Describe how a country can measure its income inequality
Education and Income Inequality
Describe how a country can measure its income inequality
Income inequality is one of the most-cited forms of imbalances in the world. It deals with the distribution of income in terms of the group that receives the highest or the lowest source of income. It entails looking at the low, middle, and high-income earners and not the ones near or below the poverty line. One common approach of measuring inequality is to rank all households in a country and then dividing the population into several groups and then comparing them. Each category is known as quintiles and makes it easy to compare each group with the total income of the entire population. The first quintile constitutes the first 20 percent of the sample captured, and the last one is the highest earners (the last 20). Income inequality is then compared by the share of the income of each group in comparison to the total.
However, there are other measures that different institutions in the United States use to measure income inequality. The internal revenue service’s statistics of income (SOI) programs defines as the cash that a citizen reports on their tax forms. It includes the income before tax, such as wages and salaries, capital income (such as dividends, interest, and rents), capital gains, cash from past services, and profits from businesses. The definition excludes noncash benefits such as health insurance, which is a source of a significant portion of the middle-income resource. This type of data captures the income of top earners because low-income households do not file income taxes. The census bureau’s current population survey (CPS) income as cash earnings and excludes noncash revenues. On the other hand, the congressional budget office (CBO) draws its data from the two sets to capture information about high and low-income earners.
Evaluate the effect of income inequality on the U.S. economy, such as unemployment, economic growth, and other economic factors.
Inequality can hurt economic growth under numerous circumstances. In 2018, the topmost quintile earned 52 per cent of all income in the United States in comparison to the bottom quintile that received 3.1 percent of the total revenue. Most low-income earners do not have pension plans from their employers nor health insurance or sick days. Thus, income inequality creates health care inequality increasing the cost of medical care for the entire population. People who cannot afford preventive care use the emergency rooms of significant hospitals as their primary care physicians.
Income inequality in the United States is blamed on cheap labor available in the developing world. As a result, many companies outsource their manufacturing and advanced technologies and jobs to these regions. The U.S. has thus lost 20 percent of its factory jobs to China and India since 2000. Although service jobs increase in the economy, low-income earners have lost their work. Deregulation is also responsible for creating income inequality in the country. The deregulation of some industries has led to less investigation into labor disputes affecting workers’ earning negatively. Technology has also rendered some workers redundant, replacing many factory workers. The people who have technological skills make more to ensure that the machines work efficiently. Reengineering of corporations also means that companies are working with fewer full-time employees and rely on temporary and contract workers. Illegal immigrants also get low-income positions because they have no bargaining power.
Some economists argue that income inequality hurts the economic growth of a country. It also affects the economic efficiency and productivity as well as the economic and financial stability of a nation (Fletcher, 2014; Sherman, 2014). They insist that inequality is responsible for the low productivity, efficiency, and rates of growth that the United States is witnessing today (Joseph Stiglitz, 2012, p. 177).
Estimate the gap between those who hold bachelor’s and higher (master or doctoral) degrees and those who do not.
Income inequalities exist in every country because of various factors such as gender, race, religion, education, among other issues. Education is one of the primary factors that cause inequality. The earnings of workers with a bachelor or more advanced training and that of those with a high school diploma are widening. The gap has negative consequences on higher education and the well-being of the families of the less-educated workers. As the non-educated workers become deficient, they have difficulties sending their children to school and in the process endangering their future. According to the OECD report (2014), income inequality has increased in OECD countries in the past 30 years. For example, the Gini coefficient was 0.29 in the mid-1980s but has moved to 0.32 in 2011/ 2012 (OECD, 2014). And that of the U.S. jumped from 0.403 in the 1980s to 0.468 in 2011 (OECD, 2014).
The income inequality because of education levels began to widen in the 1970s and continues to do so to date. The differences can be explained based on the demand-supply relationship. As a country advances in technology, the demand for highly qualified workers increases. However, the supply has stagnated, meaning there are high demand and a low number of workers. On the contrary, the number of undergraduates continues to increase. Therefore, the supply of this category is workers are high, and the demand for their services is low.
