income disparity not a bad thing
According to some well-known economists, the higher income disparity in this country is not a bad thing. They talk about how in certain emerging markets—China and India—economic growth and the income disparity that has resulted has not been bad for inhabitants of those countries, even for those toward the bottom of the socio-economic ladder.
In this country, they explain the bulk of the wage gap as follows:
The main action came in the earnings of college graduates and those with postgraduate education. They both increased at a rapid pace, with the earnings of persons with MBA’s, law degrees, and other advanced education growing the most rapidly. All these trends produced a widening of earnings inequality by education level, particularly between those with college education and persons with lesser education. I should also note that while an upward trend in the earnings gap by education is found for both men and women, and for African Americans and whites, the earnings of college educated women and African Americans increased more rapidly than did those of white males. As a result, inequality by sex and race, particularly among college educated persons, narrowed by a lot.
[…]
The widening earnings gap is mainly due to a growth in the demand for educated and other skilled persons.
Bottom line is that artificial means at shrinking the wage gap could have unintended consequences (politicians are renowned for their ability to not foresee the consequences of their legislation). Legislation that coercively shrinks the wage gap (stronger unions, higher min wage, punishing “progressive” taxes) could eventually result in market-distorting, state-sponsored ramifications that a) discourage investment in economically productive areas of the market and b) discourage individuals from pursuing higher education. The long-term ramifications of such legislation by our political luminaries would not be immediately obvious, but over time would decrease our competitiveness and productivity and, therefore, our standard of living.
If we all have lower standard of living, do we really benefit from a narrower wage gap?
The irony is that government could declare a sharply lower standard of living as a “market failure” and become more involved in the economy… oh wait, that’s already happened, has it not?
EDIT:
Their concluding para is worth reading:
So instead of lamenting the increased earnings gap by education, attention should focus on how to raise the fraction of American youth who complete high school, and then go on for a college education. These pose tough challenges since the solutions are not cheap or easy. But it would be a disaster if the focus were on the earnings inequality itself. For that would lead to attempts to raise taxes and other penalties on higher earnings due to greater skills, which could greatly reduce the productivity of the world’s leading economy by discouraging investments in human capital.