Income Inequality: Declining Middle Class

620 Words3 Pages
Problem Identification Income inequality has been said to be the main cause of the declining middle class. Many concerns exist regarding the change of pattern in the distribution of income; families that once were in the middle of the distribution have shifter upward and downwards. Economist Kuttner, Author of The Economic Illusion, argued that this shift in pattern began as well-paying jobs in the manufacturing industry and lack of unionization in growing sectors declined. Another contributing factor to the ever rising income inequality is attributed to the rise of skill-biased technology. Advancement in technology has increased the demand for highly educated and skilled workers. The demand is far greater than the supply, creating a scarcity…show more content…
Many economist have agreed with Adams Smith, a pioneer a political economy of the 1700s. The pioneer of political economy believed that income inequality is a social decision rather than a decision made by the markets. “The custom of the country renders it indecent for creditable people . . . to be without.” His successor David Ricardo agreed that income distribution depends on the “habits and customs of the people.” It was during 20th century that a new trend occurred as economists began to justify income inequality. John Bates Clark, a founder of the American Economic Association, insisted “To each agent a distinguishable share in production and to each a corresponding reward — such is the natural law of distribution.” The supposed “natural law” has seemed to conquer the mainstream ideology of income inequality. Technology is ever changing, and managers are unable to foresee what the future may offer. In the 1980s GM (General Motors) spent over $40 billion attempting to implement an idea of replacing workers with robots. Having failed General Motors decided to instead embark on a joint venture with Toyota to transform their production into a more “lean production” relying more on workers’ skills, costing $200 million, less than a fraction of the previous plan, and boosting productivity by…show more content…
Market instead can only determine which items will sell and at what price, but they are unable to determine how much value each team member contributes to producing a product. Instead, businesses usually tend to rely more on the minimum wages that are set by the Federal and State government, union bargaining, and social customs to decide earnings. As discrepancies continue between economists on whether the market or social customs determine wages, nations will continue on a path of income inequality and as a result more need for social programs will arise. Business Alternative Solution. Society’s needs are large and growing, and businesses are now being asked by employees and customers to step up. The firm must attempt to redefine our goals, create shared value and not just profit per se. This will help drive the next wave of innovation and productivity growth, while play a contributing role in helping to reshape capitalism and its relationship with
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