Evaluate whether increasing opportunities for higher education can reduce income inequality
Higher education is always cited as a solution to reducing economic inequality. The idea gets prominence from the success of the “high school movement” of the early years of the 20th century that boosted the growth in the American economy. The movement was responsible for increasing the supply of educated workers to the economy. The increase in the education of the workforce in the post-World War II led to a robust economy. However, since the 1970s, the rise in the number of highly educated workforce has stalled. Therefore, the supply of highly trained workers may reduce the level of inequality in the country.
However, other schools of thought argue that education is not a rubber bullet in reducing income inequality. According to (Brookings Institution), increasing the level of education among a workforce is not a guarantee that it will reduce income inequality. It may not reduce the income of the high earning 20 percent of the top earners that make more than 52 per cent of the total revenue in a country. If more than half of the income earned in a country is not affected by an oversupply of highly educated people in the economy, then that is not likely to change the position of the individuals at the lower quintile of earners.
The education of lower and medium-income earners improves their living conditions. Although the teaching of low and medium-income earners can boost their chances of improving their living conditions, it does not interfere with the earnings of the best-paid executives. The individuals would still earn their regular and maintain their status. Thus, the education of these groups of people may have minimal impact on the overall income inequality in a country; one half of the spectrum may enjoy better returns in the short-term. Additionally, the education of low and middle-income earners may have a long-term impact on their families. A well-educated and paid individual has a better chance of providing their families with the best education possible. As a result, their children have an equal opportunity of being successful like those of high-income earners, thus leveling the ground for them. Therefore, although educating middle and low-income earners may not have an immediate impact on income inequality in a country, it is a possible catalyst for an equal society in the future.
Analyze what else causes U.S. income inequality to widen
Current explanations about the causes of disparities point to three leading causes, namely technological disruption, institutions, and changes like trade. Trade and offshoring of jobs is a cause of economic inequality because it results in job losses in an already straining economy. The trade hypothesis suggests that the increase of trade between the United States and the rest of the world is increasing imports from these regions to the country. The result is job losses in the country as the factories manufacturing the same products close down. Offshoring of businesses has also led to job and wage losses in a country that is struggling to create job opportunity.
The institution hypothesis suggests that the United States has institutional frameworks that have caused an increase in income inequality in the country. Some changes that began in the 1970s, such as de-unionization, deregulation, and tax changes, led to the loss of employment and reduction of wages. The solutions to such challenges include policy changes such as raising the minimum wage and increasing unionizations. Additionally, policies would consist of strict supervision of Wall Street and the development of monetary policies that encourage the maintenance of high levels of employment in the country.
Recommend how to reduce educationally-based income inequality or other factors if you were a federal policymaker
It is essential to develop policies that address the causes of variation in society. One of the possible solutions to the problem is to promote trade policies that discourage the offshoring of companies from developing countries. For example, the government can make it difficult for corporations that transfer their companies abroad to import the goods back to the nation by increasing their tariffs. Making products from outside the country expensive would make domestic products less expensive, get a market, and create employment. Once the factory workers get their income back, then it is possible to make the other interventions concerning their education to improve their living standards. It is essential to develop policies in the education sector, such as educating low and medium cadre workers for free to improve their skills so that they can get better-paying jobs. It is also essential to invest in education to break the intergenerational inequalities.
Other interventions would include an increase in the minimum wage. Higher wages for the lowly paid individuals has the potential to lift 4.6 million people out of poverty and add billions of dollars into the economy. The intervention has the advantage of not hurting employment rates or retarding the economic growth of a nation. Expansion of the earned income is another policy intervention that can reduce inequality in a country. In the past, tax credits remove millions of families out of poverty. It also coincides with improvements in maternal and infant health as well as higher cognitive development in children. Other tax reforms targeting capital gains tax can help reduce inequality. The government can also make taxation more progressive. Today, the tax rate among the wealthiest is also decreasing, while low-income earners do not enjoy the same benefits. The wealthy earn their incomes through the sale properties or share trading that attracts the least amount of tax. However, the government continues to tax other sources, such as salaries exorbitantly.
Another intervention would be to end residential segregation. Racial residential discrimination in inner cities reduces the chances of upward mobilities for residents in an area. The elimination of residential segregation because of the income they earn can boast the opportunity of all citizens to improve their lives. If they are implemented religiously, these policies can lift many people out of poverty. With appropriate political will, the plans can be applied at the national, local, and state levels. Although there are differences about the best approach to reduce inequalities, there are consensuses that it must reduce the mutual benefit of the citizens and the country.