What Is Structural Inequality?

How Structural Inequality Stifles the American Dream

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Structural inequality is a system of privilege created by institutions within an economy. These institutions include the law, business practices, and government policies. They also include education, health care, and the media. They are powerful socializing agents that tell us what we can achieve within society.

Inequality is structural when policies keep some groups of people from obtaining the resources to better their lives. It prevents those who are discriminated against from realizing the American Dream. They do not have a chance to pursue their idea of happiness. Structural inequality clouds this vision and limits economic growth for the whole society.

What Is Structural Inequality?

Structural inequality differs from individual forms of inequality. That's where racism, sexism, and the like are exhibited by individual behavior. Many people think that all inequality is due to personal biases that can be overcome individually. They believe inequality would disappear if people “just stood up for themselves,” or if others stopped oppressing them.

Structural inequality occurs even in a free market economy because of the laws and policies that form it. Those laws regulate government contracts, bankruptcy, and property. They create advantages for some and disadvantages for others. When the laws work against specific groups, inequality becomes part of the structure of the market.

How Structural Inequality Impacts Income

Structural inequality seems to be worsening. Between 1979 and 2007, after-tax income increased 275% for the most affluent 1% of households. It rose 65% for the top fifth. The bottom fifth only increased by 18%. That's true even adding all income from Social Security, welfare, and other government payments.

During this time, the most affluent 1% increased their share of total income by 10%. Everyone else saw their share shrink by 1% to 2%. As a result, economic mobility worsened.

The 2008 financial crisis saw the rich get richer. In 2012, the top 10% of earners took home 50% of all income. That's the highest percentage in the last 100 years, according to a study by economists Emmanuel Saez and Thomas Piketty.

The chart below illustrates the discrepancies in household incomes by percentile, from 1963–2019.

Types of Structural Inequality

There are six major forms of structural inequality.

1. Education

Students in low-income neighborhoods often receive an inferior education than students in wealthier areas. Research has found that this accounts for 37% of the reason for lower math scores.

Within schools, "tracking" guides students toward different careers. Many claim this guides girls/women and those in underrepresented groups toward less lucrative jobs. Others argue that tracking is needed to give gifted children the best preparation to excel.

Structural inequality exists where poor children must attend public schools while rich children can attend private schools. Before the 1950s, school segregation was allowed by federal law. Also, during that time, girls were guided toward home economics instead of math.

2. Housing

Municipal leaders can create systemic segregation through zoning. They zone for amenities like green space and large lots into wealthy White areas. They then allow apartment complexes and halfway houses in lower-income areas. Over time, these decisions create neighborhoods on the "wrong side of the track."

Under the New Deal, the Federal Housing Administration created loan programs to allow more Americans to buy homes. But the government redlined areas populated by communities of color. It allowed banks to avoid lending to entire neighborhoods. From 1934 to 1962, 98% of home loans went to White families. 

Between 2004 and 2009, Wells Fargo Bank steered 30,000 Black and Latinx borrowers into subprime mortgages. They gave prime loans to White borrowers with similar credit profiles. Wells Fargo was ordered to compensate the marginalized borrowers for the extra costs incurred by higher interest rates and fees.

3. Health Care

Health care inequality is correlated with income inequality. Those with good jobs have the best access to health care. America has a health care system that relies on private health insurance.

Leading up to the launch of the Affordable Care Act, almost 44 million Americans lacked health insurance. By 2017, that number dropped to about 27 million. And while the numbers have declined, there are still millions of people without health insurance.

4. Race

Racial structural inequality has its roots in U.S. slavery. That system legally allowed Black Americans to be treated as non-human property. Even though slavery was outlawed in 1865, Jim Crow laws enforced segregation in the south until 1964.

But the racial housing gap still exists. Data from the 2010 Census confirmed that the racial disparity in neighborhoods persists. A 2010 study found that non-White families with incomes above $75,000 are more likely to live in poor communities than White families with incomes below $40,000. Poor neighborhoods are less safe, and the schools are of a lower quality than those in affluent areas.

As a result, Black people in upper-income families are more likely to lose their status than White people. White children whose parents are in the top fifth of the income distribution have a 41.1% chance of staying there as adults. But for Black children, it’s only 18%.

5. Gender

Research shows there are many structural gender biases in the workplace. For example, studies have found that managers give women fewer challenging roles and less training compared with men. Female managers aren't given the high-level responsibilities needed for promotions.

Men are more likely to be given leadership roles in both male-dominated fields and female-dominated fields.

6. Media

In Citizens’ United v. FEC, the Supreme Court gave corporations the same rights as people. It protected corporate campaign contributions as a form of free speech.

This decision allowed wealthy business owners greater access to political advertising than poorer individuals.

How Structural Inequality Affects You

If you are in an underrepresented group, or you're a woman, you already know how structural inequality affects you. As part of an underrepresented group, you may have been guided to certain neighborhoods by your bank.

As a woman, you may have found out your male coworkers had higher salaries doing the same jobs as you even though you had more experience. Or you were denied a promotion or job opportunity because the hiring manager believed women aren't good at that job.

Even if you haven't experienced structural inequality personally, you have been adversely affected.

If you were part of a company that was not diverse, it may have been less profitable. This is because diversity drives profitability in three ways:

  1. A diverse workforce builds trust in your brand with a diverse target market.
  2. Valuing diversity cuts costs by reducing turnover. It gives the company the freedom to go after the most talented people, regardless of differences.
  3. A diverse product development team can create new products that accurately target niche markets.

Diversity is an often-overlooked reason for Silicon Valley's success. The Valley attracts top engineers from around the world. Between 1995 and 2005, 43.9% of Silicon Valley startups reported that at least one of their key founders was foreign-born.

The United States' ranking in education is falling. For example, U.S. students' math skills have remained stagnant since at least the early 2000s. They are falling behind many other countries, such as Japan, Poland, and Ireland, which have greatly improved. U.S. test scores are now below the global average. That hurts America's comparative advantage in the global marketplace.

It also lowers economic output. The Alliance for Excellent Education estimates that the U.S. economy loses $329 billion per year. That's the lost annual income of the 1.2 million high-school students who drop out without receiving a degree.

What Can We Do About Structural Inequality?

The solution to structural inequality must address the structure that created it.

For example, it's not enough to help an individual to move from one town to another. The zoning that created both communities must be changed. Both towns must be zoned for large land lots and apartment complexes as well as green spaces and halfway houses.

The Community Reinvestment Act didn't do that. As a result, it was just a half-way measure. It helped deserving people buy homes in redlined neighborhoods. But it didn't address the zoning that created those neighborhoods.

The government should ensure that all groups have equal access to the tools needed to improve their lives. That includes basics such as water, food, and safety.

If society has the resources, it could also include universal health care and equity in education. This investment in human capital would bring everyone up to a basic standard. It may be better than increasing welfare benefits, providing a universal basic income, or raising the minimum wage.

But in the interim, the minimum wage should be raised. Studies show that cities that have done so reduced poverty and reliance on welfare.