Inequality in the 21st Century

A Reader

David Grusky, Jasmine Hill, David Grusky, Jasmine Hill

• Publisher: Routledge
• Year: 2018
• ISBN:
  9780429979453
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

This book provides selections from the seminal works of Karl Marx, Max Weber, W.E.B. Du Bois, and Charlotte Perkins Gilman that reveal some of the reasons why class, race, and gender inequalities have proven very adaptive and can flourish even today in the 21st century.

1. Poverty and Inequality in the 21st Century

DAVID B. GRUSKY AND JASMINE HILL

It was not so long ago that many social scientists subscribed to a version of “modernization theory” in which racial inequalities, gender inequalities, and class-based discrimination were seen as premodern residues that were destined to wither away. Although there were always prominent dissenters, this benign understanding of history was the driving force behind much of the research on inequality until the late 1970s.

But that was then. Over the last twenty years, this benign understanding has been largely discredited, and a wide variety of alternative accounts are now contending to become the new lens through which we understand the forces making for change in inequality.

How did such a dramatic reversal in our understanding of the logic of history come about? It will be useful to organize our introduction to current research on inequality around a description of these forces that led to an unravelling of modernization theory and the rise of new worries about extreme income inequality, growing joblessness, persistent racism, and the stalling-out of historic declines in gender inequality.

The Modernization Narrative

It should not be too surprising that the modernization narrative of the 1950s, 1960s, and 1970s was a largely optimistic narrative about the inevitability of progress. The narrative of the day was likely to be benign, after all, because many of the key trends in inequality were in fact quite reassuring. This is especially so for trends in income inequality up to the mid-1970s. As is well known, there was a precipitous decline in income inequality in the 1930s, and thereafter the United States experienced approximately thirty years of stability in income inequality (Saez, Ch. 6; Piketty, Ch. 7).

As important as this decline in income inequality was, the modernization narrative was more concerned with trends in inequalities of opportunity. In the United States and other liberal welfare regimes, even extreme inequalities in income were seen as quite palatable insofar as the opportunities for getting ahead were widely available to children from all families, even relatively poor ones. The “race to get ahead” was the commonly used metaphor of this time: If that race was fairly run, then the resulting inequalities in outcomes were viewed as altogether legitimate.

The featured claim of the modernization narrative was precisely that this race was becoming ever fairer. This decline in “inequalities of opportunity” was partly attributed to the expansion of secondary and post-secondary schooling and the associated diffusion of loan and aid programs, such as the G.I. Bill, that reduced financial constraints on access to schooling. Although some scholars indeed emphasized this pathway, others showed that college was a “great equalizer” in the sense that all college graduates, those from rich and poor families alike, did equally well in the labor market (see Torche, Ch. 34). When a child from a poor family goes to college, the resulting degree becomes a “shield” of sorts, in effect protecting that child from class-based discrimination.

The more general point is that competitive market economies should work to reduce all forms of discrimination based on gender, race, or social class. In his “taste for discrimination” model, Gary Becker (1957) argued that such discrimination will gradually disappear because it entails paying a premium to the preferred class of labor, a premium that non-discriminating employers do not have to bear (thus giving them a competitive advantage). The latter economic account works in tandem with a sociological one that emphasizes the diffusion of modern personnel practices in the form of universalistic hiring practices (e.g., open hiring, credentialism) and bureaucratized pay scales and promotion procedures. The essence of such bureaucratic personnel practices is a formal commitment to universalism (i.e., treating all workers equally) and to meritocratic hiring and promotion (i.e., hiring and promoting on the basis of credentials).

The final component of the modernization narrative has one’s social class becoming a less important and encompassing identity. The “working class” within the early-industrial economy was an especially prominent identity because political parties and unions carried out the ideological work needed to convert the working class into a culturally coherent community. The key claim, however, is that this identity became less central as (a) political parties abandoned class-specific platforms in favor of “issue politics,” and (b) unions became narrowly instrumental by focusing on tangible benefits rather than some transformative and politicized class narrative. In the absence of organizations that explicitly trained members into a class-based worldview, social classes increasingly become purely statistical categories deployed by social scientists, not the deeply institutionalized communities of the past (see Weeden and Grusky 2005).

New Narratives

We have laid out the modernization narrative in some detail because it still plays the important role of a discredited approach lurking in the background. It also remains prominent partly because an alternative with all the reach of the old narrative has not yet emerged. In this sense, the contemporary literature remains unsettled and inchoate, with many accounts vying for the role of successor to modernization theory. We review some of these competing accounts below.

