factors causing a rise in income inequality (2)

Question 1

factors causing a rise in income inequality in a developed economy of your choice (e.g. THE UNITED STATES)

Answer 1

1. automation + technological changes -> rise in automation + artificial intelligence (e.g. ChatGPT + DeepSeek) -> incr demand for high-skilled labour, low-skilled work is replaced -> show labour diagram -> lower wages for low-skilled workers -> incr structural unemployment (can link this point to a lack of quality education -> occuaptionally immobile due to lack of skills)
2. increased globalisation + trade -> increased offshoring to countries like Mexico with lower labour costs -> reduces employment opportunities for those in the manufacturing sector -> USMCA
3. progressive tax cuts -> fell from 70% to 37% over the past 30 years -> Lorenz curve shifts away from line of equality -> Gini coefficient increased

Question 2

evaluation (why these factors may not be significant)

Answer 2

• reduce in tax cuts may reduce brain drain (where skilled workers leave the country in search for better job opportunities, lower income tax, etc.) OR may attract skilled workers overseas -> may increase tax revenue -> more funds available for public services
• level of job displacement depends on the type of industry e.g. technology has caused a rise in the Gig economy -> workers are self-employed