The cause of Income Inequality

Income inequality is real and the inequalities are creating real problems in the world. The U.S. and China are suffering the consequences of allowing the lowest paid workers to live in poverty, while the highest paid individuals, especially taxpayer supported government workers, live and retire on good wages. The top earners are grabbing more wealth in nations around the globe, and the resulting social unrest, anger and instability is on the rise.

Income inequality does not originate in one source. The most well known sources of income inequality are:

Discrimination, which can be based on many forms of bias, is a direct cause of income inequality:

Discrimination causes income inequality when all other qualities of employees are close or equal. Race, gender, religion, national origin or other factors unrelated to job performance are used to assign different pay scales. As an example, a huge number of complaints came from American workers when a massive invitation went out to foreign engineers, computer programmers, unskilled labor, and finance experts who could work for much lower wages. These individuals could then be denied their work visas when they were no longer needed. This was, of course, a precursor to shipping the jobs overseas and putting Americans completely out of work.

Racial discrimination was so obvious in the 1960s that the courts eventually imposed Affirmative Action as both a punitive and a corrective measure. Since then, fully qualified non whites went on to have excellent careers when they had been falsely accused of not being qualified.

Giving most of the labor budget to the top layers of personnel:

The National Bureau of Economic Research cites a survey in saying, “Why the disparity? America’s CEOs have had their pay inflated by generous stock options and having their pay set by peers on corporate boards, the survey finds, as well as institutional differences between the United States and other nations, including such things as regulations, unions, and social norms.”

To streamline expenses, it makes sense to cut worker’s pay. But the problem lies in keeping the pay high enough to attract the best workers. When internal favoritism toward the higher ranking workers occurs, lower ranking but more essential personnel find it difficult to make a living.

The worst excesses were demonstrated by banks who begged for U.S. government bailouts, but gave egregious bonuses to top executives. Since the bonuses were contractual obligations that predated the bailouts, they had to be paid. The U.S. implemented a program to monitor and put a stop to such bonuses even being negotiated, but the primary excuse for these bonuses is still that the firm is better off hiring an expensive individual than allowing him or her to go to work for a competitor.

Finally, when union busting is successful, corporations can get away with minimum wages that are actually poverty level incomes. There is plenty of lobbying going on over lowering the minimum wages. At the same time, top employees will make even more money in relation to the pay that the lowest level worker receives.

Skimming far too much of a corporation’s income to pay off investors happens at the expense of operating and labor budgets.

This is an indirect cause of job losses and pay inequality. Again,even when money is tight businesses still think that it is better to pay the top ranks excessive multiples of the pay that goes to the lowest ranks.

Corporate Globalization is an indirect cause of income inequity and works to enhance union busting:

According to Wealth and Income Inequality in the USA,  “Sometimes the employers really are unable to compete with lower-wage producers in other countries (sometimes they are those lower-wage producers). Sometimes the employers simply use the threat to threat to enhance profitability. Either way, workers bargaining leverage is dramatically lessened. Workers lose. Owners win.”

Changes in the rules of the game between organized labor and the employers are an indirect cause of income inequality:

“Wealth and Income Inequality” points out another fact. “Workers who remain in the manufacturing sector are forced to compete in the race to the bottom, with union demands for wage gains replaced by employer demands for wage givebacks.”

Labor unions were guilty of excessive political activity, meddling in corporate and business affairs, creating more problems for the workers than they solved, and cultures of corruption. But labor unions have one fundamental purpose that cannot be denied: they ensure that working conditions, meritorious promotion and career opportunities, fairness and justice for employees, and living wages are assured. 

As a result of rising globalization and other factors, union busting is a major indirect cause of income inequality between labor and the profit seekers in a business:

Cuts to programs for the poor and tax cuts for the extremely wealthy is an insane policy that obviously creates income inequalities that ripple through all levels of society: The middle class takes on more of the tax burden for the nation, including the tax burdens presented by both the wealthy and the poor. The upper classes pay less taxes, so they reap more in net income. 

The poorest citizens are forced to do with much less. This leads to desperation, crime and illness that inevitably proves to be far more costly than giving more support to the poor would be. 

A major cause of income inequality in the U.S. lies in declining opportunity to get secondary and post secondary educations:

Many educational systems offer basic grade school educations. Beyond that is the secondary school education that is mandatory in the U.S. At the high school, or secondary level, a twisted “testing” system, along with corporate intrusion into “nonsense” curriculum development, plus eliminating the vocational education track, has left many students without even a high school degree. These factors combined to create one of the most effective income inequity creating machines in the history of the United States.

But technical schools and post secondary educations have become too difficult and expensive for the average or poor individual to get.The technical schools and junior colleges leave students with entry level training and massive debt. A Bachelor’s degree is even more expensive. The costs of earning graduate and professional degrees, plus the required certifications and licensing are prohibitive and out of reach for the bulk of society.

Finally, class, caste, race and rural vs urban residency are major factors in income inequality. Job opportunities in rural areas are, of course, limited:

But job opportunities in poor, immigrant and racially divided urban areas are also problematic. Inequities in law enforcement and justice systems lead to arrests and convictions for lower classes and non whites, while other races and classes are not even bothered by law enforcement.

This means that the favored ones will not take on serious criminal records that prevent them from moving ahead in the job markets. Marijuana arrests and apprehensions, for example, have been abused by the New York Police Department to the point where the city ordered a stop to the practice. This was because most of the arrested individuals did not have any marijuana on them when they were arrested for marijuana possession. The NYPD was on a clearly orchestrated campaign to push bogus criminal charges onto people’s records, and with a serious racial bias at that.


Many social and policy mistakes have created excessive income inequities all over the world. But government and capitalistic economic policies contributed more than a fair share of income inequities. Globalization, especially where the World Bank and World Trade Organization are involved, is a major contributor to vertical income inequities within corporations and horizontal inequalities across national boundaries. Inequities in income and business tax burdens have placed a major burden on those who earn enough to pay taxes. This has created a special form of inequity for the middle class, while the extremely wealthy have had their income increased by the government.

Something will have to give. Social and political instabilities, public anger, extremist political opportunism and intolerable austerity measures will give rise to unanticipated, unexpected and disastrous outcomes.