Problem Statement
There are a number of reasons, defined by the ethical as well as the economic and the political scenes, for the non-diminishing interest in addressing the gap between the rich and the poor. "The rich get richer and the poor get poorer" is an aphorism, which outlines the major views on economic inequality and the criticism, seen in academic and business literature, towards the philosophy of free market and capitalism in general. One of the principal works, laying the foundation for the discussion, is the work by Thomas Piketty, Capital in the Twenty-First Century (2014), who places the idea of the return on capital as a central cause of social inequality. The point behind the argument is that the return on capital exceeds the pace of economic development, making capitalists earn money faster than those who actually provide labor. The empirical data, gathered to support this statement, spins hundred years back and demonstrates the constant and non-dynamic nature of phenomena in the society.
This viewpoint on social inequality, in view of wealth concentration in a long-run, takes its roots in Karl Marx's philosophy and is grounded on the criticism of capitalism. The Piketty’s work, however, translates the century-old argument in the contemporary context and brings forward the data and findings, which make us think about the situation today. Globalization, international mobility of individuals, internationalization of supply chains, growing mobility of the financial capital and access to technology on corporate and individual levels are just some of the underpinning reasons for social inequality and the growing gap between the rich and the poor (Sheehey, 1996; Census Bureau, 1996).
While the macroeconomic profile provides a number of reasons to explain this phenomenon, it is interesting to look at some more specific sectors, which influence or determine the growing social inequality gap and, which are able to build on a specific measure for this phenomenon. Among these sectors, we identify the major influence of labor market performance, unions, workplace restructuring, distribution of work and earnings, work life balance, earnings differentials and discrimination and the retirement decision. The research question, around which this research document will be centered, is the following: "Are the rich getting richer and poor getting poorer still today?"
What are the major sectors influencing the social profile of the country and which of them are paramount to this discussion?
How each of the paramount sectors contributes towards the growing inequality gap?
What are the economic theories underpinning this discussion?
What conclusions and recommendations can be done with regards to the research aim?
Translated into the research objectives, these questions can be formulated as follows:
Explore each of the above-mentioned sectors in economic influences;
Identify our primary sectors, central to the discussion;
Look at the specific economic theories, which explain the current phenomena in a structural way;
Drive conclusions about the accuracy of the statement, set for the research aim and provide generic recommendations.
The major assumption behind this work is that in the contemporary social arena, the gap between the rich and the poor continues increasing, building on major social and economic issues in developed, and, more importantly, developing countries (Lucas and Schimmack, 2009).
Economic Theories
Socio-economic research on inequality and the growing gap between the rich and the poor can be divided and analyzed from the perspective of three major traditions, quantitative, structural and intermediate. The purpose of this work is not to provide a descriptive analysis but look at the underpinning causes of the current macroeconomic environment in terms of the rich and the poor relationships (Guidetti and Rehbein, 2014). The quantitative tradition is linked to the economic view of the social element and is more descriptive in its nature. The structural, tradition, on the other hand, is founded by Karl Marx is more theoretical and allows drawing on more specific and generally qualitative analysis of the research question. Traditionally, the studies on social inequality were linked to quantitative analysis of the data and looked at the relationships of the growth and the inequality itself. Such authors, as Adam Smith and his work Wealth of Nations (2007) develop the idea of free markets, while Structural Economic Theory of Karl Marx builds on the alternative view (Goldin and Katz, 2007). Given the different nature and approaches to the analysis of the inequality gap, this work will focus on qualitative theory and look at each of the following elements: of labor market performance, unions, workplace restructuring, distribution of work and earnings, work life balance, earnings differentials and discrimination and the retirement decision. The assumption that is made at this stage that, while all the seven sectors are important for the analysis, the distribution of work and earnings, work life balance, earnings differentials and discrimination and labor market performance outline the central causes of inequality in the contemporary context and are critical for the Qualitative Economic Theory.
Analysis
The central question to this discussion is whether the rich are getting richer and the poor are getting poorer still today. There are two sides to this argument. The crisis capitalism and free market, taking its roots in Karl Marx philosophy would follow e abundant empirical evidence of growing levels of poverty and be increasing a gap between the richest and the poorest population in the developing countries. The argument, underlying this viewpoint is based on the assumption that the return on capital outpaces the economic growth, building on the opportunities for those in the possession of money and limiting the possibilities for those, who build on labor force in the countries. On the other hand, there are those, who follow the Adam Smith view on the potential of the free market and look at the ways market competition channels the individual potential to generate wealth. The main argument of this layer of philosophers is that richer are indeed getting richer, but it is not possible to argue that the poor as well are improving their living standards as the number of people living below the poverty line is also reducing at a dramatic pace over the past decades (Chapman Wood and Hamel, 2002).
