5. Income inequality in the United States Over the past few decades, income ineq

Question

5. Income inequality in the United States Over the past few decades, income inequality in the United States, measured by the relative shares of total income eaned by the top and bottom 20% of individuals, has increased. Which of the following choices represent plausible causes of income inequality? Check all that apply. Some workers simply have more work experience than others and therefore command higher incomes. Firms sometimes offer higher pay for jobs that are more dangerous or unpleasant than other jobs. People with the means to pursue higher education often make greater investments in human capital.

Explanation / Answer

Only the last option (third option) applies here.

People having economic means can invest more in human capital, which creates a virtuous cycle for them i.e. more investment in human capital leads to more income and higher income again leads to more investment in human capital. On the other hand, people having less economic resources invest less in human capital and they earn less. They face a vicious cycle in which low investment in human capital leads to low income and low income again leads to low investment in human capital.

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