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Businessweek Archives

Attack The Income Gap At Its Source

Business Week International Editorials


Growing income inequality in the U.S. is an unfortunate legacy of the tumultuous '80s and '90s. Thanks to a vast array of economic, social, and cultural changes--ranging from the decline of good-paying unskilled jobs to the growth in single-parent families to changes in immigration patterns--the gap between rich and poor is the widest since the Census Bureau started keeping such statistics in 1947 (page 38).

The income gap has widened in the face of a boom in American jobs. In Europe, the impact of global competition and technological change has been blunted by heavy taxation, government redistribution, and mandated high minimum wages. The result? Less income inequality but more unemployment. The U.S. has chosen more flexible labor markets, with lower unemployment but greater inequality.

The widening income gap has economists worrying that it may be hurting growth. They argue that inequality hurts productivity by slowing educational achievement. Lower-income kids drop out of high school three times as often as higher-income children, and only 4% graduate from college, compared to 76% from the ranks of those in the top quarter of income.

What's to be done? The nation already spends more on public education than Japan or Europe, but that doesn't mean the money is well spent. Only reform that makes classrooms exciting arenas for learning can work. And only parental involvement in homework and character-building can boost the abilities, self-esteem, and grades of children.

Government policies that bolster the family can also help reduce inequality. The high school dropout rate for white 12th-graders in single-parent families is 50% higher than for all 12th-graders. These single-parent families earn 40% less than two-parent families. Serious enforcement of child-support laws would shift $80 billion into single-parent families. Economic incentives for families staying together should be strengthened as well. Higher tax exemptions for children would help two-parent families. So would ending the marriage tax penalty.

The growing inequality has many sources. The means to reverse the trend are available. But is the will?

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