Mind the Income Gap

Income inequality in the United States is at its greatest since the Gilded Age. Professor Mark Stelzner explains why.

By Amy Martin

ince joining Conn’s faculty in 2015, Associate Professor of Economics Mark Stelzner has taken an interdisciplinary approach to studying inequality and the political underpinnings of the U.S. economic system. Stelzner, who earned a Ph.D. from the University of Massachusetts Amherst, a hub for heterodox economics in the U.S., has conducted research on everything from the evolution of labor laws and antitrust administration to the connection between corporate market power and wage discrimination to the relationships between consumption, growth and happiness.

Recently, he sat down with CC Magazine Editor Amy Martin for a wide-ranging discussion about the history and current state of income disparity in the U.S.—and what, if anything, can be done about it.

CC Magazine: According to the Congressional Budget Office, income inequality between the richest Americans and, well, everyone else is at its greatest since the late 1920s—and growing. But there have been times when income was much more evenly distributed between the highest and lowest earners. What happened?

Mark Stelzner: The historic income inequality we associate with Gilded Age up to the Great Depression began to shrink in the 1930s and reached a low in the ’50s, ’60s and ’70s. A big reason for that is the central labor legislation that was passed in the Depression period. The National Labor Relations Act, which is the central piece for collective bargaining still, was passed in the mid-1930s. And then the Fair Labor Standards Act, which set a minimum wage, was passed just a few years later. Those laws empowered workers to respond to employers if they tried to exercise any type of market power to push down wages, and we see a dramatic increase in unionization and in strikes.

Then there were the tax laws. The top marginal tax rate in the United States in mid-century was around 93%, which essentially acted as a wage ceiling. Basically, any income in that top marginal tax bracket would almost all be taxed away. So if you’re a CEO and you’re making just under that tax bracket, you have no incentive to increase your wage.

CC: So, what changed?

MS: A lot. In the 1980s, we start to see a change in social attitudes around unions. For example, some things were always legal, but they weren’t commonly done, like firing striking workers. But in the 1980s, you have Reagan firing all the striking air traffic controllers, which made the private sector realize, “Oh, hey, we can do this too.”

And then in this same period, we see changes in the interpretation of antitrust laws, which impact the ability of firms to buy up competition. These laws were most intensely enforced in the mid-20th century, from World War II through the early 1970s. But since then, we’ve basically deregulated antitrust law, not through Congress, but through the reinterpretation of the laws already on the books via regulatory bodies. Conversely, we’ve more intensely regulated patent laws and extended the duration of patents, which gives more power to the patent holder and increases the amount of profit they can pull from it.

Essentially, by increasing consolidation and decreasing worker power, employers have more leverage to push wages down.

A lot of economic frustration gets co-opted and projected onto other issues ... using things like race and other-ism to keep working class people from coming together to force meaningful change.

Professor Mark Stelzner

CC: And then, of course, that top marginal tax rate is now just 37%.

MS: Exactly. That starts to change in the 1960s with Lyndon Johnson, and then more intensely under Reagan in the 1980s. And that created an incentive for top management to increase their wage vis-a-vis other workers.

CC: So, is there any chance of putting the genie back in the bottle?

MS: Well, a lot of the changes that were passed in the Great Depression period and then during World War II had been talked about and pushed for decades. There was definitely agitation for change, but a lot of what was done was superficial. It took the Great Depression and this crisis of capitalism to get people to really rethink things.

CC: Are you suggesting capitalism would basically need to collapse before the U.S. can address income inequality?

MS: I hope not. But to really bring people together to make change, you need a lot of stressors on the system. That’s at least partially because although we have a democracy, there are a lot of undemocratic elements in our political system that make change very hard. So you need an intense level of solidarity to push things through, and I think that only comes about in very extreme moments.

CC: Some would say this is an extreme moment, with America’s richest 1% of households making more than 100 times as much as the bottom 20%, and the top 0.1% bringing in nearly 200 times as much as the bottom 90% of households. Add in skyrocketing housing costs, inflation, flat salaries and wages—there are certainly a lot of financial stressors facing Americans.

