Many believe some version of the following regarding income inequality:<\/p>\n\t
The current income distribution is the free market outcome; we can’t regulate ourselves out of income inequality…it is a natural outcome of our global economy.<\/em><\/p>\n\t The statement is untrue.\u00a0 It is better worded as follows,<\/p>\n\t “The current income distribution is a consequence of our government labor policies.\u00a0\u00a0 Based on current policy, it is the outcome we have created (perhaps inadvertently, but we still did it).\u00a0 If we’d like to change it, we can.”<\/em><\/p>\n\t How can we better frame the issue of income distribution?<\/p>\n\t Income can go to two main places:\u00a0 a) Capital (rich people\/businesses)\u00a0 or c) Labor (us).\u00a0 We control which of those parties has the upper hand to “negotiate” for their share of national income.<\/p>\n\t A) Capital:\u00a0 These are people who earn their income through owning things, such as land (to rent), or stock (to appreciate), or banks (in effect they rent money), or factory equipment (to make things), etc.\u00a0 Capital does not work; it enables others to work\/produce and so capital earns its income by “renting” its capital to others.<\/p>\n\t Capital has the upper hand right now.\u00a0 The rich and business owners are raking in all the gains in national income.\u00a0 If we change their bargaining power, they will capture less.<\/p>\n\t b) Labor:\u00a0 This is people who earn a salary by working.\u00a0 This is us.\u00a0 We are fairing poorly currently in bargaining for any share of the productivity gains that we are producing.\u00a0 The gains are all getting captured by capital.\u00a0 Labor increases productivity; capital is capturing the gains.<\/p>\n\t There are some who would point out that without capital\/business there would be no labor gains for us to think about capturing (this is the whole “the rich are the job creators” argument).\u00a0 This is not true.\u00a0 Without consumers\/labor (with money) to buy\/demand products, capital would be useless.\u00a0 Job creation is an ecosystem, it takes both capital and labor to succeed.<\/p>\n\t Here are some factors that have created our current income distribution, which we can reverse if we so choose.<\/p>\n\t 1. Decline in Labor Unions:<\/p>\n\t We are all in labor unions, whether we know it or not.<\/p>\n\t When a union bargains a benefit, we all get it as companies will offer it to everyone so that the non-union workers are not tempted to join the union.<\/p>\n\t Unions create collective bargaining power for labor in which even non-union members benefit.\u00a0 Without unions, labor is weakened as a whole.<\/p>\n\t 2. Enforcement of the FLSA:<\/p>\n\t In the US, we generally work many more hours per year than the rest of the world.\u00a0 The FLSA created the 40 hour work week.\u00a0 By being lax on enforcing the definition of an “exempt” worker, the 40 hour work week has been effectively abolished for all but a few employee groups.<\/p>\n\t The law already exists, simply reclassify workers as non-exempt (based on an alternate legal interpretation of the classification) and labor gets a bargaining chip (overtime hours).\u00a0 As exempt workers, we do not have a basis on which to start the conversation (except complaints about work\/life balance).<\/p>\n\t 3. Enforcement of anti-trust law:<\/p>\n\t Many industries in the US (cable, wireless, media, etc.) are oligopolies…in which a few large firms (e.g. AT&T, Verizon) dominate the industry.<\/p>\n\t As such, they are near monopoly buyers of labor, and so they do not have to pay out as much to employees in salary.<\/p>\n\t Here is an example.\u00a0 If you work in cellular, you work for AT&T or Verizon mainly.\u00a0 There are only two buyers of your services; you can’t really continue to leave one company for another if your current salary doesn’t suit you.\u00a0 There are only two places to go, and\u00a0 you can’t move across the country if needed, because the same two companies exist wherever you go.\u00a0 In the past, this wasn’t true.\u00a0 It was easier for labor to say “I’ll just go work for someone else”.\u00a0 We COULD go work for someone else; now we can’t as easily.<\/p>\n\t Anti-trust law already exists.\u00a0 The legal interpretation of it changed such that companies were allowed to get larger and capture larger market shares.\u00a0 If we go back to the old interpretation, then labor gains bargaining power as very large companies lose their “monopoly buyer of labor” market position.<\/p>\n\t 4. Retirement investment in stocks:<\/p>\n\t When we put our savings in stocks (generally for the purpose of retirement savings); we drive up the price of stocks (which are owned by capital).\u00a0 The reason is that we input additional dollars which chase a finite supply of stock shares.\u00a0 We drive up the price of stocks….which gives money to capital (not labor).<\/p>\n\t Returns to capital would be lessened if we invested less in stocks and preferred (voted) instead to take a government pension.<\/p>\n\t 5.\u00a0 Privatization:<\/p>\n\t Government workers have lots of rights (largely due to government unions).\u00a0 When anything is privatized, those rights go away and capital captures the gains.<\/p>\n\t As an example, you privatize a utility company in a particular city, those people lose their government benefits and jobs.\u00a0 The company will be reformed as private (generally with a government granted monopoly) with lower wages, benefits, and job guarantees to employees and higher prices to the public.\u00a0 The excess profit from the company will leave the city as it is distributed to company leadership and shareholders (capital).\u00a0 Labor loses.<\/p>\n\t Those who say “that isn’t what happens…the free market is always more efficient than government run services”; that simply isn’t true in all cases (though it is true in some).<\/p>\n\t 6.\u00a0 Unemployment:<\/p>\n\t High unemployment means labor has little bargaining power as employees cannot leave for other companies.\u00a0 In this case Capital gains the upper hand as it can capture labor’s increased productivity for itself instead of paying some of it out in higher wages.<\/p>\n\t Unemployment itself is a choice of the government (i.e. our choice as voters) as the government could always act as an employer of last resort to keep the labor markets fully functioning (just as the Fed acts as a lender of last resort to keep the finance industry functioning).<\/p>\n\t We could have a Fed for the labor market if we so chose<\/em>.\u00a0 This would give labor a lot more bargaining power (the government role as employer of last resort would provide a wage floor that private industry would have to meet or beat to attract workers).<\/p>\n\t 7.\u00a0 Minimum wage:<\/p>\n\t Increases in the minimum wage push up the wage floor which indirectly pushes up wages for all workers.<\/p>\n\t