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The Great Divergence is a term given to a period in late 1970s, when income differences increased in the US and, to a lesser extent, in other countries. The term originated with Nobel laureate, Princeton economist and New York Times columnist Paul Krugman, and is a reference to the "Great Compression", an earlier era in the 1930s and the 1940s when incomes became more equal in the US and elsewhere.
A 2011 study by the Congressional Budget Office on the distribution of income in the US, from 1979 to 2007, found that after federal taxes and income transfers, the top earning 1% of households gained about 275% and that the bottom 20% grew by only 18%. As of 2006, the US had one of the highest levels of income inequality, as measured through the Gini index, among similar developed or First World countries.
Scholars and others differ as the causes and significance of the divergence, which, in 2011, helped ignite the "Occupy" protest movement. While education and increased demand for skilled labor is often cited as a cause of increased inequality, especially among conservatives, many social scientists point to conservative politics, neoliberal economic and social policies and public policy as an important cause of inequality; others believe its causes are not well understood. Inequality has been described both as irrelevant in the face of economic opportunity (or social mobility) in America and as a cause of the decline in that opportunity.
Journalist James Surowiecki points out the changes in the US economy in the last 50 years and how important low wages are now to big employers in the US.
In 1960, the country’s biggest employer, General Motors, was also its most profitable company and one of its best-paying. It had high profit margins and real pricing power, even as it was paying its workers union wages. And it was not alone: firms like Ford, Standard Oil, and Bethlehem Steel employed huge numbers of well-paid workers while earning big profits. Today, the country’s biggest employers are retailers and fast-food chains, almost all of which have built their businesses on low pay—they've striven to keep wages down and unions out—and low prices.
While these retailers and fast-food chains are profitable, their profit margins are not large, which limits their ability to follow the lead of successful companies in high-growth industries that pay relatively generous salaries, such as Apple Inc..
The combined profits of all the major retailers, restaurant chains, and supermarkets in the Fortune 50] are smaller than the profits of Apple alone. Yet Apple employs just 76,000 people, while the retailers, supermarkets, and restaurant chains employ 5.6 million.
The International Labour Organisation's annual "World of Work Report", predicted that the intensification of extremes between the wealthy and poor continues to widen in the European Union, where it is the highest in the world and that the "gap is the major trigger for social unrest."