Academic journal article Yale Economic Review

INCOME INEQUALITY United States and Germany

Academic journal article Yale Economic Review

INCOME INEQUALITY United States and Germany

Article excerpt

OVER THE LAST THIRTY YEARS, the United States has seen a rising gap between the rich and the poor. This increasingly unequal division of wealth, and the social stratification that follows, continues to be a contentious domestic issue. Rising income inequality is not, however, a trend particular to America, but is rather an international phenomenon; indeed, wage inequality has been on the rise in many industrialized countries.

In their recent paper, "Technological Trends and Episodic Changes: an analysis of income inequality in the U.S. and Germany," Dirk Antonczyk, Thomas DeLeire, and Berno Fitzenberger compare income trends in Germany and the US. in order to better understand these recent inequalities. The authors closely examine German and American workers in the 80%, 50%, and 20% quartiles from 1979 to 2004, and seek to explain the wage inequality over this period.

Most economic explanations for income inequality focus on technological changes. New technology creates high-skill jobs for which the supply of workers is limited. The demand for workers to fill these jobs creates a skillpremium, and high -end income rises. This increased demand for advanced skills explains the growing gap between the rich and the middle class in both Germany and the U.S.

In the U.S., however, the incomes of the poorest group have been catching up to the middle since the mid 1990s. The Polarization Effect seeks to explain this shrinking gap; it posits that many middle -skill jobs are eliminated by technology (for example, factory work became increasingly automated), while high-skilled and unskilled manual labor jobs both remain relatively unaffected. As middle -income jobs are slashed, the gap between upper and middle income grows, while the gap between the lower income and the middle shrinks, forcing the country into two strata rather than three. …

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