Income distribution is extremely important for development in general. Since this metric influences the cohesion of the society, it has a significant effect on the poverty level for each country and the poverty-reducing effects of economic growth. The empirical analysis of the work and earnings distribution received considerable attention in academic and business literature in view of the analysis of social inequality. One of the important concepts, which must be discussed in this context, is the impact of schooling on the distribution of income and work. In the contemporary environment, the investemnt in human capital is divided into two elements: school and post-school education. It is evident that in the developed countries, the investment in post-school education is around 40% of the financial capital placed in schools. This gap is significantly higher for the developing countries, outlining the growing inequality of work distribution and, consequently, earnings (Stewart, 2000). The basic statistics on the impact of education on work distribution demonstrates one of many specific elements within the sector that influence the distribution. In both, developed and developing countries, the process of globalization and growing diversity of the workforce influences the demand, where the work specificity and narrowing down of the skills per job function determine the inequality in work distribution. As such, specific professions in the modern sectors, such as IT and innovation outperform the demand in the traditional sector, entering stagnation and losing numerous jobs (Guidetti and Rehbein, 2014). The relationships of per capital impact to income distribution are expressed by Kuznets in his "U" curve theory, which suggests that in a short term the growth of per capita come makes the distribution of income more unequal, but in a medium and e long-run it equalizes. The author provides empirical evidence from developed industrialized countries to support the argument. Indeed, in the context of modern developed economies, where the inequality is rising, allows identifying several elements, impacted by the work and income distribution. First of all, the inequality is caused by unequal distribution of earnings between the economic sectors, where individuals gained higher cross-sector mobility and can shift from less to more egalitarian sectors. This situation is observed in many European countries and in the US. At the same time, it is possible to expect that with the countries’ economies becoming more “industrially mobile”, the cross-sectorial difference will reduce, building on equality. Secondly, the theory of the accumulated wealth, where individuals with higher accumulated wealth have the higher potential for earnings contributes towards the explanation of the growing gap between the rich and poor in the contemporary socio-economic context (Stewart, 2000).
Another important element in view of the discussion is the work life balance. Contemporary research offers many interesting empirical and qualitative studies on the relationships between time and income poverty. McGinnitty and Calvert (2009) suggest that there is an inverse relationship between the two. The authors look at various studies conducted in the past, which look at qualitative factors and reasons for such relationship. First of all, business in the developed countries is often seen as the "badge of honor" and the signal of success. Indeed, in many countries and industries individuals, who work more aggressively and have special working contracts in terms of working hours, are considered to be occupying the privileged positions. McGinnitty and Calvert's (2009) study sheds light on the relationships between social inequality and work life balance on the basis of the evidence from European Social Survey. The conclusion of the study is that the work life balance influences the social inequality significantly more among professionals rather than non-professionals. Importantly, that the variation this influence is not significant when compared on the country basis, in spite of the differences and different dynamics of the work life regulations and formal rules. Furthermore, the concept of work-life balance in terms of social inequality comprises various aspects, including health, low paid and time-demanding jobs, and unemployment, among others. Interestingly, the traditional concepts and cultural influence play the paramount role in determining the levels of social inequality. As such, the entire traditional structure of a family has shifted from the man being responsible for employment and woman for a house to dual-employment families. The statistics show that structure is more common in families with the higher collective level of education, consequently, higher family income (McGinnitty and Calvet, 2009). Another important observation with regards to the work life balance is the negative impact of increasing working hours and stress on health and wellbeing. According to the European Social Survey, the work pressure and hard working conditions affect lower social classes in a long-term, by reducing their capacity to work and productivity, while high-income professionals, even working longer hours have the better emotional response to the growing time pressure and better access to health insurance. With that, the social inequality creases der the negative impact of work life balance in a medium and the long run, while in a short run the impact is positive (WMRI, 2016). Objectively, work life balance is a both, cause and consequence of social inequality. As it was previously discussed, time pressure and harshening working conditions unequally affect people in different social groups, causing the major impact on the long-term employment capability among lower social classes. At the same time, there is little evidence to argue that work life balance directly impacts the inequality in a sense that it makes rich richer and the poor poorer.
