Inequality is a phenomenon that humans have dealt with for millennia. No society has been able eliminate inequality and it’s unlikely to ever disappear completely. In the US, inequality has become an increasingly popular topic in the media as different groups advocate for higher wages or additional benefits. A recent poll conducted by The New York Times and CBS suggests the majority of Americans believe the gap between rich and poor in the United States is getting larger.
In lower income families, there is a tendency for family members to feel fear and hopelessness about their financial situation. Sometimes these families feel that their circumstances are beyond their control – that they are victims of the current economic system. Whether or not these families really are a product of the current economic system, these feelings remain. In the poll by CBS, 61 percent of respondents believe only the economically privileged have a chance to improve their financial situation.
To a large degree, what people believe matters just as much as the issue at hand. Demonstrations such as the occupy movement a few years ago and the recent push for $15 an hour wages at fast food chains indicate that many Americans believe something more should be done. Since public opinion largely drives policy, the public’s perception on wealth inequality will likely yield additional policy in the near future. In making these decisions, it is important that policy is carefully planned to have positive long term outcomes.
So what policy should be implemented? On this topic there is no shortage of opinions. Over the years welfare programs have been expanded and retracted, Pell grants have been granted, the Affordable Care Act enacted and many economic policies implemented: all with the purpose of strengthening the economy and helping America’s working poor. In addition, numerous nonprofit organizations volunteer time and resources to provide the working poor with the chance to better their financial situations.
In addition to what has been implemented, efforts should be placed on strengthening the private sector and reducing the unemployment rate. Only through the strengthening of the private sector will a sufficient number of jobs be created to lower the unemployment rate. Through job creation, individuals seeking work will be able to better provide for themselves and their families.
In addition to helping more people obtain employment, lowering the unemployment rate will have a positive effect on wages. When the unemployment rate is high, employers typically have many applicants to choose from when making hiring decisions, and this excess supply of applicants drives wages down. Conversely, when unemployment is low, there are fewer people looking for jobs and wages rise as corporations compete to get the labor they need. A combination of increased demand for labor and a smaller supply will contribute to higher wages.
Reducing the unemployment rate will have similarly positive effects in other countries. Over one billion people on the planet currently live in poverty. By strengthening local businesses, countries around the world will be able to provide employment with high enough wages to bring many people out of poverty. Although the private sector cannot accomplish this task alone, it plays a necessary and important role in reducing the unemployment rates and raising wages.
In the CBS poll, half of Americans believe that America’s best years are past. The other half believe America’s best years are yet to come. Whether or not America’s best days are behind or before us depends largely upon how well we can learn to work together and meet each other’s needs. Certainly lowering the unemployment rate is a step in the right direction to ensure America’s best years are yet to come.
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.
Richard Payne, Hoffmire’s colleague at Progress Through Business, did the research for this article.
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