Inclusive growth important in light of income inequality

Source: International Economic Development Council

This article aligns with our discussions at the last couple Ashtabula County Dashboard Roundtables.

Since the late 1970s income inequality has been rising in the United States.  Between 1979 and 2007, the average income of the top 1 percent of American families grew by 200.5 percent, while the bottom 99 percent’s income increased by only 18.9 percent. According to an Economic Political Institute report, the trend has continued in the post-Great Recession era.  The top 1 percent of families nationally saw their income grow by 17.1 percent in the economic recovery period of 2009-2013. In contrast, the average income of the bottom 99 percent failed to grow significantly with a 0.7 percent increase. The gap is continuing to grow.

Economists cite various reasons for income inequality including low levels of unionization and collective bargaining as well as the decline of the real value of the minimum wage. Economic theory predicts that globalization and the expansion of trade with China may have affected wages for low skilled workers by introducing more competition from low-skilled Chinese workers.  It is clear that low-skilled workers’ wages are hurting, while the top 1 percent continues to flourish. According to a White House Report, the increasing income inequality is harming economic growth by reducing access to necessary education for the full population to reach its full potential, undermining the trust necessary for a decentralized market economy, reducing entrepreneurship and risk-taking, and leading to increased uncertainty, political instability and growth-reducing policies.

Policies to promote inclusive economic growth and development are necessary to reduce inequality. These policies incorporate several strategies such as strengthening aggregate demand, promoting equal opportunity, reducing market concentration and rent seeking behavior, and better helping families and workers against the consequences of inequality.  Economic development organizations (EDOs) have highlighted these policies, and will contribute in curbing the trend of income inequality throughout the country.

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