Rent and Income Inequality

The most prominent alternative to modernization theory, an account featuring “rent” and other forms of competition-restricting regulation, has as its backdrop the spectacular takeoff in income inequality in the United States. As Saez (Ch. 6) discusses, income inequality increased dramatically in the US in the late 1970s, with it now reaching levels as high as those prevailing in the 1920s.

There are, of course, many prominent accounts that understand this development as simply the expected playing-out of competitive market forces when confronted with the “exogenous shock” of computers and other technological innovations that raised the demand for skilled labor (see Goldin and Katz, Ch. 8). The theory of skill-biased technical change, for example, implies that the demand for skilled workers is rapidly increasing because of these innovations, that the existing supply of skilled workers cannot meet this rising demand, and that the resulting disequilibrium bids up the price for skilled labor and leads to an increase in inequality. Although the higher productivity of skilled workers will lock in some of this inequality, we should eventually see a reversal or slowdown in the trend because the high wages going to skilled workers should induce more workers to invest in skill (by going to college), which in turn increases the competition for skilled jobs and ultimately drives down the pay going to those jobs. The competitive market should, by this logic, correct some of the problem.

The “rent narrative” instead rests on the view that extreme inequality should be partly attributed to the many opportunities to collect rent. We adopt here the usual definition of rent as returns on an asset (e.g., labor) in excess of what is necessary to keep that asset in production in a fully competitive market. By this definition, rents exist (a) when demand for an asset exceeds supply, and (b) when the supply of that asset is fixed through “natural” means (e.g., a shortage of talent) or through social or political barriers that artificially restrict supply. The first condition implies that those holding some “asset,” like being tall and agile enough to be a center for a professional basketball team, are in short supply and that employers are therefore in pitched competition to secure that asset. The second condition, the “fixed supply” stricture, implies that labor cannot readily respond to the price increases that arise when demand exceeds supply. It is difficult, for example, for workers to respond to the high salaries paid to professional basketball centers by willing themselves to grow seven feet tall (and to become extraordinarily agile). We, of course, care more about rent that is generated by changing social institutional constraints than rent that is generated by largely constant and enduring genetic constraints. In contemporary labor markets, the former type of rent takes on many forms, including the wage premiums associated with the minimum wage, the wage premiums associated with the union wage, and the capacity of chief executive officers (CEOs) to extract better remuneration packages (see Red Bird and Grusky 2015; Piketty, Ch. 7; Hacker and Pierson, Ch. 10).

How does a rent-based account explain the takeoff? The story is a twofold one focusing on (a) a declining capacity to extract rent at the bottom of the income distribution, and (b) a growing capacity to extract rent at the top of the income distribution. At the bottom of the distribution, the weakening of labor unions and the decline in the real value of the minimum wage means that workers are less likely to benefit from rent, thus lowering their wages and increasing inequality (see Western and Rosenfeld, Ch. 11). The growing capacity to extract rent at the top arises because of the spread of competition-restricting norms and regulations. The returns to education are increasing, for example, because those with college degrees are increasingly protected from the competition that would occur under a system in which everyone, no matter how poor they were, had full and complete access to higher education. The highly educated are further advantaged insofar as they are in occupations that have increasingly erected barriers to entry (e.g., licensure, certification) that then protect them from competition. Finally, CEO pay takes off because board members are sitting on the board at the behest of the CEO, a setup that lends itself to board members favoring ample compensation packages (see Bebchuk and Fried, Ch. 73).

It follows that rent-destruction and rent-creation are asymmetric forces. That is, just as rent is gradually being destroyed for workers at the bottom of the income distribution, it is also gradually being created at the top of the distribution. By this logic, rent is a driving force behind the rise of inequality and an intrinsic part of modern economies, certainly not the simple vestige that modernization theorists typically assume.

The Perverse Effects of Slow Growth

The rent account thus locates the contemporary dilemma as proceeding from our relentless commitment to destroying rent at the bottom of the income distribution while at the same time supporting, at least implicitly, its equally relentless expansion at the top. The second main narrative on offer, one that instead focuses on the dynamics of wealth, plays out without making any assumptions about possible changes in market competitiveness. The dynamic on which it rests could in fact unfold in the context of perfectly competitive markets.

The starting point for this account (see Piketty, Ch. 7) is the recent increase in the amount of private wealth relative to total national income. In the middle of the 20^th century, private wealth in Britain and France equaled about two or three years of national income, a relatively low share. This share then rose sharply to about five or six years of national income by 2010. The main reason for this change is declining growth rates: In slowly growing economies, past wealth becomes ever more important, as even a small flow of new savings among the already-wealthy will increase their wealth substantially. This means that inherited wealth will come to dominate the wealth that workers can amass from a lifetime of labor. It is here, then, that we see a very explicit return to Marx’s (Ch. 2) very famous worries about the growing concentration of wealth.

