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Bill Schmick: U.S. stuck in a rut of income inequality

Low Wage Workers

Low-wage workers were hit hardest when COVID-19 and the U.S. reaction to its spread caused the largest spike in unemployment in modern history, notes columnist Bill Schmick.

In 2022, 68 percent of the total wealth in the United States was owned by the top 10 percent of wage earners while the lowest 50 percent of workers accounted for just 3.2 percent of that wealth. The gap between the haves and the have-nots continues to widen.

I was brought up believing that hard work, determination, and pulling oneself up by your bootstraps could guarantee success in America. In my case, as the son of lower-middle-class parents, I have moved up a rung to solidly middle-class. Unfortunately, most Americans have not been able to even do that.

As most readers probably know, income and wealth inequality in the U.S. is wider than in almost every other developed country. There are many reasons for this and depending on your political persuasion you may agree or disagree with many of the causes. For example, the facts are that a large wealth and income gap exist across racial groups. Many economic experts explain this as a result of the nation's legacy of slavery and racist economic policies.

In addition, the globalization of trade over several decades resulted in shifting jobs and wages out of America and into counties such as China, India and elsewhere. The failure of the U.S. public and private sectors to adapt to this sea change, as well as to accommodate a technological explosion that left many workers in the dust worsened these trends.

U.S. tax policies during this era increased inequality while reducing bargaining power among employees, and both gender and racial discrimination widened the gap further. The 2008 onset of the Financial Crisis, the slow and painful subsequent recovery, followed by the economic trauma of the COVID-19 pandemic simply made a bad situation infinitely worse.

COVID-19 and the U.S. reaction to its spread caused the largest spike in unemployment in modern history. Those hardest hit were low-wage workers. At the same time, a boom in the stock market and housing prices benefited the top 10 percent of American earners most of all.

Over the years, there have been those who argue that inequality is the wrong target. If everyone is doing better, everyone wins, while entrepreneurship benefits everyone, even if some benefit more than others. The focus, they argue, should be on poverty instead.

However, gaining traction requires economic mobility. We know that the percentage of Americans earning more than their parents continues to shrink. Overall economic mobility in the U.S. continues to fall behind most developing nations including Japan, Australia, Germany, France and Canada.

Recently, the Wall Street Journal reports that "wage inequality may be starting to reverse." Over the past two years, stalled technological innovation, the trend toward remote work, and deglobalization have begun to erode some of the advantages of the top earners in the U.S. — at least for now. Labor shortages, aided and abetted by the government's immigration policies, are increasing wages for many in the labor force. It has also contributed to the recent rise in union activity, which is further boosting wages and fringe benefits.

However, job and wage growth happen to be in the crosshairs of the Fed's attempt to reduce inflation and slow the growth of the economy. If they succeed, the wages gain of the recent past may go up in smoke and with it a resumption of the long-term trend in inequality.

Through the years, I have expressed my worries over growing inequality and its potential threat to our political system. As more and more Americans feel trapped and lose faith in a system that favors a smaller and smaller minority, democracy suffers.

The rise of populism and the attraction of authoritarian leaders both here and abroad, I believe, is a direct result of economic inequality. The wider the inequality gap, the less chance this nation has in overcoming its present partisan divide.

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