4.2.2 - Inequality Flashcards
What is universal credit
A new type of single monthly benefit designed to replace 6 separate
benefits for people who are on low income or out of work. It replaces the
following benefits:
Income-based Jobseekers Allowance (JSA)
Income Support
Child Tax Credit
Working Tax Credit
Housing Benefit
Define lorenz curve
The Lorenz Curve shows the degree of income inequality in a given economy or population. The further away the Lorenz curve from the line of absolute equality (the 45° line), the greater the degree of income inequality. Lorenz curves can also be used to illustrate wealth inequality
Define gini coefficient
The Gini coefficient measures the extent to which the distribution of income (or, in some cases, consumption expenditures) among individuals or households within an economy deviates from a perfectly equal distribution. The coefficient ranges from 0 - meaning perfect equality - to 1- meaning complete inequality.
Define capitalism
An economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state
Define wealth inequality
The degree to which wealth is distributed unequally across a population; inequality can be shown using a Lorenz Curve and measured using the Gini coefficient.
Define wealth
The value of assets owned by a household. Assets can include property, shares and savings and marketable wealth such as antiques and other rare items.
Define deprivation
Deprivation takes into account whether people have access to things essential for a basic standard of living. These include clean drinking water, electricity, clean fuel for cooking, education, toilet facilities, basic transport and communication, basic income and wealth (measured by whether a household belongs to the poorest 20%).
Age as a cause of income inequality
- older person accumulate experience and develop skills. This makes them
more productive. Consequently, they can generally command higher wages than younger people. - They can therefore afford more assets which boosts their wealth and income.
- Furthermore, the older a person is the more time they have had to accumulate wealth. This is another reason age leads to differentials in income and wealth
Evaluate age as a reason for income inequality
= a proportion of old people are poor since there is no guarantee that a person
will develop skills and build up wealth.
- 5% of OAPs in the UK are living in severe poverty.
- Often this will be the result of long spells of unemployment during one’s working years and/or working in low wage sectors such as delivery and retail.
How does state benefits and tax progressivity affect income inequality
- pensioners, the unemployed and some low income households rely on state benefits
- Conservative-Liberal Democrats (2010-15) and Conservative (2015-2017) governments
made changes to the benefit system that reduced the incomes of those at the
bottom end of the income distribution e.g. by freezing working tax-credits (which has the effect of reducing them due to the effects of inflation). - more progressive tax system, more equality For example, in the 1950s and 1960s the top rate of income tax was around 90% and
nowadays it is 45%
How does ownership of property affect income inequality
- Owning one outright gives a
person a higher disposable income. This can be used to purchase assets thereby driving up wealth inequality. - the distribution of home ownership is the more unequal the income distribution will be.
- Property ownership has been a key driver of inequality in recent years as property prices have soared in many countries including the UK (particularly in the South East and major cities).This has been an important factor in the increased intergenerational inequality
- rising prices means people profit from ownign a house whilst people struggle to afford to buy a house, have to get bigger loans
How much have house prices risen over time
Analysis by the Halifax has revealed that the average price of a home has risen by an incredible 207 percent in the last 20 years. In Greater London, the rise has been even more steep, up by 239 percent since the millennium
What other factors affect income inequality
ownership of property and financial assets are amplified by inheritance. Wealthy individuals bequeath assets to their
offspring which leads to increase inequality.
How does onwership of financial assets affect equality
- If a person owns financial assets this adds to their overall wealth and provides an additional source of income e.g. dividends and interest. Therefore, the wider the distribution of financial assets, the more equal the distribution of income and
wealth will be
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Evaluate education as a reason for inequality
- some with low levels of education are able to earn high salaries and some with
high levels of education earn less to pursue a passion or vocation e.g. teachers. - The type of education also matters e.g. the humanities and the arts tend to be less lucrative than STEM subjects such as engineering and physics