Income Inequality Retards Economic Growth

Very few, if any employees or managers can hope to earn what Bill Gates or other top executives who earn millions each year. But, what should be happening is a closing of that enormous gulf between average salaries and what top management makes- salaries often not even based on performance. Until incomes, worldwide, become more fair and somewhat more equal, economic growth will be stifled. Only a few gambling entrepreneurs will be able to reap the benefits of even slow growth. If the average employee cannot buy both necessities as well as a few luxuries, growth will stagnate. Fairness is not a problem for the lower paid workers, but for what he (or she) sees is being paid his bosses. The National Review (Mar 6 2000) reveals, two of Washington's think tanks' joint study shows that the American income gap is widening. As a result, the economy is now slowing down perceptibly.

Even with a reasonable (though slowing) economy in the U.S., Robert J. Barrow (1999) points out that countries with Anglo-Saxon origin- Britain, the U.S., Australia and New Zealand, are seeing the income gap widening. While some Wall Street Journal reports (2001) show that top management's salary increases are slowing, they nevertheless outpaced the rise of wages for average workers nearly three to one. This widening gulf eliminates the thought of fair pay for successful leadership or achievement, and is often based on the company's determination to hold on to the executives no matter what it costs.

Income inequality comes from more than salaries. Edward Wolff (2001) points out that stock ownership and stock options are often the reason why the rich get richer and the poor do not. As Wolff indicates (p 15) substantial stock holdings are the purview of the rich and this stock wealth has not penetrated much beyond the rich and upper middle class. Downsizing does not fairly offer stock as a parting perk. As the economy slows, even pension plans are now losing money.

Feelings of doom frustrate people from rising to higher income levels. In the New York TIMES (Apr. 4, 1999) Sylvia Nasar clearly states that growing inequality may well create such a feeling with the knowledge that they can never rise up far enough to be anywhere close to the "Have's". When such a smaller percent of the world's population improves its economic status, while the middle and lower classes do not, economies suffer.

The Have-nots cannot afford top colleges for their children. The Atlanta CONSTITUTION claims that income inequality hurts not merely the economy but chances for a better education for the masses. Inequality, to the lower rung of the employed is a frustrating catch-word, a feeling of helplessness. To the upper classes it is simply proof that Capitalism works.

CITATIONS:

Barro, Robert J.: "Does an Income Gap Put a Hex on Growth?"

Business Week March 29, 1999 p. 24

Moore, Stephen: "The have's and the have-lesses" The National Review March 6, 2000 p. 30

Nasar, Sylvia: "Is the U.S. Income Gap Really a Big Problem?" New York TIMES, April 4, 1999, p. 30

Wolff, Edward N.: "The rich get richer- and why the poor don't" The American Prospect Feb 12, 2001 p. 15

Unsigned: "Wails about the income gap ignore economic advances" The Atlanta CONSTITUTION Jan 19, 2000, p. A-16

SOURCE ACCESSED:

Lublin, Joann S.: "Risk Reduction: CEOs are still receiving larger pay, but they're getting richer at a slower rate" The Wall Street Journal April 12, 2001 p. 1