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.