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Income Inequality Research Paper

Economic inequality is the differences found in various measures of the economy within individuals of a group, groups in a population, and among countries. (Huffington Post 1). Economic inequality is sometimes called income inequality, wealth inequality, or the wealth gap. (The Equality Trust 2). There are three main types of economic inequality. Income, is the extent to which income is distributed unevenly in a group of people. Income is not just the money by pay, but also money received from employment, investments, shares of stock, savings, state benefits, pensions and rent. Pay inequality is a erson’s pay, which is different from income.

Pay refers to payment from employment only. This can be on hourly, monthly or annually based. Wealth Inequality is when wealth refers to the total amount of assets of an individual or household. (The Equality Trust 5). This can include financial assets, such as bonds and stocks, property and private pensions. Wealth inequality therefore refers to the unequal distribution of assets in a group of people. Economic Inequality can be measured in various ways. One way is through the Gini coefficient which measures inequality across the whole of society rather than comparing ifferent income groups (The Equality Trust 8).

For example the UK’s Gini is 0. 34. The lower the Gini value, the more equal a society. The Gini coefficient can measure inequality before or after tax. The Gini will change depending on what is being measured. Another method of measuring economic inequality is through Ratio measures, which compares how much people at one level of the income distribution have compared to people at another. (The Equality Trust 12) For example a 50/10 ratio describes inequality between the middle and the bottom of the income distribution and a 90/50 – describes inequality between he top and the middle.

The last way is the Palma ratio which is the ratio of the income share of the top 10% to the bottom 40%. In equal societies this ratio will be one or below, meaning that the top 10% does not receive a larger share of national income than the bottom 40%. (The Equality Trust 19. ) In very unequal societies, the ratio may be a 7. For example the UK Palma ratio is 1. 07. Economic inequality in the US has increased dramatically; in particular, the rich have gotten a lot richer. There is a pie fallacy that the rich get rich by taking money from the poor. (Ewing, Jack 2).

This is usually an assumption people start from rather than have an actual conclusion based on evidence and facts. Creating wealth, as a source of economic inequality, is different from taking it. There are variations within productivity. Individuals can create wealth depending on the technology available to them, and what is being produced can expand to accommodate a lot of people (Ewing, Jack 7). The rich are often blamed for economic inequality, and are known to have been given all their wealth without any actual labor or hard work. People who are rich are usually driven.

People go to ollege and school not just to obtain a degree and education, but eventually grow from it and get a job or career that they will earn an income from to fulfill the lifestyle they have or may want. Now during that time many obstacles are often faced, but the determination of one can be the main factor towards moving them forward or backward. The weakness of recent middle-class wage growth has stemmed from a number of factors, including foreign competition, technological changes and persistent poverty. (Williams, Zoe 2). Poverty and inequality are not the same, however poverty does play a major role in conomic inequality.

People in poverty are those who are considerably worse-off than the majority of the population. At their level of deprivation they are unable to access goods and services that most people consider necessary for an acceptable standard of living. (Howarth, Robert B 6). Poverty is defined as having a household income which is less than 60% of median income (Howarth, Robert B 13). Inequality refers to the difference between levels of living standards, and income, across the whole economic distribution. Closely related to poverty is lack of social mobility, so to make matters worse,

America has considerably less social mobility than Canada and Europe, according to Scientific American. Only five percent of Americans think that inequality is a major problem in need of attention. (Fitz, Nicholas 3). U. S. income inequality has been the highest now since the 1920’s. Which was just before the Great Depression. All the wealth of the nation is in the hands of the rich and 1%. According to Pew Research, most Americans believe the economic system unfairly favors the wealthy, but 60% believe that most people can make it if they’re willing to work hard.

The top 20% of US households own more than 84% f the wealth, and the bottom 40% combine to 0. 3%. (Fitz, Nicholas 5). Many people are asked what they can think the difference s between the rich and poor in the United States and researchers concluded that the respondents underestimate actual pay gaps, and their ideal pay gaps are even further from reality than those underestimates. The main reason why we are seeing such a low income and a disappearing middle class, is because of slow wage growth. After many years the minimum wage just went up from $8. 0 to 8. 75. One thing we’ve seen in this recession is that financial assets have recovered much more uickly than wages or housing. Moreover, gains from financial assets are taxed much more lightly than traditional income. There is also a huge difference between racial incomes. Whites tend to make on average more than Hispanics and Blacks. And Asians make more than all. Hispanics and blacks have seen an increasingly high amount of unemployment because many of the jobs they do are being taken over by technological advancement.

