4.2.2 Inequality Flashcards
1
Q
What is the relative low income?
A
- refers to people living in households with income below 60% of the median in that year
- around 18k as an approx figure
2
Q
What is absolute low income?
A
- refers to people living in households with income below 60% of median income in a base year - usually 2010/11
- this measurement is adjusted for inflation
3
Q
What is the median income?
A
- point at which half of households have lower income + half have higher income
- income can be measured before or after housing costs are deducted
4
Q
What was the median average salary for all workers 2023?
A
£29,669
5
Q
Causes of inequality within a country
A
- labour markets
- education
- govt policies
- wealth accumulation
- capitalism
- cost of living
6
Q
How can the labour market cause inequality? (lower wages)
A
- wage differentials based on skills, experience + demand for certain jobs contribute to income inequality
- lack of education + training = lower MRP = lower pay, lack of training reduces occupational mobility leading to structural unemployment
- fall in trade union power + growth of monopsony in labour markets = lower wages
- low minimum wage
- discrimination - age, gender, ethnicity etc.
7
Q
How can the labour market cause inequality? (Higher wages)
A
- high CEO salaries + bonuses
- high salaries due to inelastic PED/PES e.g. surgeons
- high dividends for shareholders
8
Q
How can education cause income inequality?
A
- disparities in access to quality education can lead to differences in skills + income
- those who can readily access good education + training acquire more skills = higher MRP
- more challenging for those without access to education = stuck in cycle of poverty
- poverty trap = low income households in a deprived area attend low standard school with low expectations = leave with few qualifications + skills = low pay, unemployment + possibly crime
9
Q
How can govt policies cause income inequality?
A
- low benefits
- indirect, regressive tax = hit lower income groups e.g. excise duties - petrol, VAT
10
Q
How does wealth accumulation cause income inequality?
A
- households who acquire assets can generate income from them
- home ownership = rent
- share ownership = dividends
- savings = interest
- business/company = profit
11
Q
How can capitalism cause income inequality?
A
- capitalism can incentivise innovation, entrepreneurship + wealth creation which can benefit society as a whole
- BUT unregulated capitalism can lead to income + wealth concentration among the elite, increasing inequality
- govt intervention + policies have a critical role in shaping how capitalism impacts inequality
12
Q
How does the cost of living impact income inequality?
A
- high cost of housing = rent, food, energy, petrol - take a greater proportion of lower households income (harder to afford the necessities)
- Ukraine, coming out of Covid + low valued pound have contributed to increased cost of living
- increased cost of buying/renting a house = high mortgages
13
Q
What is wealth inequality?
A
- increase in price of assets more than economic growth e.g. housing + shares = increased wealth gap between asset holders
- inheritance
- lack of social mobility
14
Q
Causes of inequality between countries
A
- globalisation
- historical factors
- geopolitical factors
15
Q
How has globalisation impacted inequality?
A
- uneven benefits of globalisation e.g. outsourcing + offshoring
- widens income disparities between countries
16
Q
How has historical factors impacted inequality between countries?
A
- colonialism
- trade imbalances
- unequal access to resources
17
Q
How have geopolitical factors impacted inequality between countries?
A
- conflicts, wars + political instability
- hinders development
18
Q
Policies to reduce inequality
A
- increasing spending in income support benefits e.g. disability benefits, universal credit
- regional spending in areas of deprivation
- lower indirect tax which acts regressively + increase progressive tax on higher income earners
- rent cap = maximum price on rental
- increase spending on education in low income areas = improve social mobility
19
Q
Policies to reduce inequality EVALUATION
A
- increasing benefits could create a disincentive to work
- increasing progressive tax may also reduce incentive to work for higher income earners
- effectiveness of a rent cap is dependent on PED/PES + how far it is set below the equilibrium = could make housing shortage worse
20
Q
Policies to reduce working poverty
A
- increase national minimum wage
- improve job quality, more security, more hours for those underemployed + tighten regulations of gig economy to avoid exploitation
- improve access to education + training = develop skills to access higher pay by increasing MRP
- increase workers rights = more union power to counter development of monopsonies
- bring down child care costs
21
Q
Policies to reduce working poverty EVALUATION
A
- effectiveness of increase in minimum wage depends on size of increase + PED/PES of labour
- combination of policies needed to increase wages but also reduce outgoings (cost of living) e.g. rent, mortgages, utility bills
22
Q
How is inequality measured?
A
- Lorenz curve
- Gini coefficient
23
Q
How does the Lorenz curve measure inequality?
A
- plots the cumulative share of income (or wealth) against the cumulative share of the population with that income (or wealth)
- from the Lorenz curve the gini coefficient can be calculated
24
Q
How is the gini coefficient calculated?
A
- by calculating the area between the Lorenz curve + the line of perfect equality
- gini coefficient = area A / area A + area B
25
Q
What does the value of the gini coefficient mean?
A
- it will be a value between 0 and 1
- 0 represents absolute equality + 1 represents absolute inequality