MS: There is definitely a lot of frustration. We are seeing more people discussing these issues than, say, 10 years ago. And there has been an uptick in unionizations and union activity.

But a lot of times this economic frustration gets co-opted and projected onto other issues, quite intentionally to break up any potential solidarity. That’s been a central part of U.S. politics even going back to colonial times—using things like race and other-ism to keep working class people from coming together to force meaningful change.

CC: The political rhetoric in America today is certainly divisive.

MS: It is, but like I said, that’s nothing new. When we were the most equal nationally in terms of income inequality, in the 1950s and ’60s, we still had Jim Crow and we were beginning to dismantle it. And as the greater Civil Rights Movement began trying to address economic questions and narrow wealth and income gaps between races, we started to see a political realignment, with Southern Democratic Party constituents moving over to the Republican Party, which was really selling people on this idea of “getting tough on crime.” There are a lot of studies showing a huge overlap between people who didn’t like what was happening with Civil Rights and people who wanted to “get tough on crime,” where the “criminal” they were talking about was really coded language for Black and brown people. And then because the constituents were focused on racial hate, the government was able to make a lot of these economic changes that led us to where we are today.

The underlying assumption in economics is that increased growth leads to increased happiness. But is that true? Are there other changes we can make in society that would make us happier?

Professor Mark Stelzner

CC: Speaking of where we are today, there are still major income gaps between white workers and workers of
color, right?

MS: Oh, for sure. Since the 1980s, we’ve had increasing wage income inequality between workers of different racial groups, including between Black and white workers with the same level of education. One important factor for navigating the job market is having a financial cushion for anything that could potentially happen if you change jobs, including moving, missing a paycheck, that sort of thing. And the wealth inequality between households of different racial groups is extreme, even more extreme than income inequality. So if employers recognize that Black and Latino workers are less likely to move between jobs—because of this lack of financial cushion—then they can push down their wages.

And then even though there have been changes in terms of gender relations since mid-20th century in the U.S., it’s still the case that women are more likely to have more responsibilities at home. If employers recognize that women, in general, are more exploitable, the profit-maximizing strategy is to offer women lower wages, too.

CC: Meanwhile, by most traditional economic measures, the economy is doing well. Corporations are posting record profits and the stock markets are healthy. Billionaires are getting richer. Why haven’t the rest of us benefitted at the same rate?

MS: Well, we’ve created a very good system for making profits for companies and the very wealthy, but in a lot of ways, it’s a terrible system for actually serving needs. And to some degree, that is intentional. The more you serve needs, the less demand there might be. To continuously achieve growth, you get situations where companies do things that are beneficial to them, but terrible for everybody else, like raising prices or pushing down the wages of their workers.

CC: So are we looking at the wrong metrics?

MS: I think the metrics we use don’t even come close to giving us the whole picture. We look at growth of the economy and growth of the stock market, but if we’re thinking about economic outcomes, we need to look at things like, “How’s inequality?” and “What does this mean in terms of income growth for lower income groups?” And I think we should also ask ourselves: “What is this all for?”

The underlying assumption in economics is that increased growth leads to increased happiness. But is that true? And do we really need to keep focusing on growth? Are there other changes we can make in society that would make us happier? But we never make decisions based on, “Oh, our happiness index for the country has decreased. Maybe we should do things slightly differently.” Economic metrics are supposed to be connected to happiness, but a lot of times they are not, at least for the majority of Americans.

CC: Do you think there’s any real hope for that level of systematic change in our lifetimes?

MS: We are in a very narrow political moment, so a lot of these changes sound impossible right now. But that was also true in the 1920s, and if you look at the historical arc, you can see how much change has happened in the last 100 years, for better and for worse. I think it’s important to think more broadly and bigger picture about where we can potentially move to improve society on a more fundamental level. History tells us we just might get that chance.