Corporate America and income inequality in the US

Economic inequality, the gap between the rich and poor, has always existed. This disparity has increased dramatically in the U.S. over the last four decades. Inequality can be measured in many ways, frequently using income.

The Gini coefficient is one of the most utilized measures of how income is distributed across the population with 0 being perfectly equal (where everyone receives an equal share) and 1 being completely unequal (where 100 percent of income goes to only one person). The measure has been in use since its development by Italian Statistician Corrado Gini in 1921.

The United States has a Gini coefficient of 0.485, the highest it has been in 50 years according to the Census Bureau, outpacing that of other advanced economies. This measurement finds that the U.S. is the most unequal high-income economy in the world.

The top 1 percent of earners made a little over 10 percent of the country’s income in 1980. Currently they take home about 20 percent, more than the entire bottom half of earners.

Where are the jobs going?

Academicians and politicians argue over whether automation or overseas manufacturing is more responsible for eliminating American manufacturing jobs and keeping wages lower. The question is debatable, but the answer is surely a mosaic from globalization to automation.

One factor that catches the eye time and time again has been the role of corporate America. Sure, automation and globalization have transformed labor markets across the globe, but it is important not to overlook corporate America’s role in accelerating these effects.

The late Jack Welch, the CEO of General Electric from 1981 to 2001, captured this reality when he talked of ideally having “every plant you own on a barge.” He turned the firm from a manufacturing company into more of a financial services firm while offshoring American manufacturing jobs. In 1999, Fortune Magazine named him manager of the century.

Other leading companies followed Welch’s path. For example, General Motors moved production to low-wage areas like northern Mexico starting in the 1980s. In 2017 Boeing, America’s biggest exporter, opened a plant in China for its 737 planes.

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From both an economic and national security perspective, the U.S. needs to strengthen smart manufacturing and provide good jobs for future generations through effective public policies. War and the pandemic have exposed the fragility of supply chains. Increasing domestic production of items like energy, food and medicine would better secure supply chains and create high value jobs and support American workers and their families.

For example, semiconductors (chips) are foundational for many industries, as everything digital has transformed all sectors of the economy. Bear in mind that digital technologies are disrupting entire industries and blurring industry boundaries. Still, the U.S. is suffering from a severe shortage of semiconductors.

While the U.S. global share of semiconductor manufacturing capacity was 37 percent in 1990, the number has fallen to an alarming 12 percent today. The U.S. has become an outlier in an industry that is a major engine of U.S. economic growth and job creation.

The U.S. has grown dependent on other countries that provide government subsidies and incentives to make it easier and cheaper to manufacture semiconductors. The European Union is planning to provide the industry with $48 billion over 10 years.

More importantly, China is investing $100 billion into the sector. The Chinese government is funding the construction of more than 60 new semiconductor fabrication plants and is poised to have the single largest share of chip manufacturing by 2030.

Words of advice from Alexander Hamilton

When push comes to shove, the political class should remember that the U.S. must be the world leader in advanced manufacturing: “Not only the wealth but the independence and security of a country appear to be materially connected with the prosperity of manufacturers.”

Who said that? The never less than interesting Alexander Hamilton, of Broadway fame, in his Report to Congress on the Subject of Manufactures in 1791.

Joseph M. Giglio is a professor of strategic management at Northeastern University’s D’Amore-McKim School of Business.

This article originally appeared on The Patriot Ledger: United States is the most unequal high-income economy in the world