6. Income inequality a. Please explain the factors that have contributed to incr

Question

6.   Income inequality

a. Please explain the factors that have contributed to increased income inequality since

1969,

i.   Discuss each of the following as it contributes to increased income inequality.

1. Greater demand for high skilled workers

2. Demographic changes

3. International trade, immigration, and the decline of unionism

4. The great recession of 2007

5. Any other factors that you can identify

b. What are 6 results of the growing income inequality in America and what can we do to correct this growing problem?

i.    For each of the items listed above, discuss what might be done to eliminate the problems that cause growing income inequality

c. Explain how discrimination reduces domestic output and income,

i.   Look at the items under Discrimination in the notes and discuss how each contributes to the reduction of domestic output and income.

d. Explain the difference between Social Insurance Programs and Public Assistance

Programs, and give 3 examples of each. i.   Social Insurance

1. What is it?

2. Explain the 3 examples relative to what they do for the beneficiaries of each program.

ii. Public Assistance

1. What is it?

2. Explain 3 of the examples relative to what they do for the beneficiaries of each program.

e. Discuss the pros and cons of reducing spending on these two types of programs relative to stimulating economic growth.

i.   Some Google research should help with this.

Explanation / Answer

Income inequality is a dominating concept in major countries. It is more visible in capitalist countries. It basically shows why changes in the income of the particular country occurs. There are several factors which have contributed to the increased income inequality since 1969. They are explained as follows:-

i.1 Greater demand for high skilled workers:- Due to change in the technology of the country the demand for skilled workers over the unskilled workers increased. Since the demand for these have exceeded the supply of the skilled workers the wages of these workers have increased resulting in income inequality.

i.2 Demographic changes:- Income levels are always varied due to gender and racial changes. During the 1970s and the 1980s large number of low skilled and low experienced people entered the labour force which resulted in increase in income inequality during that decade. There had also been larger families headed by single woman resulting in increase in income inequality.

i.3 International trade, immigration and decline of unionism:- The immigration of the non- Europeans increased to America during 1970-2007, where most of them had lower earnings and lower education as compared to the natives of the then Americans. Further the competition in international trade further added to decline of unions and thus the workers lacked bargaining powers. These overall increased the inequality in the country.

i.4 The great recession of 2007:- After the collapse of the real estate market of America in 2007 the mortgaged backed securities and other derivative products declined at a very rapid pace which increased the unemployment levels exorbitantly and things got more worst after the bankruptcy of the Lehman Brothers in 2008 which was the 4th largest investment bank of the country.

i.5 Others:- Other factors like political party of the country, corporatism etc contributed to the income inequality of the country.

b. Results of growing Income inequality in America:-

1. Malallocation of resources:- Due to income inequality the wealth gets accumulated in the hands of few upper income groups who further spend less. The purchasing power of these groups further affects the demands of the community.

2. Income mobility:- The income mobility is further hampered since the wealth gets concentrated in the hands of a few rich people. The speculate the market better than the ordinary people.

3. Discontentment and unrest:- Inequality leads to increase in discontentment and unrest since the society gets divided into two. The rich and the poor. The rich further exploits the poor.

4. Borrowing of money:- the middle and the lower income group borrow more money for their survival which further causes financial crisis.

5. Social injustice:- Inequality further increases the power of the few and those at the top enjoy all the worldly comforts and the rest get exploited.

6.Wastage of resources:- The rich whose population is less holds the maximum resources and the poor who are more in count have limited resources. Due to such uneven distribution it leads to under utilization of resources which further increases the wastages.

Correction measures:-

The correction measures for reducing the income inequality are as follows:-

A. To reduce the income of the rich:- The income of the rich can be reduced by adopting the following few methods:-

B. To raise income of the low income groups:- The income of the low income groups can be increased by providing them better facilities by using the above taxed amount. They are provided various assistance programmes for the same like social insurance programmes, social services etc.

Discrimination in the economy proves to reduce the output considerably since any discrimination between the labours, men and women etc plays important role in reducing their efficiency. It can happen in any way like poor working conditions, poor treatment while hiring, promotion etc. It has private as well as social costs. It transfers the income from one group to another. Due to this the domestic output and income reduces considerably.

Social Insurance Programmes:- They are set of insurance programmes that are administered by the government just like private sector insurance. They provide assistance on the happening of a specified event. These are funded in the United States through payroll taxes. For eg:- OASDI - Old Age Survivors and Disability Insurance Benefits, SSDI- Social Security Disability insurance, Medicare.

Public assistance Programmes:- Even these are certain programmes which provide assistance to certain classes of individuals who are poor. But every poor is not elligible. Only the deserving like those who are not responsible for their own poverty (children, old people) etc are covered here. For eg:- Temporary needy families (TANF), Supplementary Security Income (SSI), The Earned Income Credit (EIC) etc.

The pros:-

The cons:-

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