- 1 Indirect Market Forces
- 2 Direct Employer Decisions
- 3 Solutions
- 4 Sources
The growing income disparity, or gap between rich and poor, is caused by a number of factors, including:
Indirect Market Forces
To a degree, corporations or necessitated by the nature of the free market to reduce expense and increase profit. As such, if they do not send jobs overseas or replace workers with machines, their competitors will, causing a number of detrimental effects to their companies.
If, for example, a competing company sends jobs overseas, they gain a competitive advantage in cheaper product over companies which, out of principle, insist on hiring higher-wage workers in more democratic countries like the United States. The end result is that the principled company loses out to the unprincipled company, and can go bankrupt or lose their market standing as a result.
Employee Job Security
In the process their employees will lose their jobs anyway. By taking a stand for what is right, it is not only they and their company, but the employees hired by them who will suffer.
Assuming the corporation is publicly-traded, the stockholders who have invested in the corporation will also be affected, and lose their investments.
Direct Employer Decisions
Increased Minimum Wage/Benefits
Increasing the national minimum wage or benefits (e.g. Obamacare) forces U.S. companies to cope with the higher cost of hiring U.S. workers in a variety of ways. Because payroll is typically a company's major expense, the simplest way to increase company profitability and shareholder/investor returns is to pay workers less. This is additionally necessitated by minimum wage hikes and increases in employee benefit costs such as healthcare.
If U.S. workers become too expensive, it becomes an increasingly attractive option for big businesses seeking to remain competitive in a global market to send jobs overseas where work is cheaper, which is why China, which has no national minimum wage, has overpowered the U.S. in terms of trade. Chinese manufacturing workers are paid 1/10th that of their U.S. counterparts, and the U.S. has over a $300 billion trade deficit with China every year. In a global free trade environment, jobs go where labor is cheapest, barring governmental actions to protect domestic labor like tariffs and trade embargoes (thus why they are explicitly authorized under Article 1, Sec. 8), thus resulting in a global income disparity where workers are paid ever less and CEOs reap ever higher salaries. Unless trade is restricted with unscrupulous low minimum wage countries like China, a growing global income disparity and the destruction of westernized, high minimum-wage democracies such as the United States is unavoidable.
There is a perpetual cycle of workers being replaced with machines as technology improves over time. As a result, the world is constantly producing ever more manufacturing input while decreasing the number of manufacturing workers employed--this is in part why the U.S. is increasingly becoming a service-sector economy. As the key manufacturing jobs disappear, either because they are outsourced to countries like China, or because they are replaced with machines, the only jobs remaining are those which can't be outsourced or automated. For example, jobs such as plumbers and doctors currently require a physical person present to perform the service... although at some point, telemedicine may allow foreign doctors to provide a degree of treatment from long-distance, and some healthcare tasks can now be performed via robots and advanced technology that were once performed by human doctors.
Barring legislative intervention, for example requiring that companies which hire more U.S. workers in relation to company earnings get more tax breaks, automation's effects will continue to destroy jobs and result in less and less money going to the poor, and more going to the rich.
Many unscrupulous employers exploit the United States' weak borders and suspect immigration policies by hiring illegal immigrants. While there has been considerable attention focused on deportation of those immigrants, there has been strikingly little concern for holding employers accountable.
Converting Full-Time Jobs to Part-Time/Temporary
Interestingly, not only private-sector employers, but many state and local governmental agencies have been increasingly going to part-time and temporary employment as a way to avoid the increased overtime and benefits (such as healthcare) mandated by new legislation such as the Affordable Care Act (aka Obamacare). Temporary employees are paid very little, with temp agencies taking their cut even as companies increase their profits.
- See also Political Reforms
The only solution is for government to intervene at the federal level. The nature of a free market results in the least principled companies, countries, and investors winning out, barring government intervention. For that reason, Political Reforms such as those I have recommended are needed to protect companies, including small businesses, employees, investors, global democracy, global wages, and the U.S. economy itself.
Embargoes Against Low Minimum Wage Countries
Trade embargoes should be used against low-minimum wage countries (those with minimum wages below $4.00/hour in international dollars) with whom the U.S. has over $1 billion in annual imports, to stop countries like China from parasiting off the U.S. to empower communist, fascist dictatorships. The nature of a global free market results in the U.S.' higher minimum wage working against it, as global megacorps send jobs overseas to low minimum wage countries where labor is cheaper. The largest expense for such companies is typically payroll, so the easiest way to increase profits, meet stockholder expectations, and free up money for CEO salaries is to reduce worker pay. On the other hand, a company which refuses to outsource runs the risk that their competitors will do so, so that they will be at a competitive disadvantage.
The global free market results in a race to the bottom, driving down worker wages worldwide and rewarding immoral Communist countries such as China which use low minimum wages to attract foreign investment capital. The U.S. is running a $300 billion annual trade deficit with China every year, and the goods made in China are made by workers paid 1/10th that of their U.S. counterparts. Unrestricted free trade harms the U.S., harms workers worldwide resulting in lower wages everywhere, harms democracy, and results in a global income disparity as the rich get ever richer and the poor get poorer.
To avoid impacting 3rd-world countries, such a policy could affect only those countries which have over a set annual level of imports (e.g. $8 billion annually). Thus, many 3rd-world countries would not be affected or examined, only those with a substantial amount of imports.
Free Trade With Decent Minimum Wage Countries
Completely free trade should be pursued with countries that have decent minimum wages above $4.00/hour. This results in a simplistic, un-bureaucratic trade system where either the U.S. trades with a country or it doesn't. There are not thousands of tariffs on different goods. If a country has a substantial amount of imports to the U.S. and a low minimum wage, then we don't trade with that country. This would only affect two dozen countries or so out of the roughly 200 countries worldwide; and result in perfectly free trade with our democratic allies such as those in Europe, Israel, Taiwan, Japan, Canada, Mexico, etc. Countries with which we would stop trading include China.
Corporate Income Tax Breaks for Companies Who Hire
The corporate income tax should be simplified so that all tax breaks are eliminated aside from a tax break to companies who hire more U.S. workers in relation to company earnings. This would combat the effects of automation and encourage employers to hire maximally.