Inequality in the Labor Force: Opportunity versus Outcome

What It Means

Inequality in the labor force can most easily be seen in how much workers are paid. Some individuals, such as business executives and celebrity chefs, receive high salaries for their jobs. Others, for example, employees at fast-food restaurants, receive only the minimum wage (the lowest pay allowable by law). One reason for this type of inequality is simple: the executives and the celebrity chefs provide work that demands highly specialized skills, while the fast-food employees perform very simple tasks requiring minimal education or training. The root causes behind this inequality, however, are complex and difficult to identify.

In discussing economic inequality, economists generally adopt one of two approaches. One focuses on the question of equal opportunity. Some people, because of lack of education or discrimination, for example, have fewer opportunities to participate and make money in an economy. Without finishing high school or going to college, it is impossible to enter certain highly skilled and well paying professions, such as law or medicine. The establishment of public education and laws forbidding discrimination on the basis of race and sex were attempts to address long-standing differences in economic opportunity.

A second approach to economic inequality focuses not on access to well paying jobs, for instance, but on the very fact that there are substantial differences in the “outcome,” or compensation, for people’s work. Although a business executive—because of the willingness of others to pay him a high salary so they can benefit from his rare set of skills—might be able to make one hundred times the salary of his secretary, the question remains whether he should be able to make such a large amount of money. Among people who would say yes are those who believe that free markets (where governments interfere little in the conduct of business) distribute goods and services in the most efficient and fairest way; in this perspective, the business executive receives a salary that corresponds to the value he contributes to the economy. Other people believe the such inequalities in income are not ethical, do not truly reflect the value of each person’ effort in the economy, or threaten to undermine political support for free markets; a person with these beliefs might propose a higher rate of taxation for wealthier people (which could then be given to people with less income), government programs that address particular problems among poor people (such as the inability to afford health care), and other laws that would encourage a reduction in income inequality.

Few people, however, support the same salary for every job. If all salaries were the same, there would be little incentive for people to work hard, to be innovative, or to train themselves for specialized and difficult jobs. Some degree of income inequality, therefore, is essential to most economic systems.

When Did It Begin

The concepts of equal opportunity and equal outcome trace their roots to the political and social upheavals of the late eighteenth and early nineteenth centuries. Philosophically the American and French revolutions were inspired by principles of freedom and equality; the American Declaration of Independence asserted the right of the colonists to have social and economic freedom, while the French revolutionaries espoused ideals of “liberty, equality, fraternity.” In reality, these revolutions failed to provide equal opportunities for all individuals; the rights outlined in the Declaration of Independence were not extended to women or African-American slaves, and the French Revolution failed to create a lasting democratic government in France. Still, the underlying belief in equal opportunity for all men, regardless of origin, class, or economic standing, would serve as the foundation for later efforts to achieve equality for all individuals, regardless of race or gender.

The idea of equal outcome is often associated with the writings of German philosopher and economist Karl Marx (1818-1883). In such works as The Communist Manifesto (1848) and Das Kapital (1867), Marx outlined a radical vision of a “classless” society based on communist principles of economic cooperation, in which the proletariat (in other words, working class) would control the means of production, and the benefits of this production would be distributed according to the individual needs of the members of the society. While most economists regard Marx’s vision of communism to be both politically and economically unworkable, his ideals concerning equity are still influential and are at the core of many modern economic and social welfare programs.

More Detailed Information

Several factors play a role in determining whether or not an individual enjoys economic success. Social forces are often cited as the most important. For example, an individual who grows up in a wealthy family, attends expensive private schools, and receives glowing references from his father’s business associates will generally have an enormous advantage over an individual who grows up in a broken home, lives in a poor neighborhood with high crime rates, and attends poorly funded public schools.

In addition to individual economic circumstances, social factors concerning race and gender also play a role in creating conditions of inequality. Racial and sexual discrimination, though illegal, are still pervasive in the American workforce. For example, in 2002 American women still earned only 69 percent, on average, of the money men earned for the same work, despite decades of social reform. At the same time, while the Civil Rights Movement of the 1960s helped create greater economic and political opportunities for African Americans, problems of discrimination (in hiring practices and in compensation) continued to exist in the twenty-first century.

The government can also play a role in creating or reducing economic inequalities. For example, tax breaks for big corporations can make it more difficult for smaller companies to remain competitive, resulting in lower wages, unemployment, and the closing of businesses. At the same time, government refusal to raise the minimum wage can also widen the income gap between the rich and the poor; indeed, many economic thinkers have begun to draw a distinction between a minimum wage, which is the lowest wage allowable by law, and a living wage, which is a wage that is considered adequate to support an individual and his or her family.

Recent Trends

The late twentieth and early twenty-first centuries witnessed a dramatic rise in income inequality in the United States. Economists attribute this shift to a range of causes, from tax policies that favor corporations over individuals to the natural effects of globalization. Some economists have even suggested that this imbalance has resulted from the rapid emergence of new technologies. As demand for workers with technical skills (such as those relating to computers) increased, individuals with a high level of education gained an even greater advantage over people with less formal training. As incomes for these high-technology jobs rose, wages for lower-skilled work dropped. Economists referred to this phenomenon as “skill-biased technical change” (SBTC).