In a recent column, I asked readers to write in with ideas about how full employment would influence the debate about inequality in the U.S. Since the column was published, eradicating poverty and trying to address inequality have returned to the spotlight as issues to be discussed during the 2016 election campaigns. Many of you responded to the call for ideas, and we are grateful for your feedback. Here is what you said.
Regarding the debate over growing versus redistributing the economic pie, a few of you cited the trickle-down policy of the Reagan Revolution as the root cause of inequality and poverty today. In support of this argument, in 1980, the average CEO earned approximately 40 times the average employee, while in 2000 this multiple peaked at 525. Recent efforts to attend to this have been somewhat successful as, in 2014, the multiple was reduced to 354.
Meanwhile, nominal U.S. GDP, in 1980, was $2,862 billion. By 2014, U.S. GDP had grown to $17,711 billion, a six-fold increase. However, during the same period the median U.S. disposable income per individual grew only a little over 2.5 times, from $12,359 to $31,932. Such a set of statistics shows that a rising tide does not always float all boats in similar ways. It is clear that simply growing the pie cannot be the only solution to the inequality issue, as many see the rising tide as a wave that only a small minority is able to catch.
Both ends of the political spectrum were represented in your comments, as many of you debated unhampered free-market capitalism. Some of you blamed government meddling for unsatisfactory results in the economy. Others called for government-oriented approaches to bring about greater equality. Some of you pointed to better educational policies as the answer, while others called for greater personal responsibility as the key.
Many of you said that the immigration situation in the U.S. plays a role in the issue of low wages. The recent executive order makes it possible for 4 million illegal immigrants to receive work visas and exit the informal market for labor. You pointed out how the executive order will take away what you called the “monopoly” that employers hold over low-wage laborers, and will force employers, as labor unions strengthen, to pass on more profits to their employees.
I am fairly well convinced that labor union relations with management won’t change much because of the executive order on immigration. But I am sure that if the economy moves toward full employment, supply of and demand for labor will certainly change the wages people receive. I see this as the most important potential movement toward greater equality.
Lastly an interesting solution was proposed by one commentator who wrote about the idea of impact investing. He suggested that a social pact could be formed through which those who benefit most from great wealth creation reinvest those profits in turn, in a way that truly makes a difference to those who are less fortunate. Many people think of impact investing as making micro loans or starting charities. But it is really about the idea of harnessing wealth for the purpose of addressing social issues through scaling businesses and employee ownership. One place where this could be very useful is in the employment, at living wages, of populations typically excluded from the rising tide of economic growth: some single mothers, those living in impoverished neighborhoods, many minorities, and those who have not benefitted from advanced education.
The conversation about all of these topics will, and must, continue.
Reduce Poverty & Inequality: Act Now
John Hoffmire is director of the Impact Bond Fund at Saïd Business School at Oxford University and directs the Center on Business and Poverty at the Wisconsin School of Business at UW-Madison. He runs Progress Through Business, a nonprofit group promoting economic development.
Jerald Adam Long, Hoffmire’s colleague at Progress Through Business, did the research for this article.