Why is this result so troubling? It is not that Piketty, like Marx, is pushing some iron law of accumulation that then culminates in an apocalyptic vision. Instead, Piketty is worried about the implications of this development for the legitimacy of capitalism, a legitimacy that rests in part on the premise that the race to get ahead should be a fair and open one. What Piketty (Ch. 7) shows is that this commitment can be undermined by relatively slow rates of economic growth. This is not, then, some conventional indictment of the unfair and “rigged” institutions (e.g., CEO pay institutions) by which labor is compensated. Although Piketty is also very troubled by such practices, his is instead an expose of the unanticipated consequences of slow economic growth.

It might be imagined that Piketty would therefore push for a pro-growth solution. The main problem with this solution, as Piketty stresses, is that there are real limits on the capacity of advanced economies to restore the high growth rates of the past. As a result, Piketty’s fallback solution is a progressive annual tax on capital, a tax that will then allow for new instances of “primitive accumulation” among those who are not born into wealth.

The Perverse Effects of Rising Income Inequality

The foregoing narrative thus lays out the perverse and underappreciated effects of slow economic growth. As a natural complement, we might next consider a narrative that again calls into question the capacity of contemporary economies to deliver on their commitment to openness and equal opportunity, although in this case it is rising inequality rather than slowing growth that is potentially undermining that commitment.

The main worry here is that, by virtue of the rise in income inequality, there is an unprecedented infusion of additional resources among the higher reaches of the class structure, an infusion that will work to increase the amount of reproduction. By this logic, inequality of condition and of opportunity are now understood as varying together, even though scholars have typically been at pains to stress that they are analytically distinct.

How might parents in privileged classes use their newfound income? The available evidence (e.g., Putnam 2015) suggests that they will increase the human, cultural, and social capital of their children via high-quality childcare and preschool, educational toys and books, after-school training and test preparation, science-related summer camps, elite preparatory schools, prestigious college degrees, a “finishing-school” vacation in Europe, and stipends or allowances that free them from the need to work during high school and college. As the takeoff plays out, privileged parents can also more readily afford privileged residential neighborhoods, with accordingly improved access to high-quality public schools, neighborhood amenities that assist in human-capital formation (e.g., libraries), and peers that can provide all manner of career advantages (see Mitnik, Cumberworth, and Grusky 2015).

The implication of this “infusion at the top” is that it undermines the capacity of liberal welfare regimes to deliver on their commitment to equal opportunity. The standard liberal mantra, as has been so frequently rehearsed, is that extreme inequality is quite unproblematic as long as it is the result of a fair and open race. The central dilemma of our time: How can a fair and open race be delivered when high incomes afford parents so many opportunities to assist their children? The readings in this book provide a range of approaches to resolving this defining conundrum of the 21^st century.

Commodification

The “commodification narrative,” to which we next turn, again takes rising income inequality as its starting point (see Grusky and MacLean 2015). It emphasizes that extreme inequality not only makes it difficult for the poor to buy opportunity but also disadvantages them in a growing range of markets for goods and services. The key problem here is that access to all manner of goods and services increasingly depends on the simple capacity to pay for them. It follows that those at the bottom of the income distribution are now doubly disadvantaged: It is not just that they have less money (relative to others), but it is also that access to goods, services, and opportunities increasingly requires precisely the money that they do not have. It may be said, then, that relentless commodification is what gives rising inequality its teeth.

This process is playing out very broadly. The market is gradually replacing the nuclear family, extended family, and neighborhood as the go-to source for delivering childcare, domestic services, after-school education, financial services, old-age care, health care, and much more. The resulting commodification is closely related to the relentless differentiation and specialization of the sort that modernization theorists, such as Talcott Parsons (1994), so frequently stressed. The marketization narrative emphasizes, however, the very special way in which such functions are differentiating: Namely, they are differentiating out of the family and into the market, thus making the capacity to pay for these functions all important.

It follows that rising inequality is especially consequential because those at the bottom of the distribution are disadvantaged in the competition for ever more services. If early childhood education has differentiated out of the family and is now mainly delivered on the market, how will poor families be able to pay for it? If access to high-quality primary and secondary schooling, although nominally “free,” is in principle only available within rich neighborhoods with a high entry price, how will poor families be able to access them? If access to marriage (and the supplementary economic resources it provides) is increasingly a “luxury good” only available to the well-off, how will poor men and women gain access to those supplementary resources and the economies of scale that marriage affo...