The source of US inequality lies in the unusually low amount of redistribution we do through our tax and transfer system. Figure 1, below, shows Gini coefficients before and after taxes and transfers for a number of advanced economies. The US after-tax-after-transfer Gini is the highest of the group, but its pre-tax-pre-transfer Gini -- the inequality of market income -- isn’t all that special. What this figure suggests, then, is that it’s all about redistribution rather than about market inequality -- not that America has become a bunch of lazy good-for-nothings, except for the rich -- who do all the heavy lifting.
The lazy-American view is further undermined by the fact that Americans typically retire later than their European counterparts and work harder.
America's Productivity Climbs But Wages Stagnate
Conservative and liberal economists agree on many of the forces that have driven the wage share down. Corporate America’s push to outsource jobs — whether call-center jobs to India or factory jobs to China — has fattened corporate earnings, while holding down wages at home. New technologies have raised productivity and profits, while enabling companies to shed workers and slice payroll. Computers have replaced workers who tabulated numbers; robots have pushed aside many factory workers.
“Some people think it’s a law that when productivity goes up, everybody benefits,” says Erik Brynjolfsson, an economics professor at the Massachusetts Institute of Technology. “There is no economic law that says technological progress has to benefit everybody or even most people. It’s possible that productivity can go up and the economic pie gets bigger, but the majority of people don’t share in that gain.”
From 1973 to 2011, worker productivity grew 80 percent, while median hourly compensation, after inflation, grew by just one-eighth that amount, according to the Economic Policy Institute, a liberal research group. And since 2000, productivity has risen 23 percent while real hourly pay has essentially stagnated.