The costs of inequality:

When a fair shake isnt

Harvard researchers, scholars identify
stubborn tenets of Americas built-in inequity,
offer answers
February 1, 2016 | Editor's Pick
By Alvin Powell, Harvard Staff Writer
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First in a series on what Harvard scholars are doing to identify and

understand inequality, in seeking solutions to one of Americas most
vexing problems.
Its a seemingly nondescript chart, buried in a Harvard Business
School (HBS) professors academic paper.
A rectangle, divided into parts, depicts U.S. wealth for each fifth of the
population. But it appears to show only three divisions. The bottom two,
representing the accumulated wealth of 124 million people, are so small
that they almost dont even show up.
Other charts in other journals illustrate different aspects of American
inequality. They might depict income, housing quality, rates of
imprisonment, or levels of political influence, but they all look very much
the same.
Perhaps most damning are those that reflect opportunity whether
involving education, health, race, or gender because the inequity
represented there belies our national identity. America, we believe, is a
land where everyone gets a fair start and then rises or falls according to

his or her own talent and industry. But if youre poor, if youre
uneducated, if youre black, if youre Hispanic, if youre a woman, there
often is no fair start.
Inequality, of course, has become a national buzzword and a
political cause clbrein this election year. Its been discussed everywhere
in the recent past, from the State of the Union Address to Thomas
Pikettys best-seller to the lips of presidential candidates to Pope Franciss
encyclical Laudato Si.
Though the American public and politicians have just rediscovered the
problem of inequality, the issue has long been an area of academic inquiry
at Harvard, where research on its root causes crosses numerous
disciplines.
Inequality in America has been on the rise in recent years, after dipping
by some measures following the Gilded Age and the Great Depression. It
was a reality when Harvard philosopher John Rawls wrote his seminal
text, A Theory of Justice, in 1971. It was a reality when now-Harvard
Kennedy School (HKS) lecturer Marshall Ganz organized farm workers in
the Southwest in the 1960s and 70s. It was a reality when Nancy Oriol,
now dean for students at Harvard Medical School(HMS), founded the
Family Van care program in 1992. It was a reality
whenGovernment Professor Jennifer Hochschild wrote Facing Up to the
American Dream in 1995, and when other faculty members penned
books and articles on the problems many facets. And it was an expanding
reality in 2011, when HBS Professor Michael Norton published that
rectangular graph, in a study that also showed that Americans really dont
know how unequal the United States is and that, given a blind choice,
theyd rather live in Sweden, thank you very much.
A blizzard of statistics illustrates the problem and, with each monthly
release from the Census Bureau, the Bureau of Labor Statistics, or any
number of think tanks, the pile of reports grows higher. Their by-nowfamiliar theme is that the rich have gotten richer dramatically so in
recent decades, while the poor have gotten poorer. And the middle class
has just been hanging on.

Wages for most relatively stagnant

The details show that real wages for most U.S. workers have been
relatively stagnant since the 1970s, while those for the top 1 percent have
increased 156 percent, and those for the top 0.1 percent have increased
362 percent, according to a report by the Economic Policy Institute.
Those trends resulted in the poorest 20 percent of Americans receiving
just 3.6 percent of the national income in 2014, down from 5.7 percent in
1974. The upper 20 percent, meanwhile, received nearly half of U.S.
income in 2014, up from about 40 percent in 1974, according to Census
Bureau statistics.
But some analysts, such as Hochschild and Piketty, the French economist,
say the area of greatest concern is overall wealth, not income alone.
From a poverty perspective, income means a lot making $15,000
versus $20,000, said Hochschild, who directs the HKSbased Multidisciplinary Program in Inequality and Social Policy. But
from an inequality perspective writ large its about wealth. As a
60s kid, I care a whole lot about ownership of the means of productivity.
In his 2013 best-seller Capital in the Twenty-First Century, Piketty
argues that wealth is critically important because capital grows faster than
the economy. That means that those who hold capital assets like
money, stocks, real estate will see their wealth grow faster than those
managing on wages alone. Over time, that concentrates societys wealth
into fewer hands.
America today appears to illustrate this process in action. Though the
wealthiest 20 percent earned nearly half of all wages in 2014, they have
more than 80 percent of the wealth. The wealth of the poorest 20 percent,
as measured by net worth, is actually negative. If they sell all they own,
theyll still be in debt.

