Analysis: Inequality Steals $2.5T Annually From U.S. Workers

Screengrab / PBS NewsHour / YouTube

JakeThomas

A new working paper claims that U.S. income inequality causes workers to lose $2.5 trillion each year.

A working paper released by the Rand Corporation claims that U.S. inequality is so stark that American workers lose $2.5 trillion annually because of it, Eric Levitz wrote in New York Magazine.

The study, titled “Trends in Income From 1975 to 2018”, posits that if not for such high degrees of income inequality, “the median full-time U.S. would enjoy annual earnings of roughly $92,000 a year.”

Levitz noted that “RAND’s innovative methodology — which involved constructing a new metric for inequality that compares income growth to GDP, and then using that metric to gauge changes in the income distribution across every U.S. business cycle since 1975 — allowed it to translate the abstractions of macro-level income shares into something much more tangible.”

“Between the mid-1970s and 2018, per capita GDP growth in the U.S. increased by 118 percent. Had income growth on every rung of America’s class ladder kept pace with those gains, annual earnings at the bottom would be nearly twice as high as they are now,” Levitz continued.

Meanwhile, the bottom 90 percent of U.S. earners would collectively take home $2.5 trillion more in income each year.

Levitz noted that In the 1970’s, the federal reserve sought to break the power of unions (and were successful in doing so) in order to bring down inflation.

Decreased inflation, along with the increase in benefits that U.S. workers receive today compared to the 1970s, showcase two of the study’s limitations.

However, Levitz wrote that inequality not only hurts working people but saps the economic potential of a nation: “In 2014, OECD economists estimated that increases in income inequality had reduced U.S. GDP growth by as much as 8 percentage points over the preceding two decades."

He concludes:

Actually-existing America has a lot of problems, many of which cannot be reduced to questions of economics or class power. But it is hard not to suspect that most of our nation’s troubles would be less severe, if America’s working-class had an extra $2.5 trillion to spend each year.

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