4.2.2 - Inequality

Question 1

What is universal credit

Answer 1

A new type of single monthly benefit designed to replace 6 separate
benefits for people who are on low income or out of work. It replaces the
following benefits:
Income-based Jobseekers Allowance (JSA)
Income Support
Child Tax Credit
Working Tax Credit
Housing Benefit

Question 2

Define lorenz curve

Answer 2

The Lorenz Curve shows the degree of income inequality in a given economy or population. The further away the Lorenz curve from the line of absolute equality (the 45° line), the greater the degree of income inequality. Lorenz curves can also be used to illustrate wealth inequality

Question 3

Define gini coefficient

Answer 3

The Gini coefficient measures the extent to which the distribution of income (or, in some cases, consumption expenditures) among individuals or households within an economy deviates from a perfectly equal distribution. The coefficient ranges from 0 - meaning perfect equality - to 1- meaning complete inequality.

Question 4

Define capitalism

Answer 4

An economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state

Question 5

Define wealth inequality

Answer 5

The degree to which wealth is distributed unequally across a population; inequality can be shown using a Lorenz Curve and measured using the Gini coefficient.

Question 6

Define wealth

Answer 6

The value of assets owned by a household. Assets can include property, shares and savings and marketable wealth such as antiques and other rare items.

Question 7

Define deprivation

Answer 7

Deprivation takes into account whether people have access to things essential for a basic standard of living. These include clean drinking water, electricity, clean fuel for cooking, education, toilet facilities, basic transport and communication, basic income and wealth (measured by whether a household belongs to the poorest 20%).

Question 8

Age as a cause of income inequality

Answer 8

• older person accumulate experience and develop skills. This makes them
  more productive. Consequently, they can generally command higher wages than younger people.
• They can therefore afford more assets which boosts their wealth and income.
• Furthermore, the older a person is the more time they have had to accumulate wealth. This is another reason age leads to differentials in income and wealth

Question 9

Evaluate age as a reason for income inequality

Answer 9

= a proportion of old people are poor since there is no guarantee that a person
will develop skills and build up wealth.
- 5% of OAPs in the UK are living in severe poverty.
- Often this will be the result of long spells of unemployment during one’s working years and/or working in low wage sectors such as delivery and retail.

Question 10

How does state benefits and tax progressivity affect income inequality

Answer 10

• pensioners, the unemployed and some low income households rely on state benefits
• Conservative-Liberal Democrats (2010-15) and Conservative (2015-2017) governments
  made changes to the benefit system that reduced the incomes of those at the
  bottom end of the income distribution e.g. by freezing working tax-credits (which has the effect of reducing them due to the effects of inflation).
• more progressive tax system, more equality For example, in the 1950s and 1960s the top rate of income tax was around 90% and
  nowadays it is 45%

Question 11

How does ownership of property affect income inequality

Answer 11

• Owning one outright gives a
  person a higher disposable income. This can be used to purchase assets thereby driving up wealth inequality.
• the distribution of home ownership is the more unequal the income distribution will be.
• Property ownership has been a key driver of inequality in recent years as property prices have soared in many countries including the UK (particularly in the South East and major cities).This has been an important factor in the increased intergenerational inequality
• rising prices means people profit from ownign a house whilst people struggle to afford to buy a house, have to get bigger loans

Question 12

How much have house prices risen over time

Answer 12

Analysis by the Halifax has revealed that the average price of a home has risen by an incredible 207 percent in the last 20 years. In Greater London, the rise has been even more steep, up by 239 percent since the millennium

Question 13

What other factors affect income inequality

Answer 13

ownership of property and financial assets are amplified by inheritance. Wealthy individuals bequeath assets to their
offspring which leads to increase inequality.

Question 14

How does onwership of financial assets affect equality

Answer 14

• If a person owns financial assets this adds to their overall wealth and provides an additional source of income e.g. dividends and interest. Therefore, the wider the distribution of financial assets, the more equal the distribution of income and
  wealth will be
  -

Question 15

Evaluate education as a reason for inequality

Answer 15

• some with low levels of education are able to earn high salaries and some with
  high levels of education earn less to pursue a passion or vocation e.g. teachers.
• The type of education also matters e.g. the humanities and the arts tend to be less lucrative than STEM subjects such as engineering and physics

Question 16

How does education affect inequality

Answer 16

• The more education a person has received the higher their income is likely to be.
  -The quality of education also plays a role. For instance, an Oxbridge university degree is likely to lead to a higher lifetime income than one from a less prestigious university. - Furthermore, high-quality apprenticeships, from the Big Four or a company such as Rolls Royce, are likely to be more lucrative than many university degrees.
• In contrast, those with a weak set of qualifications are more likely to be employed in low-wage sectors, such as retail and delivery, or be unable
  to find employment.

Question 17

Mathematical analysis of gini coefficient

Answer 17

A/(A+B)- the ratio of the area between the 45-degree line and the Lorenz curve divided by the whole triangle under the 45-degree curve. It is measured between 1 and 0 and the bigger the coefficient, the more unequal the country

refer to pmt diagram for what a and b is

Question 18

What is the significance of capitalism in inequality

Answer 18

● Individuals also own resources and thus wealth differs based on the assets they
own. Wealth can be passed on or gained through saving of incomes.
● It is argued that equality can never be achieved in a capitalist society where the
possibility of having more is important to encourage hard work. Without the incentive to gain more, people will not try hard or take risks since they have no reason to and this means the economy won’t grow; inequality is essential for capitalism to work.
● A degree of inequality is necessary and desirable, but excessive inequality causes
problems with efficiency and social justice

Question 19

What is the nature of capitalism

Answer 19

● A capitalist economy leads to income inequality because of wage differentials.
Wages vary as they are based on demand and supply, and demand and supply vary
for different jobs.

Question 20

What is the kuznets hypothesis

Answer 20

• as society develops and moves from agriculture to industry, inequality increases as the wages of industrial workers rises faster than farmers. Then, wealth is redistributed through taxation and government spending and so inequality falls
• evaluate: Piketty discredited this theory by arguing that inequality rises as the
  country develops as the rate of return on capital grows, so the rich get richer and
  inequality increases

Question 21

What affects inequality between countries

Answer 21

Some countries have been held back by wars, droughts, famines and earthquakes.
Certain social groups may have been excluded and marginalised. Developed
countries tend to favour each other when trading, negotiating etc. and this helps them to develop more than countries who are not involved in the agreements.

Question 22

4 points of kuznet curves

Answer 22

1) industrialisation leads to economic devleopment with main beneficiaries being capitalists
2) large number of workers move from rural to urban areas due to increased numbers of employment opportunities
3) state develops the capacity to provide public services and is out under politicsal pressure to redistribute gains from economic development
4) mass education improves the skill level of workers. Redistributive tax and spend policies are implemented

Question 23

axes of a lorenz curve

Answer 23

• y axis: cumulative % of income
• x axis: cumulative % of population
• the closer our lrenz curve is to the line of perfect inequality, the more equal the distribution of income

Question 24

income and wealth are …

Answer 24

mutually reinforcvie
- high incomes means you can purchase more, valuable assets, these increase your income e.g profit from shares, rent from homes so further assets are bought