Income Inequality - Article Example

 USA WITH INCOME INEQUALITY Aashish Bhusal BUS 310 Principle of Micro Economics Presidential Business School West Cliff University Mr. Dilar Nepal Professor Victor Abraham 25 June, 2018 Abstract In this chapter with the help of class lecture, discussion question we learned about recent trends in U.S. income inequality and justifications for income redistribution and analyze some methods used to reduce poverty in the U.S. Income in equality is one of the serious issue in the world and USA. After 1970’s, income inequality of USA has increased significantly. Due to the demotions, career changes, retirement, etc. the income inequality in USA is increased. Due to financial crisis in 2007-2008 GINI index of income inequality is increased. Another is that providing subsidizing early education is the most effective public policy to release income inequality. 1. “The difference between rich and poor is becoming more extreme, and as income inequality widens the wealth gap in major nations, education, health and social mobility are all threatened.”- Helene D. Gayle Former president of USA Obama called income inequality "the defining issue of our time" in his 2012 State of the Union. We all knew that inequality means different things to different people. In case of income inequality, we can say it means the unequal or uneven manner of distribution of income among the population. Income inequality in the United States has been rising since 1979. [COU]. [Max18]. Here we can see the data about the income that is lowest 20% along with second 20%, third 20%, fourth 20% and by highest 20% and here income of lowest are decreasing but income of highest 20% is increasing order. [GIN]. This shows the income inequality gap of USA in the year 2016 i.e. 41.5. In the above table we can see that between 1980 and 2009, growth rates increase from bottom quintile to top and in 1980, CEOs earned 42 times salary of average worker but by 2000, this multiple increased to more than 500 times. So, the pay of people of bottom fifth actually started rising from1996 to 2000 is due to the training provided to them. And due to labor market was so tight, again income inequality is started to reduce. 2. One of the main reason to increase in income inequality of USA are less educated worker, tax cut, unequal distribution of wages, etc. Factors that have contributed to the income inequality in US for past few decades are described below: a. Globalization: In simple term we can say globalization means the extension and integration of cross-border international trade, investment and culture of different products and services. In the context of USA globalization of direct investments, global companies is increasing. Globalization is not only in terms of invest but the movement of people, the movement of ideas. Yearly USA conduct EDV (Electronic Diversity Visa Lottery) from which so many immigrants enter to USA. And the population of USA is increasing. But the job facility is not increasing as the population. Another is American company are globalizing and for this they choose the cheap labor country to assemble their products and from which the labor of that country is benefited. For example: We can see on the back of every iPhone “Designed by Apple in California. Assembled in China". From this the labor of China are benefited and owner or Apple is benefited. So in 2000, 5 million Chinese households earned between $11,500 and $43,000 in 2016 dollars. So from which we can see labor of China is benefited. b. Technology: Technology is displacing huge numbers of workers these days. In the past we have industries where many workers were there but nowadays there is machines, robots, etc. and these are dominating human man power. In most of the industries of America there were very few people. There we can see a lot of numeric controlled machine tools and there were few technicians sitting in front of consoles computer. There were not hundreds and hundreds of jobs, here there were just a hand full of jobs. What happens to all these people, where are they all the people used to do all this work? This is the major issue that due to technology worker don’t get income but owner is getting income from which the gap is increasing[Dav12]. c. Education and skill: We consider education as the greatest wealth in our life. Only having degree in not great, along with degree we need skill and knowledge about how to use that degree. In this case highly educated person gets upper post job. If you don’t have the education then technology gains in replacement of your jobs. [USC06]. Here we can see in US people with higher education are in higher position and have high income. When people are educated then they knew the skills, they can innovate and earn more income. d. Others: Racial discrimination, in USA income is different from races, Political parties and presidents, Neoliberalism, etc. 3. For decreasing income inequality former president of USA said that, “ if you worked hard, you could do well enough to raise a family, own a home, send your kids to college, and put a little away for retirement.” There really is not that much of a problem because there still a lot of upward mobility that is people who are in the bottom still could get to the top and people in the top still might fall to the bottom and as long as they were a lot of upward mobility as long as even if inequality is very wide as long as people are moving up and down then, we as a society don’t need to worry that much about it. If you’re born today in poor family the chance is much greater than it was 30 years ago that you are going to be poor or if you’re born in very wealthy family then the chance is much greater that it was 30 years ago that you’re going to stay wealthy. Due to various ideas and solution the gap of income inequality can be reduced. a. Provide Training: Only education is not the factors that make workers skillful, innovative. Along with education worker should be provided different trainings for using modern technology. Not only giving training is the solution. Those trained person should be provide the jobs and should be paid. Then only we can reduce the gap of rich and poor. b. Health Insurance: When we provide health insurance facilities to the people or worker then worker long and healthy life. So the people can be productive through their lifetime. c. Increase Minimum Wages: President Obama believes that income inequality is one of the most pressing matters facing the nation. If we are going to be a country that provides ladders of opportunity and believes in a thriving middle class, then we have to raise the minimum wage [Tho18]. When the minimum wages is increased then the others workers also motivated to work. Most of the middle and low class people are in search of work and if minimum wages is increased then they are likely to work and they generate their income from which the gap will be decreasing as comparison to past one. d. The Challenge of Income Redistribution: Though this is not the perfect alternatives when we raises the income of needy then it reduces incentives to work but there may arise the problem that it will be difficult to find difference between needy and others. There will be chances of appearing risk taker. e. Negative Income Tax (NIT): In economics we termed negative income tax as progressive income tax where people earning below a certain level were provided some supplementary by the government instead of paying the tax to the government. This system helps to fight poverty and income health. As the poverty decreases the gap between rich and poor also decreases. Due to NIT we have lower administrative cost and incentive to work is greater than with welfare but political cost is high. f. Earned Income Tax Credit (EITC): When a worker have low income then they receive credits on their federal taxes and this type of policy is defined as EITC. Its main goal is to restore the worker surplus to its original level. This system was introduced to keep families out of poverty and everyone to work either they are single or married. When everyone start to earn then the gap of income between rich and poor start to decrease. Conclusion If your wages are very low you’re not going to be able to accumulate much wealth and if you can’t accumulate wealth you’re not going to be on the winning side or on the greater side. As we have discussed about the income inequality above it is increasing in USA. We have discussed about the factor from which the gap between rich and poor is increasing in USA and globally. Also we talked about the methods to overcome these but it’s hard to overcome these in rapid way. Policy are made but its implementation is slow. Even former Republican president Nixon once proposed a version of a guaranteed basic income but you might not find the current U.S. presidential candidates talking about these ideas on the campaign trail today, but if inequality continues to worsen in developed economies, look to see them surface more powerfully in political discussions[BEN15]. References COU: , (COUNTRY COMPARISON :: DISTRIBUTION OF FAMILY INCOME - GINI INDEX, n.d.), Max18: , (Ortiz-Ospina, 2018), GIN: , (GINI index (World Bank estimate), n.d.), Dav12: , (Rosnick, 2012), USC06: , (Bureau, 2006), Tho18: , (Perez, 2018), BEN15: , (SCHILLER, 15), Read More