Income Disparity Essay

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Income disparity refers to differences in income between two or more individuals or aggregates. Aggregates can be defined by relationship (family, household) or by some other attribute (community, nation, gender, ethnicity, age, class). Income disparities are important for several reasons: (a) Income is the primary source of economic well-being in modern societies, so income disparities indicate differences between individuals and groups in the ability to attain a desired standard of living; (b) income disparities are associated with a variety of social problems, including poverty, crime, and social conflict; and (c) large income disparities, especially between groups defined by ascribed status (e.g., gender, race), are contrary to norms of equity.

Theories of Income Disparity

Explanations of income disparities derive from more general theories of social organization, typically categorized as consensus and conflict theories. Consensus theories posit that social order arises from shared objectives, values, and the evaluation of individual and group behavior. Conflict theories posit that social order is imposed by the exercise of power. Consensus theories include functionalism in sociology and microeconomic price theory in economics. Conflict theories include Marxist and Weberian theories.

Functionalism asserts that, given a complex division of labor, societies must have some mechanisms to allocate individuals to jobs. Jobs can be ranked according to importance and requisite skills, and individuals can be ranked according to their diligence and ability. Inequality is the social mechanism that allocates the most qualified individuals to the most important jobs. Similarly, microeconomic price theory asserts that, in market societies, the price mechanism assures that markets will “clear”; that is, prices will rise or fall until completion of all desired exchanges of goods and services. At this price, supply equals demand, and the wage rate equals the value produced, thus maximizing the total value of production. Income differences represent productivity differences. Each individual, in maximizing his or her income, will obtain the skills which make the best use of his or her abilities.

Conflict theory asserts that disparities in income or, more generally, in life chances, result from conflict among individuals and groups over the distribution of resources. Marx and his theoretical descendants assert that, in all societies, those who own productive assets (land and other forms of capital) exploit those who do not. Those who do not own productive assets cannot acquire necessities, such as food, clothing, or shelter, unless they can access the assets of others. To do this, they must relinquish a share of what they produce to the asset owner (e.g., as rent). Although not explicit in most Marxist accounts, skill (productivity) differences can be incorporated into the theory as “human capital” assets. From this perspective, income disparities reflect disparities in the ownership of productive assets.

Weber and his theoretical descendants do not disagree that property ownership is important, but they assert additional important aspects of power in society: One’s relative position in markets for capital and for labor (“class”), the social regard of others (“status”), and collective organization for the rational pursuit of interests (“party”). Any or all of these aspects of power may be used to deny opportunities to others and monopolize opportunities for oneself and those like oneself. Income disparities therefore reflect disparities in the distribution of economic, social, and political power.

Measurement of Income Disparity

The extent of income disparities is measured in a variety of ways, depending on the motivating interest. If interest is in income differences between two persons or social positions, one could simply subtract, but this has the disadvantage of being affected by the value of money (e.g., inflation). A measure of such disparities not affected by the value of money is the ratio of incomes. If, instead, interest is in the distribution of income across a population, numerous statistical indices are available. Quintile income shares are the percentages of income received by each fifth of the population; the standard deviation of income measures average income differences in a population. The Gini coefficient measures departures from perfect equality, where each cumulative percentage of the population receives that cumulative percentage of income. The Gini coefficient is thus a generalization of quintile shares across the entire income distribution.

Extent of Income Disparities

Current and historical data on income inequality in the United States are available on the U.S. Census Bureau Web page. These data show that in 2006, the bottom quintile of households received 3.5 percent of total household income, the third quintile received 14.5 percent, and the top quintile received 50.5 percent of total household income. In 1990, the corresponding income shares were 3.8 percent for the bottom, 15.9 percent for the third, and 46.6 percent for the top quintile; and in 1980 they were 4.2 percent, 16.8 percent, and 44.1 percent, respectively. Between 1980 and 2006, the income share of the bottom quintile of households declined, as did the income share of the third quintile, whereas income share for the top quintile increased. In relative terms, the poor and the middle lost ground, and the top gained ground. Over this period, the Gini coefficient increased from .403 in 1980 to .428 in 1990 and .470 in 2006. Other inequality indices show the same pattern. Since 1980, income disparities among households in the United States have increased.

Consequences of Income Disparities

Consensus theories of income disparities predict that income disparities will not be a cause of social disorder, even if disparities are extreme and widespread. Shared values will produce acceptance of functionally necessary (thus, equitable) disparities in life chances. Conflict theories, on the other hand, interpret disparate life chances as both the outcome of conflict among individuals and groups and the source of future conflict.

Income disparities are associated with disparities in life chances, including physical and psychological health. This is to be expected in market economies, because the goods and services that contribute to life chances must be purchased. However, the consequences of inequality extend beyond the life chances of individuals to affect entire societies. These societal consequences include poverty, social disorder, and crime. Despite debates regarding the measurement of poverty (whether poverty is relative or absolute and what the poverty threshold should be), it is clear that the presence of income disparities is necessary for the existence of poverty.

Research consistently shows an association of between-group inequality (e.g., race, class) and social disruption (riots, strikes). Examples include the labor movement of the 1930s and the civil rights movement of the 1960s. Research also consistently finds a strong association between income inequality and both property and violent crime rates. These research literatures are thus more supportive of conflict theories. Research on the relationship between income inequality and aggregate rates of economic growth has produced mixed results. One strand of this literature finds that inequality reduces economic growth rates; a more recent strand finds the opposite: that inequality increases rates of economic growth. The first is consistent with conflict theories, the second with consensus theories. These literatures differ in their measures, models, and methods, so it is not yet possible to be confident in the findings of either.

Bibliography:

  1. Hurst, Charles E. 2006. Social Inequality: Forms, Causes, and Consequences. 6th ed. Boston: Allyn & Bacon.
  2. Lenski, Gerhard. 1984. Power and Privilege: A Theory of Social Stratification. Chapel Hill, NC: University of North Carolina Press.
  3. S. Census Bureau. “Income Data.” Retrieved March 25, 2017 (https://www.census.gov/topics/income-poverty/income.html).
  4. Wright, Erik Olin. 1985. Classes. London: Verso.

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