Income inequality has been around since the 70s; to what may have caused it has many factors and contributions to it. While researchers believe these changes are closely related to the increase of more skilled educated workers, others believe new productions skill-biased technology has been the solid reason for income inequality in a workplace.
Robert J. Gordon and Ian Dew-Becker examines these theories altogether in greater depth in their article; Controversies about the Rise of American Inequality: A Survey. In the article, Gordon and Becker (2008) examines a survey with several aspects of rising inequality all put together. Inequality at the bottom of the distribution, with mobility and skill-biased technical change.
As mentioned before, income inequality can be affected by the increase of more skilled educated workers. Workers can be either skilled with a degree or unskilled. Since it is costly to become educated and not everyone can afford to further their education it becomes an issue. The equilibrium of skilled is becoming much higher than the income of the unskilled. Researchers use the ratio between the two levels of income as a measure of wage inequality. The equilibrium is analyzed by the two relationships; inequality and mobility. The first one describes how inequality affects education and through it the rate of upward mobility. The higher the inequality increases it will bring gains from education, resulting in an upward mobility. In the journal Inequality and Mobility, explained this to be the incentive effect. In circumstances, its believed that the higher the inequality is it will reduce the ability of unskilled parents to pay for education. Which is supplied by skilled workers and its cost is indexed to their wage. This is described to be the distance effect. (Hassler, 2003), (Mona 2003) and (Zeira 2003). With higher mobility increasing the greater the hope of less unskilled workers in the long run. This has risen the income and reduces inequality.
The change in the new production technology, skilled-biased prefers skilled over unskilled labor. The SBTC creates enormous wealth for those with the skills and preparation to take advantage, but it eliminates many middle skill jobs for middle class people. Computer software and industrial machines now fill basic roles from clerical tasks to routine mass manufacturing. These are all jobs that once provided middle class people with incomes without a college degree. “It has simultaneously devalued a lot of cognitively repetitive tasks in offices and on production lines. That has contributed to downward pressure and wage pressure and economic insecurity for the less educated.” (Autor, 1999)
There are many contributions to income inequality but also many ways to narrow down the gap. By increasing the minimum wage, millions of people will be out of poverty and will be adding to the nation’s overall economic growth. Another way to reduce income inequality is by providing more affordable education. College and trade schools, which is required to get a degree or skill is very expensive in the United States. By making it more affordable, middle class people will have the opportunity to be just as skilled as higher income families. Investing in education is important because it will increase economic mobility and produced more skilled workers in the long run.
