WRITTEN BY LILLIAN HURLEY AND SAMANTHA JACOBS
The issue of wealth inequality in America is directly connected to the income its citizens are earning. According to the Tax Policy Center, in 2012, wages were the main source of income for 99 percent of those who filed taxes.
There are many factors that impact the current status of wages in this country. The federal minimum wage is currently set at a rate that is not considered a “liveable wage” for those working full-time. A forty-hour work week, earning the current federal minimum wage of $7.25, gives someone $290 a week, and that’s before taxes are taken out.
The other issue surrounding wages is that they have become stagnant. This means the cost of living in this country has been increasing at a fast rate, while wages have not been able to keep up. The problem is, these wages are not adequate and so many Americans are relying on them as their source of income. This has created a domino effect and, consequently, it is impacting the country as a whole.
To better understand these issues and how they relate to wealth inequality, we need to first understand what we’re dealing with.
States have the ability to either follow the standard federal minimum wage of $7.25, or increase this rate. According to the Economic Policy Institute, 29 states, plus the District of Columbia, have established a state minimum wage that is higher than the federal wage of $7.25.
CREATED BY SAMANTHA JACOBS
The assistant secretary for policy at the Department of Labor and chief economist for the AFL-CIO supports the increase of the minimum wage.
“Economics clearly shows that business actually benefits when the minimum wage goes up, but you can always count that the business community will oppose a minimum wage increase,” William E. Spriggs said.
2009 is the last time there was a change made to the federal minimum wage, which was an increase of 70 cents. Whereas the state minimum wage of Massachusetts went from $9 to $10 in the beginning of 2016, and according to the EPI, it’s intended to increase again in 2017. Seven years with the same federal minimum wage has had a direct connection to the increasing issue of wealth inequality in America. This seven-year absence of an increase to the federal minimum wage has created the issue of stagnant wages in America.
Stagnant wages are having an effect on the economic system of America as a whole, not just those who are earning this low income. The Department of Labor explains that the federal minimum wage that is currently in place was set to $7.25 an hour in 2009. This wage isn’t something that gets increased on an annual basis. The federal minimum wage can only be increased if Congress can pass a bill that the president signs into power.
As workers fight for a higher minimum wage, the data can help explain why. According to the Department of Labor, the minimum wage peaked in 1968 at $10.34 and since then has lost approximately eight percent of its purchasing power since then.
Since then, the federal minimum wage has never surpassed this rate. This reality is playing a major role in the growing amount of wealth inequality in America. The vast gap between the often talked about, top one percent and the remaining 99 percent of Americans will only continue to increase if the majority of the population sees little increase in wages, while a small amount of the population sees a great increase of wages.
It is not just the minimum wage employee who benefits from an increase in wage.
“Economics clearly shows that business actually benefits when the minimum wage goes up, but you can always count that the business community will oppose a minimum wage increase,” Spriggs said.
The correlation between the current wage situation and wealth inequality is a matter of quality and quantity. So many Americans are relying on these low and stagnant wages as a source of income. According to Pew Research, in terms of the rate of annual pay increase, the top 1 percent has seen a 138 percent wage increase while the bottom 90 percent have seen a 15 percent wage increase over a 34 year period.
As you can see from this chart, about 90 percent have seen little, to no increase in their wages, while the top 1 percent of Americans have seen the exact opposite.
Another aspect of the current wage issue that is contributing to rising wealth inequality is that the rich are not relying on wages as their main source of income. While the rich do make a significant amount from wages, they are not solely relying on this to generate income.
So an example of this is that 99 percent of Americans reported 75 percent of their income in 2012 was generated from wages alone. However, those Americans who made $10 million or more in 2012 had only 15 percent of their income generated from wages, while almost half were from capital gain, according to the Tax Policy Center.
There is such a large population of Americans that are earning more than half of their income from these low and stagnant wages, while a smaller percentage of Americans are earning income from a completely different source. This difference creates an unequal gap between the rich, who have money to invest, and the poor, who are barely getting by.