Economy

Why Income Inequality Will Get Worse Before It Gets Better

And what we can do about it.

Photo Credit: Shutterstock.com

We’ve all heard about rising income inequality, and for good reason: It’s a huge problem. Just consider the fact that the wealthiest 1% of Americans accounted for roughly 21.2% of all earnings in 2012, compared to just 8.9% in 1973, according to UC Berkeley’s Center for Equitable Growth.

But far less obvious is the eventuality that things will get much worse before they get better. Don’t believe it? Here are a couple of specific reasons why we’re in for more darkness before dawn, plus some ideas on how we can fix the underlying problems.

Why Worse Is Yet to Come

1. Disruption has picked up the pace: Gone are the days when business innovation crept outward from a locale at a snail’s pace, providing ample preparation time for all parties with the potential to be affected. Where a new supermarket, for instance, might once have disrupted a neighborhood only to face a long, unlikely journey to meaningful mass adoption, businesses can now reach a worldwide audience at a click of a button, good ideas spread like wildfire and the game is more of a winner-takes-all affair.

As a result, the uber-wealthy are becoming both richer and fewer in number, while the average worker gets hit with a tidal wave of unpreparedness. Such developments should not come as a surprise, however, as they simply represent the continuation of a pattern that has emerged throughout time, whereby innovation occurs at an increasing pace and becomes increasingly technical in the process.

2. Niche skills are required:The economy’s increasing focus on emerging technologies renders certain types of old-school training obsolete and puts the select few who are proficient in skills that complement the makeover into high demand.

This effectively devalues certain degrees for those who have already graduated, in addition to providing a roadmap for students making pricey investments in higher education. Just consider the following unemployment-rate discrepancies among college majors as of 2012, according to the Georgetown University Center on Education and the Workforce:


In light of this skills-based barrier to riding the tech wave and the costs that prevent us from addressing this limitation, it will take many graduation cycles for our training to sync up with what the economy values most.

How to Bridge the Gap

We are not resigned to our economic fate, nor must our children repeat our mistakes. So in addition to considering the aforementioned factors that are fueling the fire, we should make sure to keep the following in mind in the years to come.

1.Support progressive tax reform:Although “progressive” is a buzzword often applied with a broad brush, the definition you should really care about relates to the tax code. Most agree it’s in desperate need of overhaul, and our focus in that regard should be to separate from regressive policies of the past and abandoning pie-in-the-sky ideas such as the flat tax, which would actually further consolidate wealth.

For example, we should listen to the more than 90% of Americans who want capital and labor to be taxed at the same rate, according to a WalletHub survey. And we should do so with the most powerful tools at our disposal: our voices and votes.

2.Overhaul education to disrupt the disrupters:We need to fundamentally overhaul the education system so it rivals Silicon Valley and the Pentagon technologically. If we use just a fraction of all the wealth being created by the current tech boom to groom the next wave of disrupters, we’ll find ourselves in self-sustaining cycle of growth, providing a rising tide to lift all boats.

Despite what the statistics say, it’s important to remember there’s light at the end of the tunnel for anyone who works hard and focuses on the fundamentals of sound money management. In addition to perhaps making certain jobs obsolete, the internet is a great democratizing force. It offers all of the tools and information that anyone needs to succeed. We just have to put the pieces together to make a profitable puzzle.

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Odysseas Papadimitriou is the CEO of WalletHub.