Unit 19 - Economic Inequality Flashcards
What causes the lower inequality in disposable income
Tax and transfer system
What is the Missing middle
Low and high paying jobs increase but middle paying is becoming scarcer
What forms of intergeneration transmission is there
Inheriting parents wealth
inheriting parents genetic makeup
parents influence on growth
What is intergeneration elasticity
the percentage difference in the second generation’s status associated with a 1% difference in the adult generation’s status
High elasticity = low intergenerational mobility
What are possible reasons for intergenerational inequality
Societies with strong culture of fairness tend to have policies that reduce cross-sectional and intergenerational mobility.
Effects of good/bad shocks (‘luck’) are passed on to the next generation, contributing to cross-sectional inequality.
What is Rawl’s ‘Veil of ignorance’
design the model society with 2 classes: ‘richer’ and ‘poorer’. You will get to live in this society and your class will be determined by the flip of a coin
One choice is complete equality, but this might mean insufficient incentives for people to work hard or take risks innovating and investing
Some inequality could actually be better for everyone
What can income depends on
His/her endowments - facts about an individual that may affect his or her income (e.g. wealth, physical assets, human capital)
The income resulting from each item in his/her endowment. Technology and institutions affect the value of particular endowments
What are the opposing effects automation can have on wages and employment
Higher unemployment reduces workers’ reservation option, lowering the wage that firms have to set
But an increase in productivity increases profits, which motivates and finances capital expansion, which in turn creates new jobs and reduces unemployment, increasing the wage
How can policies help the transition process of automation
Opportunities for displaced workers to upgrade their skills
Job opportunities and higher wages in non-routine sectors
How can Government policies influence economic inequality
Redistribution - Taxes and transfers to reduce differences in disposable income, and expenditure on public services.
Predistribution - Greater equality of endowments e.g. access to education, eliminating market segmentation, laws against discrimination, statutory minimum wage, establishing intellectual property rights
Redistribution policies policies turn market income into final income and typically include a combination of
Taxation (including indirect taxes, e.g. VAT)
Expenditure i.e. in-kind transfers (free/subsidised services) or social insurance (targeted at specific groups).
What are progressive policy
policy is an expenditure or transfer that increases the incomes of poorer households by more (less) than richer households, in percentage terms.
Progressive policies directly reduce inequality; regressive policies directly increase inequality
