Income distribution in the US is not equal with the highest 20% of the US popula
ID: 1194973 • Letter: I
Question
Income distribution in the US is not equal with the highest 20% of the US population earning 47.6 % of the total US income and the bottom 20% earning just 3.6% of total US income. This would seem to be very unfair except there is considerable mobility both up and down the income scale. Typically the young start out in the lower levels of income and then move up the scale reaching their peak earning years between 45 and 60. Past age 60, as people begin to retire, they move back down the income scale into lower levels of income.
(A.) Why is income in the US so unevenly distributed?
(B.) What factors affect income mobility?
(C.) If poverty is growing why isn’t there almost universal support for income redistribution?
Explanation / Answer
The following reasons can be accounted for uneven distribution of Income in US
(A) Family structure. Over time, the two-parent, one-earner family was increasingly replaced by low-income single-parent families and higher-income two-parent, two-earner families. A part of the top quintile’s increased share of income reflects the fact that the average family or household in the top quintile contains almost three times as many workers as the average family or household in the bottom quintile.
Trade and technology. Trade and technology increasingly shifted demandaway from less-educated and less-skilled workers toward workers with higher education or particular skills. The result was a growing earnings gap between more- and less-educated/skilled workers.
Expanded markets. With improved communications and transportation, people increasingly functioned in national, rather than local, markets. In these broader markets, persons with unique talents could command particularly high salaries.
•Immigration. In 2002, immigrants who had entered the country since 1980 constituted nearly 11 percent of the labor force (see immigration). A relatively high proportion of these immigrants had low levels of education and increased the number of workers competing for low-paid work.
B) Factors Affecting Income Mobility
Income mobility is the movement of an individual or group from one income level to another.
Economic & Non Economic factors can be affect Income mobility
One non-economic factor affecting income distribution is geography.Wages are generally lower in poorer areas of the country, such as South Carolina. The cost of living is lower there too, which means there is less need for higher wages. People living in inner cities need a higher wage to work at service industry jobs because the cost of living is so much higer in Boston, for example, than in South Carolina.
There are demographic and sociological factors that affect income distribution, for example, age, race, sex, and education.
Another factor that affects income distribution is education. The more educated a person is the more income a person makes.
One non-economic factor is the government's involvement in the economy. The more the government is involved in the economy, the more income distribution can be affected by such factors as lobbying, campaign contributions, the influence of big business and big unions, and other forms of political pressure.
The economic factors that influence income distribution have to do with supply and demand of certain kinds of professions.
c) The reason for not supporting income redistribution for eradicating Poverty can be thought in the context of Laffer curve
According to the Laffer curve, high taxes are a disincentive to work. The direct proportional tax that I presented previously gives a burden of high tax to the wealthy class. If the tax rates are too high, it would not only give an disincentive to them but will also lower the government revenue earned from taxation. As seen in the diagram, if the tax rate is greater than t*, the government revenue will start to decrease as we approach 100% tax. It is better to lower taxation in this situation in order to earn back the discouraged workers and increase government revenue to its maximum.