Further discussion will look at the effect of earnings differentials and discrimination on the social inequality gap. The scope of this sector is significant and can be analyzed from the perspective of cultural, economic, gender and other differentials, building on differences in wage level on national and cross-country comparison basis. O’Niel and O’Niel (2005) explores the extent to which non-discriminatory factors can explain the wage wealth distribution gaps existing on the market. Historically, the differences in wage levels and the distribution of wealth could be explained by the social structure and the family traditional. Contemporary society is significantly more open and diverse in terms of family and larger social group structures. The differentials in wage and discrimination, however, continue influencing the society even today (Ismail & Jajri, 2012). The first layer of such discrimination is the country level, where the social and economic statistics outline numerous examples of different wage levels for the same function based on the country and even states. One of the closest examples is the United States, which practices this differentiation on the basis of a minimum wage laws (USDL, 2016). Such discrimination on a macro level has higher degree of control in terms of economic impact on the country, distribution of wealth and can be influenced by the governmental policies, aimed at reduction of poverty and social inequality gap. Another level of discrimination and the differentiation of the earnings concerns the relationships between the level of pay and gender, culture, experience and other specific and narrow aspects, which allow discrimination of governmental and corporate level. Some of the interesting aspects in this sector include the comparison of the impact of economic crisis on the salary levels in top and senior management positions and the wages. It is evident that the impact of crisis on poor people in the United States was more significant than on the rich. According to World Hunger (2014) statistics, the positive correlation of after crisis recovery to minimum wage was only 7.7%, while the salary of the top social level salary remains almost 22,6 times higher relative to this number. Earning differentials and the discrimination, undoubtedly, impacts the social equality. While it is evident that the wage discrimination is common for most of the countries and, especially in industrialized economies, the capital owners fall outside the focus groups of such different treatment. The reality is that market forces in terms of rights and policies stand aside financial market, where wealthy people make “money from money”. With that in mind, earning discrimination does not have direct correlation and relationships with the polarization of the richest and the poorest, while it affects social and economic situation in the country in general.
Labor market performance is another significant force driving inequality and outlining the gap between the rich and the poor. Going back to the economic crisis, it is interesting to look at the impact of labor market performance on different social classes from the perspective of structural and temporary unemployment. Sorretino and Moy (2002) make an interesting empirical study, which illustrates how the historical market performance over 1960 to 2000 reveals a number of statistical indicators, where unemployment rate is compared between men and women and different age categories across the countries. The authors suggest that across European countries and the United States, the rate of employment was historically higher for youth and women as well as unskilled workers. From social inequality perspective, young people are less wealthy, women are traditionally less focused on family than career and the unskilled worker are mostly subject to structural unemployment. Additionally, temporary unemployment mostly influences top positions and people in with better education level as this unemployment is created by "search of better life" rather than simple lack of jobs in the country. That said, labor market performance has tremendous direct impact on income distribution, placing stronger pressure on the poor and relatively lower impact on the rich of the society. At the same time, it is not possible to conclude that weak performance of labor market makes rich richer a the poor poorer, as all social levels are negatively impacted by the labor market performance but to a different extent.
Recommendations and Conclusion
The central question of this discussion is: Are the Rich Getting Richer and Poor Getting Poorer Still Today? The analysis of the contemporary socio-economic environment demonstrates that the inequality gap continues increasing in many developed and developing countries. At the same time, the poorest countries grow through a different experience, where the poverty level is reducing. Several major factors, including work-life balance, distribution of income, earning differentiation and discrimination and labor market performance were analyzed to understand if such sectors have direct or indirect impact on social inequality and can contribute towards supporting or providing an argument against the research question. The conclusions driven from this research are controversial. On one side, income distribution, affected by education and specific demand developing in growing sectors of economy have direct impact on increasing wealth of already rich population and create pressure on competitiveness of unskilled and under skilled labor in the same market. On the other side, labor market performance, work life balance ad earning discrimination outline negative impact on all social levels, while can have inter-social group differences. That said, the impact of these sectors cannot explain the phenomena and provide sufficient evidence in favor against the statement. The truth is that financial capital already generated by individuals allows them building on wealth, while the external event and economic challenges make labor market more vulnerable, inevitably having more visible immediate and the long-term impact on the working class.
There two major recommendations that can be made with regards to the situation. First of all, such organizations as International Monetary Fund (IMF) and the World Bank (WB) should continue their strategic focus not on the scale of poverty, but on the “depth” of it. That said, education, focus on innovation and technology and diversity management on the macro level can build on awareness and make the poor less vulnerable to the to external factors, such as labor market performance and work-life balance. Secondly, there is a clear need for knowledge innovation, which would build on emerging low-middle and middle classes, building on the size this social group and creating the bridge between the top and the bottom of the society. By increasing social awareness, focusing on structural issues, such as education and knowledge innovation, the society will be able to create more sustainable system under free market competition, where individuals develop rare and inimitable skills and use transaction knowledge to improve their wellbeing and reduce the degree to which economic, social and political instability affects the pace of economic growth.
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