By overemphasizing individual mobility, people ignore important social standards of success like family inheritance, social connections, and structural discrimination. (Fitz, Nicholas 8). People also have been relying on social security and government benefits too much. Because of that we see less money flow into our system. There is no inflation and due to that the social security will not be going up this year, which in turn aggravates the people who rely on social security. Now they are taking social security from the younger generation to satisfy the old. America has often been the country known for its middle class nation.

People have no idea how unequal our society has become. The 1% is getting richer and the rest are getting poorer. Soon enough the middle class will disappear and he economy will have become divided in to the poor or the rich. The United States is now the most unequal of all western nations Income inequality has been rising since the early 1980s. The place the middle class is in right now has become a major political issue. As seen in the 2016 presidential race between the Republican and Democratic Party, each candidate is trying to demonstrate and prove what they will and can do for the middle class economy if they become president.

For example, Bernie Sanders who is popular and appeals to the younger generations, ages from 15- 30, he is proposing to raise minimum wage to $15 an hour. This is one of his most popular proposals, if so this could have many benefits and a good outcome for the middle class. Politicians have come to see the middle class as a “project” where gains from economic growth can be disbursed to the middle class to help them grow, but in fact the middle class is the source of economic growth. A strong middle class can provide a stable consumer nation that drives investment. (Huffington Post 5).

A strong middle class is a key factor in encouraging national and social growth. The middle class promotes education and investment, it brings in social interactions and civic engagement. John Maynard Keynes known as the economist that came up with Keynesian economics and Keynesian theory, said that “one of the core connections between the middle class and economic growth is that stable middle class consumption is needed to spur investment”. (Huffington Post 18). Investment drives economic growth, but sufficient overall levels of consumption are needed to make those investments.

So during a recession demands are up, hoping that it will stimulate consumption. People often blame the wealthy for consuming all of our money, but in reality the wealthy save more than the middle class and consume less. This means that when incomes are stagnant, there isn’t enough demand in the economy to encourage productive investment. (Huffington Post 25). In order to spur sustainable economic growth, the middle class needs to be able to consume, and for that to happen their incomes need to rise.

A strong middle class leads to higher levels of trust. Huffington Post 29). People that are strangers to one other are more willing to try to work in business and in life. People tend to be more optimistic and believe that they can control their circumstances. In addition, people feel they share a similar fate and form stronger social onds. People need to trust one another enough to work together to achieve common goals, “we’re all in this together”. But it is hard to convince a society that the rich and poor share common values when they don’t share nearly the same fate.

When there is a weak middle class present it causes an imbalance to the political system, such as a voting reduction led from discouragement of people by the government. People lose faith in the government system and see a diminishing government who can’t help. (Huffington Post 49). Changes in government have an impact on growth. The active engagement f an efficient government can bring about a strong middle class that creates favorable conditions for the economy to grow and prosper. Economic inequality isn’t only an American problem, but it’s an international problem.

For example in France they are currently fighting unemployment, an article written on January 16th, 2016 from the Economist talk about the youth employment in France economy and what the government is going to do about it. President Francois Hollande declared a double state of emergency in France at the beginning of this year. (The Economist 1). One was to fight terrorism, the other to tackle the unemployment of France.

When he was elected he pledged to bring the unemployment rate down, but things went the other way, from 9. % to 10. 1% and youth unemployment is twice as much. Many other European cities have even higher unemployment rate, but new labor laws has caused the rate to go down some, like in Spain and Italy. Youth unemployment in France is now over three times the rate in Germany. (The Economist 11). Work in France for the youth is hard to find and when they do find one it is only temporary. Their strict unions and political intervention is intervening with employment causing many youth to be jobless.

In order to fight economic inequality and restore it back changes have to be made to public polices which often benefit the better-off than the far-off. Raising minimum wage like candidate Bernie Sanders is proposing, could be a big step in reversing economic inequality. Other ideas have been proposed such as, increasing taxes on super-high incomes, remove tax loopholes, penalize companies for shipping jobs overseas, provide strong incentives job creation, strengthen laws on nondiscriminatory hiring, compensation, and promotion practices for women and minorities.

Huffington Post 39) The International Monetary Fund (I. M. F. ) chief expressed concern that wealthier countries had not been able to compensate for slower economic growth in developing countries like China, Brazil and Russia. (Fitz. Nicholas 10). Each country needs a different methods to solve the problem. The United States, should expand tax credits granted to lower-income workers, increase the federal minimum wage and offer more government benefits for families.

In Europe countries should do more to train people to and for the reduction of unemployment. Countries that produce oil should diversify their economies more. After all, President Obama called economic inequality “the defining challenge of our time. ” But while Americans acknowledge that the gap between the rich and poor has widened over the last decade, very few see it as a serious issue. (Fitz, Nicholas 13). At the core of the American Dream is the belief that anyone who works hard can move up economically regardless of his or her social circumstances.

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