Lecture 5 - Economic Inequality

Question 1

What is economic inequality?

Answer 1

Who is rich, who is poor and how we measure the inequality/difference b/w them

Question 2

What is operationalizing?

Answer 2

The process of determining how to measure something

Question 3

What is inflation?

Answer 3

The process whereby things cost more each year (adjusting for how expensive things are to make historical comparisons)

Question 4

What are the 2 types of income measures? (Mathematical terms)

Answer 4

1. Average income –> all scores divided by # of scores (not the best measure, since it can be influenced by very high scores)
2. Median income –> ranking all scores from lowest to highest and finding the middle #

Question 5

What are the 2 types of income?

Answer 5

1. Active/Earned income –> gained by exchanging time for money (paid job/self-employment)
2. Passive/Investment income –> not tied to labour, investment in the stock market, real estate, etc.
   - The rich stay rich mostly through passive income*

Question 6

What is the stock market?

Answer 6

• Companies trying to raise money by selling shares
• Prices fluctuate based on people’s willingness
• People can buy commodities, real estate, bonds (basically loans for a company)

Question 7

What is the Matthew Effect?

Answer 7

The process by which the wealthy remain wealthy (those who aren’t have trouble maintaining their statuses)

• All about passive income (an advantage that accumulates in ways that allow for profit)

Question 8

What are 2 types of income measures? (Tax-wise)

Answer 8

1. Before tax/Market income –> total income earned by household/person
2. After-Tax income –> after taxes + gov’t transfers (pension plan, employment insurance, childcare tax credits)

Question 9

What is the Gini coefficient?

Answer 9

Ranges b/w 0 and 1, lower score = more equal distribution (higher = more inequality)

• Canada’s Gini index sits at 0.52 (before tax), 0.4 (after tax)

Question 10

What are the 3 reasons for inequality growing so much?

Answer 10

1. The rich got even richer –> top income earners have a greater share of income bc of rising CEO pay
   (CEOs went from earning 180x more than the average worker in 2008, to 215x more in 2016)
2. Workers lost bargaining power –> labour unions have lessened bc of globalization (Unions are in public sectors have lasted though, since they’re jobs that are hard to offshore)
3. Corporate consolidation = fewer small business owners –> MNCs putting small businesses out of work
   (Oligopolies –> companies working together to raise prices for the consumer)

Question 11

Why has inequality risen and it has not gotten a lot of recognition?

Answer 11

1. Households gained an extra income earner –> women’s rights allowed for women to enter the workforce (However, we now need 2 income earners to live a good life, not just one. It isn’t seen as negative bc of societal progress)
2. Inequality became invisible –> tied to rising debt (invisible inequality –> exists, but impossible to see unless someone tells you what their debt load is)
   - Increasing debt in Canada (85% of annual income in 1980 to 160% today)

Question 12

(Invisible inequality) What are the components of wealth/net worth?

Answer 12

1. Assets (real estate, value, cash investments, possessions, etc.)
2. Liabilities (typically debt of any kind)
3. Net worth (total assets minus liabilities)

Question 13

What are the 3 measures of poverty?

Answer 13

1. Absolute poverty –> not being able to access basic necessities
2. Relative poverty –> deficiency in materials/resources compared to other populations
3. Extreme poverty –> living on less than $1.25/day (15% or 1 B of the world)