Inequality

Definitions

Equality

• Situations where economics are the same for all.

Equity

• Refers to the idea of fairness.
• Different people are given different things to promote equity.

Economic Inequality

• Unequal distribution of wealth, assets, or incomes in society.
• This is sometimes referred to as the "wealth gap".

• Generally, in higher income countries, having some economic inequality can lead to economic growth as there is a greater incentive to work harder to earn more.
• However, in lower income countries, income distribution policies can be more helpful, as high inequality can lead to reduced economic growth due to people being stuck in poverty.
  • People tend to spend a lot more once they leave poverty, whereas those who already have wealth won't spend much more if their wealth increases, and are more likely to save instead.

Social Mobility

• The ability of people to climb or fall within the economic sectors of society.
• Having low social mobility can lead to people being stuck in certain sectors or classes.
  • For example someone working a minimum-wage service job might not have the money to get a good education for their kids, leading to them working a similarly low-paying job.

Most Notable Types of Economic Inequality

Unequal Income Distribution

• Income is the monthly earnings in a households.
• It consists of interest on savings, rental income, salary, business profits or a dividend on investments.
• Capitalist, market-based systems are the most efficient economic systems in regard to resource allocation.
• While equal incomes may not be the goal, high inequality should be combatted for economic growth.

Solutions to Economic Inequality

Universal Basic Income (UBI)

• Universal transfer payment to every citizen to raise income levels.
• Everyone gets a certain amount of funds.
  • These funds are much more valuable to the poor as it takes them out of poverty.
• They have the money to develop themselves, through education, retraining, etc.
• Those who already have money won't benefit much from the increased income.
  • Some recent research argues that UBI might not improve inequality much.

Arguments Against UBI and Counter-Arguments

• Giving people money will make them lazy and they will stop working and not look for work.
  • Counter-Argument:
  • The amount given would be enough to meet basic needs, preventing people from living in poverty.
  • However, people want to improve their economic well-being by working to earn more.
  • A UBI gives people opportunities to do many hings, all of which can be good for themselves and the wider community/economy.
  • Possibilities include:
    • Returning to school to improve skills to get a good job.
    • Looking after children/older family members
    • Starting a business

• UBI is too expensive
  • Counter-Argument:
  • Inequality and poverty are a problem for everyone, not just the poor.
    • Reduced poverty leads to economic growth, improved well-being and reduced crime rates.
  • It is in the interest of the rich people that poverty and inequality be reduced and so marginal tax rates for the very rich could be increased to help finance a UBI.
  • In many countries, the benefits of economic growth have gone to the wealthiest few.
    • Maybe it is time for redistributive policies policies such as higher taxes and wealth taxes on the very rich to spread benefits more equally.
  • Removing many of a country's conditional welfare payments and replacing them with an unconditional UBI would free up significant amounts of resources.

• There is no point in giving UBI to the rich as well.
  • Counter-Argument:
  • It needs to be universal and seen as a right for everyone.
  • Any conditions or threshold incomes make it another form of welfare, requiring resources to administer.

Increase in Progressive Income Tax

• Progressive taxes are proportionally higher for those with more income, meaning those with low incomes aren't taxed as much, whereas those that are "better off" face more taxes.
• However, increasing taxation might lead to complaints and opposition.

Unequal Wealth Distribution

• Wealth is defined as the value of property subtracted by the debt.
• The value of the person's total assets minus their total liabilities.
  • Assets = house and property, money in savings account, investment in stocks and bonds, retirement savings.
  • Liabilities = debt like mortgages, students loans, car loans, and credit card debts.
• Wealth is passed from generation to generation, unlike income.
• Wealth provides generations of families with grater educational opportunities, high standards of living and effective healthcare.
• Solutions to Unequal Wealth Distribution Are:
  • Wealth taxes
  • Philanthropy
    • Philanthropy is when those with lots of wealth chose to give back to society through donations.