Inequality, its not just about wealth, its

about power. It isnt just that somebody
has some yachts, its the effect on

democracy. For me, the big issue is the

power problem. I think were in a really
scary place.
Marshall Ganz
The widening wealth gap isnt just a problem for the poor, census figures
show. The median net worth of some 60 percent of Americans fell
between 2000 and 2011, while that of the upper 40 percent increased.
So what happened? Tax rates for the wealthy have fallen, globalization has
changed the worlds and the nations economies, and rapidly changing
technology has transformed the workplace. While those factors are in
play, Norton said that nothings been proven yet as a dominant cause. To
Hochschild, the problems roots lie in poverty, exacerbated by racism. The
poor usually have worse health and education, leading to low-paying jobs
and substandard housing, conditions that tend to be worse if youre black,
Native American, or another ethnic minority. To Ganz, a senior lecturer in
public policy, thats not an accident, and it boils down to two words.
Political failure, said Ganz. I think the galloping inequality in this
country results from poor political choices. There was nothing inevitable,
nothing global. We made a series of political choices that set us on this
path.
Ganz pointed to a broad deregulation push that started with fiscal
restraint under President Jimmy Carter and a budget-cutting campaign to
starve the beast of government that began with President Ronald
Reagan. Collectively, the two administrations eviscerated the
governments ability to act and function as a check on private wealth, he
said.
Ganz also blamed a suite of changes that eroded the power of labor
unions. Their clout fell as legal protections for organizing activities
eroded, beginning with the Taft-Hartley Act in 1947 and continuing since.

Without that protection, employers were able to pressure organizers and

reduce the likelihood that unions would take hold and thrive.
It takes a lot of courage to say when your employer holds all the power
We want something better, Ganz said. This has been a real political
success story for the conservative movement and private management.

Union membership down almost half

U.S. union membership has fallen by almost half since 1983, from one in
five U.S. workers to just over one in 10 in 2014, according to the U.S.
Bureau of Labor Statistics. Public union membership has fared better
than private labor unions, whose membership has fallen to just 6.6
percent of the workforce. Recent anti-union activities in some states have
focused on those public-sector groups.
Despite their declining numbers and influence, the unions effect on
wages remains clear. Nonunion wages in 2014 averaged $763 per week,
just 79 percent of union members $970 per week, according to the
Bureau of Labor Statistics.
Ganz said that the impact of falling union membership is felt not just in
workers pocketbooks, but in the halls of power, and that is the change
that troubles him the most.
Inequality, its not just about wealth, its about power, Ganz said. It
isnt just that somebody has some yachts, its the effect on democracy. For
me, the big issue is the power problem. I think were in a really scary
place.
To Lawrence Katz, the Elisabeth Allison Professor of Economics, the
problem of inequality in income, wealth, and political power is
exacerbated by another issue. Americas vaunted economic mobility has
become decidedly less so, making it increasingly likely that where you
start out financially is where youll wind up.
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Surveys of attitudes toward wealth conducted by Norton, the Harold M.

Brierley Professor of Business Administration, show that while Americans
believe their nation is too unequal, they also believe that some inequality
is good. Workers, after all, should benefit from their own toil. The single
mom who works two jobs and puts herself through school should be
celebrated when she lands a better job, buys a nicer car, and moves to a
better neighborhood. To a great extent, thats the hallowed American way
when its possible.
Thomas Scanlon, the Alford Professor of Natural Religion, Moral
Philosophy, and Civil Polity, said its important to think hard about why
high inequality is a problem at all. Thats because the conclusions reached
may underpin action. If youre wealthy and youre facing a hefty tax
increase, or youre a business owner bracing for a minimum-wage hike for
your employees, the reason why youll get to keep less money and
someone else will get more matters greatly.
Philosophers are in the business of thinking hard about issues,
identifying the relevant factors, Scanlon said. There is widespread
concern about the increased gap between the 1 percent and the rest. But
it is important to be clear exactly what is bad about this.
Altruistic motives underlie much of the national debate on the topic. One
argument says the wealthy should sacrifice some of their gains to help the
poor. But Scanlon said this is not the only valid reason to worry about
national inequality. Workers arent charity cases. Instead theyre partners
in the production of goods and services in this country and are entitled to
a fair share of the systems benefits, Scanlon wrote in a recent article. He
agrees that inequality also results in distributing political power
inequitably, making governmental institutions more unfair, and
undermining the integrity of the economic system. All of that raises a key
question for workers: Why bother pushing so hard?

