Fighting Income Inequality Won’t Help Workers

I just learned of the latest forthcoming study focusing on the issue of income inequality, this one promising to explain how regulations can exacerbate the gulf between the haves and the have-a-lot-mores. I read the abstract of the yet-to-be released study and said to myself, “Ugh, what a waste!”

I was referring to the study itself, not the income inequality the study will supposedly explain. The authors of the study may very well do a cogent and scholarly job at documenting their thesis. It might even turn out to be 100 percent correct. It is just that the issue of income inequality, for all of the attention it gets, is a largely irrelevant one.

The complaint that certain people are far richer than others is little more than an appeal to resentment-based class warfare. I have yet to see a cogent explanation for why income inequality is an economic problem to be solved the same way that a person would describe inflation or unemployment as economic problems. Those eat away at the worker’s ability to make a living. How does “inequality” do that? What is the actual problem to workers caused by inequality?

People criticizing this inequality generally appear to be arguing that there is a limited amount of wealth and that if some have more of it, then others must have less. But is that actually the case? Wealth and prosperity are not finite resources. Unless an executive is being paid so much that a company literally cannot afford to pay good wages to its rank and file workers, is there an actual way any supposed inequality matters to the worker? That’s the only circumstance I think of where inequality could have an impact. Even then, low salaries are usually a matter of the company trying to keep quarterly profits up for shareholders rather than trying set aside more for executives. And that’s if the worker is employed by the same company. How does an executive’s salary at a business that doesn’t employ the worker matter to the worker at all?

A worker’s salary either meets his or her needs or it doesn’t. Whether that salary is 1/10^th, 1/100^th, or even 1/1,000,000^th of an executive’s salary has no effect on whether individual workers can pay their bills, take care of the rent and put something away for retirement.

As my CEI Colleagues Iain Murray and Ryan Young noted in their 2016 report, “People, Not Ratios: Why the Debate over Income Inequality Asks the Wrong Questions”:

[T]he mathematical ratio between a society’s highest and lowest income and wealth strata is less important than the actual living standard for people living at the bottom. In other words, relative poverty reduction should not take a backseat to absolute poverty reduction. People, not ratios are most important.

If you hate the wealthy because they are wealthy and want to see them brought to heel for that reason, well, that is your prerogative. But if you want to do some actual good, you’re better off trying to elevate poorer people instead.