bad is the inequality, to see what gives rise to it, and what we can do as a nation to slow or reverse its course. I hope to shed greater light on these three issues in future posts.