If an economy is producing an increasing level of goods and services,

then all those who participate in producing those benefits workers as
well as others should share in the result, Scanlon wrote. No one has
reason to accept a scheme of cooperation that places their lives under the
control of others, that deprives them of meaningful political participation,
that deprives their children of the opportunity to qualify for better jobs,
and that deprives them of a share of the wealth they help to produce. The
holdings of the rich are not legitimate if they are acquired through
competition from which others are excluded, and made possible by laws
that are shaped by the rich for the benefit of the rich. In these ways,
economic inequality can undermine the conditions of its own legitimacy.

Talent is evenly spread throughout our

country. Opportunity is not. Right now,
there exists an almost ironclad link
between a childs ZIP code and her
chances of success.
James Ryan
Others at Harvard have been pondering inequality as well, examining the
issue through their own disciplinary lenses. Oriol, as director of obstetric
anesthesia at Harvard-affiliated Beth Israel Deaconess Medical Center in
the 80s, saw firsthand the disparities in infant mortality among the poor
in Bostons neighborhoods.
The discussion was: Why was infant mortality, in the shadow of some of
our greatest hospitals, as bad as in some developing countries? As an
obstetric anesthesiologist, I saw this, and I would hear from my patients
how this came to be, she recalled. And it just seemed wrong.
By the early 90s, Oriols effort to address the problem through a mobile
medical clinic, now HMS Family Van, brought health screenings and

referrals to the nearby neglected neighborhoods. But the van staff quickly
learned that infant mortality wasnt the only problem.
Infant mortality was simply a sign of a community in distress, Oriol
said. The issue was poverty and what I call being medically
disenfranchised. It was all the issues of life. It was homelessness, it was
not having a job just everything.
Over at Harvard Divinity School, Dan McKanan, Ralph Waldo Emerson
Unitarian Universalist Association Senior Lecturer in Divinity, is
examining the issue from a moral standpoint. He said societys economic
fruits born most recently on a wave of automation and technical
sophistication make it possible to improve the lives of the poor beyond
what was possible previously.
One way to do that, he said, would be to guarantee all citizens a minimum
income. This would free millions from what can become wage slavery,
he said, and allow people to follow passions and creative urges. McKanan
acknowledged that such a scheme which might be accomplished by
expanding Social Security is politically unlikely, but said it is the role of
academics to think deeply about how to create a more moral and just
society that works better.
Though the resultant redistribution of wealth represented by McKanans
idea would be too extreme for many Americans, Nortons survey work on
the topic does show that Americans want a more equal society than exists
now.
A surprising central finding of Nortons research is that we really dont
know how unequal the United States is. In a 2011 study, conducted with
Duke Universitys Dan Ariely, Americans consistently underestimated just
how unequal the nation is and said their preferred wealth distribution
while preserving some inequality is more leveling than their inaccurate
understanding of the current state of affairs.

In a blind test, well take Sweden

Those surveyed guessed that the top 20 percent of Americans own 60

percent of the wealth, not the more than 80 percent they actually have.
Further, when shown three unlabeled wealth distributions one
completely equal, one dramatically skewed (and in fact representing
divisions in the United States today), and a third using the income
distribution of modern Sweden 92 percent preferred the Swedish
model.
We want to be in Sweden, all subgroups want to be in Sweden, if people
could distribute the wealth any way they wanted, Norton said. Everyone
is OK with rich and poor, but almost no one prefers the current state of
the world.
But that agreement in a controlled study doesnt translate to easy political
fixes, Norton said.

