In 1915, an economist at the University of Wisconsin published the first comprehensive study on the distribution of income in America. His findings showed that the wealthiest 1% of Americans received 15% of the nations total income. This alarmed many political leaders of that time, who believed that the concentration of so much income and wealth in such a small segment of the population was not good for the economic or political welfare of a democratic society.
Recent studies reveal that today, the gap between the richest 1% and all the rest of us is much greater than it was nearly a century ago. Today, the proportion of total income going to the top 1% stands at nearly 24%. Nicholas Kristoff noted in a recent article in the New York Times that in 1980, corporate CEOs earned on average 42 times the income of the average American worker. By 2001, CEO pay had ballooned to more than 500 times the average workers income. Between 1980 and 2005, a staggering 80% of the increase in total income went to the wealthiest 1% of the population.
While, I would suggest, these figures are cause for concern, it is important to understand that they are not the result of a continuous, century-long process. From the 1930s through the 1970s, income disparity in the United States decreased significantly. In 1979, the top 1% of American earners controlled about 10% of the nations total income. Since that time, however, income inequality has skyrocketed.
It would be tempting, given that the dramatic rise of income inequality began around the time Ronald Reagan became the President, to conclude that this phenomenon is the result of the economic policies of his administration. It would be especially tempting to see the Reagan-era reductions in top marginal income tax rates as the primary cause for the widening gap between the wealthiest 1% and everyone else. Like many obvious explanations, however, this one would be only partly correct.
In an excellent, in-depth series of articles which can be found on slate.com Timothy Noah examines the history of income disparity over the last century and analyzes the multiple, complex causes of the increase in income inequality which has marked the past three decades. While there are many contributing factors, according to Noah, the decline of organized labor has been among the most significant causes, and has in fact contributed far more to the increase in income disparity than tax reductions favoring high-income earners. Simply put, the gap between the wealthiest 1% and the rest of American wage earners shrank during a period when organized labor was strong enough to see to it that its members shared in the benefits of an expanding economy. As union power has waned, due to declining membership and legal changes which have favored management over labor, economic inequality has rapidly risen.
The rising tide of income inequality is troublesome, not only for the obvious economic reasons, but because of what it implies about the distribution of political power and influence as well. The increasing concentration of wealth in an very small part of the population means, as a practical matter, that political power is also disproportionately concentrated in a very small segment of society. The passage of anti-union legislation in Wisconsin and Ohio, despite massive public protests and polls showing that the public opposes such laws by nearly two-to-one is evidence that political power does not always come from public support. It is far too easy for economic inequality to turn into political inequality.
The increasing concentration of wealth and power in a tiny fraction of the population, while the majority of citizens become increasingly limited in their economic prospects and their ability to be heard in the political system is not healthy for a democratic society. In the current debate over public-sector union rights, we would all do well to understand that what is really at stake is whether we want to continue to go down that path.