What Is the Wealth Gap?

What Is the Wealth Gap?

There are several ways to measure the health of the U.S. economy. One major figure is the gross domestic product, which is a reflection of economic output. In 2017 as a whole, it increased by 2.3 percent. Other measures include inflation, the unemployment rate, and consumer spending.

Even when the economy appears to be doing well, it’s important to consider who’s receiving the benefits. Are the gains disproportionately going to one group over another? Do the richest people in the country own an overwhelming percentage of the assets? One of the issues the U.S. faces is a growing wealth gap between the richest segment of its population and people in lower socioeconomic strata. Studying this wealth gap and its effects is important for understanding the country’s economic, political, and social health.

The Facts About the Wealth Gap

There are multiple pieces of evidence demonstrating that the wealth gap has expanded in the U.S. over the course of decades, a trend that isn’t changing.

First, a 2017 analysis shows that households falling into the richest one percent of U.S. society own 40 percent of the nation’s wealth. If you were to combine the wealth of all households in the bottom 90 percent of the country, the richest one percent would still have more wealth.

As discussed in an article from MarketWatch, the wealthiest one percent took in about 22 percent of the nation’s total income in 2015. As a historical point of comparison, it’s worth noting that the wealthiest Americans earned about 23.9 percent of the total income in 1928, just before the Great Depression hit. Furthermore, from 2009 to 2015, the incomes for the top one percent grew more quickly than incomes for the bottom 99 percent in most states.

Finally, most American workers are experiencing wage stagnation, where their earning power hasn’t changed much since the 1970s. The greatest gains have been for people earning higher incomes. A stark example comes from CEO compensation. In 1965, CEOs were making roughly 20 times more than typical workers, while in 2015, they were making roughly 276 times more.

What’s the Big Deal?

You may wonder why it matters if the wealth gap is large and continues to grow. After all, you can hardly expect everyone to own the same assets or make the same amount of money. A society will always have people who are richer and those who are poorer.

The size of the gap, however, does potentially have an impact on quality of life, the opportunities available to individuals from lower socioeconomic classes, and the stability of the country.

Less economic and social mobility

In the U.S., economic mobility has been significantly reduced over the course of decades. Roughly 92 percent of Americans born in 1940 could look forward to meeting higher living standards than their parents; for people born in the 1980s, only 50 percent can expect to meet a higher standard of living. Social stratification is becoming more rigid. Those born into poorer families are less likely to climb to a higher socioeconomic stratum.

People are generally taught that they can get ahead through hard work and with the help of a good education. Although a strong work ethic and education are still important, their life-changing power diminishes when socioeconomic mobility is reduced.

Diminished quality of life and opportunities

When the vast majority of people in the country are sharing a shrinking piece of the overall wealth, they may have less money to invest in education, obtain adequate health care coverage, build a retirement fund, and act on various job opportunities, including retraining for a new career and opening a business. When most people are struggling with stagnating wages, they have a harder time paying for housing, medical care, and other soaring living costs.

Furthermore, they tend to have fewer savings. For example, roughly 40 percent of Americans don’t have enough in savings to deal with a sudden $400 expense. The lack of savings can’t be attributed entirely to the wealth gap, but it does reflect a society where a sizeable percentage of the population struggles to respond to unanticipated financial crises.

Most people also have a diminished ability to make various purchases, including necessities, without going into debt. By the end of this year, it’s predicted that Americans will have roughly $4 trillion in consumer debt. These debts include student loans.

Political and civil instability

When wealth becomes increasingly concentrated, so does power. Wealth buys political influence, opportunities, and perks. In a society where the wealth gap is widening, people who aren’t very wealthy are more likely to feel as if they’re losing what little power they possess to bring about beneficial changes and express their political will.

Their frustration may result in apathy. It may also lead to a greater amount of political instability and upheaval. People who feel powerless may try to find ways to subvert the political system.

This upheaval may find its expression in scapegoating, where certain minorities or other vulnerable groups receive the blame for the wealth gap. Different groups may fight with each other over relatively scarce assets and jobs that pay a decent salary. Inequalities in wealth also reflect and can exacerbate racial and ethnic inequalities.

Staying Vigilant About the Wealth Gap

No analysis of the U.S. economy is complete without a study of disparities in wealth and income. The wealth gap, which shows no signs of reversing, illustrates how citizens of the same country can have such widely different experiences in opportunity, financial security, and political influence.

Although it’s unreasonable to expect everyone to have a similar level of wealth, a large and growing wealth gap can perpetuate rigid stratification, political powerlessness, and poorer quality of life for most of the population. As such, we need to keep studying its effects, strive to understand its sources, and consider policies that will address it.

If this is a big issue to you, make sure to contact your local government representative with your concerns.