Income Inequality in the United States: Causes, Consequences, and Policy Responses
Master's Thesis · ~98 pages · English
Abstract
This thesis examines the structural causes, socioeconomic consequences, and policy responses to rising income inequality in the United States from 1980 to 2024. Using distributional national accounts data, the analysis documents that the top 1% income share has doubled from 10% to 20% over four decades while median household real income growth has stagnated. The research evaluates competing causal explanations including skill-biased technological change, globalization, labor market institution erosion, and financialization, concluding that institutional factors, particularly declining unionization and minimum wage erosion, explain a larger share of rising inequality than technological determinism alone. The thesis assesses redistributive policy instruments including progressive taxation, earned income tax credits, universal basic income proposals, and pre-distribution strategies targeting market income inequality.
1. Introduction
Income inequality in the United States has reached levels not observed since the Gilded Age, with profound implications for economic mobility, democratic participation, health outcomes, and social cohesion. The share of national income flowing to the top 1% has doubled since 1980, while the bottom 50% has seen minimal real income growth.
This thesis examines why inequality has risen so dramatically, what consequences this trend produces, and which policy interventions show the strongest evidence of effectiveness. The analysis integrates economic, sociological, and political science perspectives to build a comprehensive account of inequality's causes and cures.
2. Causal Analysis
The thesis evaluates four competing explanations for rising inequality:
Skill-Biased Technological Change - Automation and digitization increase returns to education and cognitive skills while reducing demand for routine manual and cognitive labor. This explanation accounts for rising college wage premiums but struggles to explain within-group inequality increases.
Globalization - Trade liberalization and offshoring reduce wages for tradeable-sector workers, particularly in manufacturing. Evidence suggests significant but geographically concentrated effects.
Institutional Erosion - Declining unionization (from 35% to 10% of private sector workers), minimum wage stagnation in real terms, and weakened labor market regulations directly compress lower-half wages.
Financialization - Growth of the financial sector and shareholder primacy norms redirect corporate surplus from workers to capital owners and executives.
3. Policy Assessment
Evidence assessment of major policy proposals:
• Progressive Taxation - Historical evidence shows top marginal rates of 50-70% are compatible with strong economic growth; current rates (37%) are historically low • Earned Income Tax Credit Expansion - Strong evidence of poverty reduction and labor force participation effects; most cost-effective existing transfer program • Minimum Wage Increases - Meta-analyses find minimal employment effects for moderate increases; $15 federal minimum would raise wages for 17 million workers • Universal Basic Income - Pilot evidence promising but fiscal sustainability at scale remains uncertain • Pre-Distribution Strategies - Sectoral bargaining, codetermination, antitrust enforcement, and educational investment address market income inequality directly
The thesis argues that effective inequality reduction requires combining redistributive taxation with pre-distribution reforms that alter the market distribution of income.
References
- [1]Piketty, T. Capital in the Twenty-First Century. Translated by A. Goldhammer. Harvard University Press, 2014.
- [2]Saez, E., and G. Zucman. "Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data." Quarterly Journal of Economics 131, no. 2 (2016): 519-578.
- [3]Autor, D. H. "Skills, Education, and the Rise of Earnings Inequality among the 'Other 99 Percent.'" Science 344, no. 6186 (2014): 843-851.
- [4]Chetty, R., N. Hendren, P. Kline, and E. Saez. "Where Is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States." Quarterly Journal of Economics 129, no. 4 (2014): 1553-1623.
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