Mr HounselEconomics

Unequal Scenes - Masiphumelele and Lake Michelle

Richard Wilkinson: How economic inequality harms societies

Wealth relates to differences in people’s stock of assets i.e the value of houses or financial assets.

Income is a flow concept; therefore, income inequality relates to differences in people’s income flows from wages, dividends, rents, etc.

The two are inter-related. Consider the following information to explain why wealth and income inequality are inter-related, and therefore the importance of policies aimed at both are required if this phenomenon is to be reduced.

Key findings:

• In the UK, the father’s level of education has the largest impact on the likelihood of low educational attainment out of the factors examined. People are 7.5 times more likely to have a low educational outcome themselves if their father has a low level of education compared with having a highly educated father.

• The mother’s education level also has an impact, though to a lesser degree; people are around 3 times more likely to have a low educational outcome if their mother has a low level of education.

• There is also a relationship between educational outcomes and the number of adults and children living in the household, the employment status of the parents and the childhood household’s financial situation.

http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/rel/household-income/intergenerational-transmission-of-poverty-in-the-uk---eu/2014/blank.html

If you worked for the ONS what would be the process in how you'd find out the level of inequality within a country?

What is the problems with your technique?

Related video: mapping inequality FT

World Mapper

Measures of inequality include the Lorenz curve and the Gini coefficient. Lorenz urves plot cumulative share of income (or wealth) against the cumulative share of the population with that income (or wealth).

To determine the degree of inequality, the Gini coefficient may be calculated:

G = A / ( A + B)

A represents the area between the diagonal line and the Lorenz curve and B represents the area under the Lorenz curve.

The Gini coefficient will have a value between 0 and 1, with 0 representing absolute equality (the 45º line) and 1 representing absolute inequality (i.e. the Lorenz curve would lie along the horizontal and vertical axes).

Lorenz Curve and Gini Coefficient - Measures of Income Inequality
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Understanding the Gini Coefficient
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Research, identify and explain how the following factors lead to inequality:

• education, training and skills
• wage rate including minimum wage rates
• strength of trade unions
• degree of employment protection
• social benefits
• the tax system (e.g. how progressive it is)
• pension entitlements
• ownership of assets (e.g. houses and shares) and inheritance

What Are The World's Biggest Problems?

Income and Wealth Inequality: Crash Course Economics #17

Distribution of Income and Wealth with Reasons for Income & Wealth Inequality

What causes global inequality between countries?

Video: Why Some Countries Are Poor and Others Rich

Global access to a bank account

https://www.weforum.org/agenda/2016

It is often observed that, as a country develops and its GDP grows from a subsistence economy, inequality initially increases and then decreases.

In economics, a Kuznets curve graphs the hypothesis that as an economy develops, market forces first increase and then decrease economic inequality. The hypothesis was first advanced by economist Simon Kuznets in the 1950s and '60s.

The theory:

Industrialisation results in increased inequality as workers move from the lower productivity and lower paid agricultural sector into the higher productivity manufacturing sector. The higher MPP and value of the output translates into a higher MRP which increases the demand for labour and increases their wages relative to those working in agriculture, suffering from lower MRP.

However, at some point, inequality starts to decrease. This may be because governments have more resources to redistribute income through the tax and benefit system. The rise in the inequality of income described above allows for the use of more progressive tax systems. As income tax is the main source of tax revenue, the rising tax receipts can then be used to support the income of low earners or invested into supply side policies like education free for all to the age of 18, to increase the flexibility of labour and to meet the demand for labour.

Historic view of changes , including allowances

Read/research the degree of inequality in the UK.
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How unequal is Britain?

Does the data suggest it is something which needs reducing?

What policy solutions are you aware of in the UK?

How do they work and what are the macro ramifications?

The UK's Income Inequality Crisis Explained
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Post-WW2 Development of British Welfare State

Recent reforms:

The UK's new living wage explained | FT World
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Universal credit your responsibilities

Universal Credit: Is the system working? - BBC Newsnight
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​ See economist article

How computers threaten the jobs of mid-skilled workers

Start the video at 8 mintues:

Globalization and Inequality: Paul Krugman, Janet Gornick, and Branko Milanovic

Inequality in a free market economy is inevitable, since people with higher skills  and abilities will attract higher wages, whereas those with poor skill levels will earn nothing.

​Some argue that this is part of a meritocracy whereby you are reward for the time and effort put into obtaining the job and then receiving a share of the MRP that the worker is producing.

Therefore inequality is essential in a capitalist system to provide an incentive for individuals to take risks in the knowledge that they, personally, will benefit from any profits made.

The same applies to the reward attached to wealth inequality. Consider the FOP entrepreneurship.

The financial reward of wealth growth and the lifestyle it can provide, will provide the incentive for innovation.

​Innovation of production and product development can provide an economy with an comparative advantage in trade and enhance trend growth.

HISTORY OF IDEAS - Capitalism

Why capitalism has become too gentle

How to Improve Capitalism

The existence of private ownership of resources within the same system, means that some people will acquire considerably more assets than others which, in turn, may generate an income. This leads to wealth inequality which reinforces income inequality. This growing and perpetuating inequality reduces meritocracy and harms the economic incentive as the gains are only available for a very few, who were originally born into their wealth.

Related articles:
Private school and Oxbridge 'take top jobs'
UK 'has particularly extreme form of capitalism'
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How Tax and Spending Policies Can Reduce Poverty and Inequality

Policies to Redistribute Income and Wealth with Evaluation