Actual U.S. wealth distribution plotted against estimated and ideal distributions.
Source: Building a Better America

We had the perhaps nave idea that we could show people the reality, and
their attitudes and behavior would change, Norton said. But Im a

behavioral scientist, and we know that information alone is often not

enough. Its not an information problem, its an action problem.
Its not surprising that liberals say theres too much inequality, or that the
very poor believe the gap between the rich and themselves is too big. But
Norton said most conservatives and the wealthy also agree that the gap is
too big. The problem, he said, is that the different camps disagree on
solutions. A minimum wage hike to some is a direct way to get money in
peoples pockets. To others, though, its a way to get someones job taken
away. Another problem, he said, is that many people distrust the
government which many blame for the dichotomy in the first place to
fix it.
Without meaningful action, American inequality will continue to be felt
not just in the economic arena, but in many other facets of American life,
including criminal justice, health, and education, among others.
When Norton surveyed HBS alumni on the subject as part of the Schools
2015Survey on U.S. Competitiveness, many respondents pointed toward
education as both a cause of inequality and a potential solution.
Thats a point of view that Harvard Graduate School of Education Dean
James Ryan understands. The ideal of American education is equal
quality for all, but it has never been achieved, Ryan said in an interview,
and understanding why that is true, and how to change it, is the core
mission of the School he leads.
Talent is evenly spread throughout our country. Opportunity is not,
Ryan said. Right now, there exists an almost ironclad link between a
childs ZIP code and her chances of success.
Some progress has been made. Minority educational achievement has
improved over the past 40 years, and achievement gaps have narrowed
some between minorities and whites, and between women and men,
according to the four-year report card from the National Assessment of
Educational Progress. But gaps persist. The 44-point reading gap that
existed between black and white 9-year-olds in 1971 had narrowed by
2012, but still stood at 23 points, according to the report.

Educational attainment refers to the highest level of education that an individual has
completed. Source: Census. Graphic by Judy Blomquist/Harvard Staff

That story is mirrored in higher education, with some gains but persistent
gaps. The proportion of associates, bachelors, masters, and doctorate
degrees awarded to blacks and Hispanics all increased, though progress
slowed the higher the degree, according to the National Center for
Education Statistics. In the 2009-10 academic year, blacks earned 14
percent of all associates degrees, on a par with their 13.2 percent
representation in the population. But they earned only 10 percent of
bachelors degrees, 12 percent of masters, and 7.4 percent of doctorates.
Those figures also mask the fact that while black women have progressed
and earn disproportionately more of those degrees, the gaps for black men
have been slower to close, according to a 2012 report from the National
Center for Education Statistics.
At the same time, black men are overrepresented in U.S. jails, according
to a 2014 report by the U.S. Department of Justice. At a time when
society, in the wake of racial flare-ups in Ferguson, Mo., and elsewhere,
has been questioning just how evenhanded its law enforcement practices
are, African-American men make up 37 percent of the prison population,
compared with 32 percent white and 22 percent Hispanic. In the general
population, blacks make up 13 percent, whites 62 percent, and Hispanics
17.

Possible solutions to inequality:

Better educational prospects

Political willingness to act
Standardized health care
Balanced tax policies
Improved economic mobility
Employer-worker partnerships

Bruce Western, the Guggenheim Professor of Criminal Justice Policy,

professor of sociology, and director of HKS Malcolm Wiener Center for
Social Policy, is among the Harvard faculty members examining the
problems of dramatic inequality in the criminal justice system. In todays
America, Western said in an interview, an outsized two-thirds of AfricanAmerican men with low levels of schooling will spend time in prison,
losing years when they could be building careers while gaining a stigma
that can undercut the rest of their lives.
Archon Fung, academic dean and Ford Foundation Professor of
Democracy and Citizenship at HKS, said scholars are approaching the
issue from many angles. Some are concerned with what he termed the
floor, the problems of those in the bottom 10 or 20 percent, while others
are concerned with the gulf between rich and poor.
Some people are more floor people, and some are more gap people,
Fung said.
A third focus, Fung said, concerns mobility and opportunity, or how easy
or hard it is to move between social classes.
Fung himself works on democracy and participation. Through that lens,
hes concerned with the floor, the gap, and how political participation and
influence may be restricted for those at the bottom who lack influence.
What is clear, Fung said, is that those who are well-off simply have more:
more money to donate to candidates, more time to volunteer in their
communities, and more resources generally that allow them to participate
and thrive in civil society. All of that, he said, is reflected in studies that

have shown that government is more responsive to those at the top of the
socioeconomic ladder.
In the end, Fung said, Preserving the integrity of our democracy may be
the most important reason to address poverty and inequality.
Gazette staff writers Colleen Walsh, Christina Pazzanese, and Corydon
Ireland contributed to this report.
Illustration by Kathleen M.G. Howlett.
Next Tuesday: political and economic inequality