Inequality in US labor markets
Introduction
Inequality in labor markets in United States can be determined through some measures including income level, gender and racial gaps. The inequality in labor marker may be explained from an economic narrative that is efficiency driven and involves a relationship between demand and supply of people’s skills. A social drive explanation of this inequality is where norms stereotypes determine the various actions in labor market. Despite the efficiency driven explanation being appealing, the social driven description gives better reason for the increased case of inequality in the labor market. The inequality in the labor markets is therefore, avoidable given that the causes can be addressed and corrected.
Causes of inequality
High levels of education may boost or reduce income inequality and this depends on where the increase occurs on the education ladder and quality of education the population was given at the beginning. Investing in human capital by encouraging more people to pursue tertiary education may have an ambiguous effect on wage inequality. While the investments can broaden the income dispersion through increment of high-income earners share, the direct impacts in the problem can be worsen by a reduction in relative wags of highly-educated workers (Hurst et al. 2016).
The available of cheap labor in countries like china, exchange rates that are unfair and outsourcing of is a major cause of income inequality. In order for firms to remain competitive in the global market, they focus on profits at the expense of workers welfare. The companies in US have to compete with Indian and Chinese firms who can offer lower-priced products since workers wages are much less. The US forms outsource manufacturing and high-tech jobs overseas which has made to lose 20 % of higher-paying jobs. Even though service jobs have been increasing, they pay much lower. Reengineering by the firms leaves less number of permanent employees as attention turn to temporary and contract workers (Card, 2009).
Unionization of workers can also offer an explanation on the increasing level of wage inequality in United States. While declining in union members in the country can lead to more inequality, higher union membership can also lead to the same. The role of labor unions has been to ensure that wages for lower level and middle level workers are improved. An increase in union membership has in past lead to increase in wages among the members. When labor markets, personal and job characteristics are controlled, union workers earn better than nonunionized workers (Rios‐Avila & Hirsch, 2014). Wage premium is also higher among the unionized workers than the others. In addition, the unions also ensure that the number of female workers is fair in the labor market and hence, addressing gender inequality. With decline in labor unions and unionized workers, negotiations on better benefits and wages decreases which increase the level of inequality in the market. Labor unions are also able to enter into profit share agreements with firms so that wages are increased in line with increment with workers productivity. In absence of such representations, the level of income inequality continues to increase in the labor markets. In addition, where the increase in labor membership does not lead to broader dispersion of wages, income and better gender inclusion, it raises the level of inequality in the labor markets (Rios‐Avila & Hirsch, 2014).
Immigration is another issue affecting the level of inequality in United States. There are many illegal immigrants in the country and such people have less power to bargain for higher labor income. These workers provide their labor in lowly paid service positions. These workers are paid much less in comparison with the native counterparts even where they have similar education levels (Card, 2009). The gap in the payment could be a reflection of employer’s difficulties while trying to have a proper assessment of their immigrants qualification obtained in foreign markets. There is also the possibility that the immigrants lack adequate skills due to their educational environment providing lower quality and have no work experience in host market. The lack of skills, knowledge of language and discrimination mean that they are paid lowly in comparison with natives (Card, 2009). The gap stops being significant ones the foreigners acquires similar education level with the natives. The investment in such a workforce may not be sufficient in providing required skills and even language courses that would help them bargain for a better pay in the market (Card, 2009). A firm like Wal-Mart, the largest employer in US , has been reducing benefits and pay for its workforce which can be related to availability of a population that is willing to work for less. However, the supervisors and managers compensation and benefits remain quite higher when compared to the junior workers.
Conclusion
The issue of income inequality is best addressed through social perspective since the major causes involve education level, labor unions, and immigration and gender differences. These issues are not unavoidable given that they can be addressed in order to achieve equality in labor markets. The more these issues persist, the more inequality will continue increasing in US labor markets.
References
Rios‐Avila, F., & Hirsch, B. T. (2014). Unions, wage gaps, and wage dispersion: New evidence from the Americas. Industrial Relations: A Journal of Economy and Society, 53(1), 1-27.
David, H. (2014). Skills, education, and the rise of earnings inequality among the" other 99 percent".
Card, D. (2009). Immigration and inequality (No. w14683). National Bureau of Economic Research.
Hurst, C. E., Gibbon, H. M. F., & Nurse, A. M. (2016). Social inequality: Forms, causes, and consequences. Routledge. 258-261
