Term 2 Week 10: Inequality Flashcards
When are different types of inequality (3)
-Wealth (value of assets owned by a household (net debt))
-Earnings (income from labour)
-Disposable income (income after taxes and transfers)
How does the distribution of wealth, earnings and income compare (2,1)
-Wealth is much more unequally distributed than earnings
-Earnings are much more unequally distributed than disposable incomes
-Sweden is a country with relatively low disposable income inequality, due to its system of taxes and transfers which benefit the less well off
What is the relationship between macroeconomic variables and inequality (2)
-Macroeconomic variables affect inequality, as shocks affect resource distribution and policies affect inequality
-Inequality affects macroeconomic variables, such as growth and national-wellbeing
What is the missing middle (1,3)
-The missing middle is that both high and low wage occupations are adding many jobs, but employment gains amongst the middle are more limited
-Jobs replace work once done by family members, with large job increases in human services
-Machines do routine work (sorting mail), with digitalization reducing demand for jobs with routine tasks. Tasks not replaced tend to be well paid (personal financial advisors) or not (taking care of elderly)
-High wage job-gainers work with information technology, where digital information has greatly increased the productivity of workers
What is the lorenz curve (4)
-The lorenz curve can be used to represent the distribution of income
-Have the cumulative % of the population on the x axis, and cumulative share of income on the y axis
-Draw a perfect equality line, linear from (0,0) to (100,100)
-The line below it represents the lorenz curve, going from lowest to highest income
What is the gini coefficient (3)
-The gini coefficient is a measure of inequality
-We work it out by dividing the area under the lorenz curve by the area under the perfect equality line (a/a+b)
-0 = complete equality, 1 = complete inequality
How can we represent the labour market on the lorenz curve (1,3)
-Draw our axis (cumulative share of population on x, cumulative share of income on y), and our perfect equality line
-the unemployed is a small portion of the x axis, and none of the y
-The employed is the majority of the x axis, and a lot of the income
-Firm owners are a very little bit at the top of the x axis, a decent portion of the y axis (gradient steeper for them)
How can we illustrate a more educated population on the WS-PS curve and lorenz curve (3)
-An increase in education shifts the PS curve upwards, reducing equilibrium unemployment
-This then pivots the lorenz curve, decreasing the unemployed size and increasing the employed (firm owners stay the same)
-This means the gradient of the employed becomes flatter
How can we implement labour market segregation on the lorenz curve, and what are its impacts on the gini coefficient (2,1)
-Instead of having an employed section on your lorenz curve, you now have a secondary and primary labour market
-Whilst they take up similar levels of population to each other, the primary labour market ahs a lot more of the cumulative income than the secondary (secondary comes first, much flatter slope)
-This increases the area between the perfect equality line and the LC, thus increasing the gini coefficient and inequality
What are policies which have an impact on the distribution of earnings (3)
-Increased education of the workforce will change the endowments of employees, adding skills and other capabilities
-Eliminating/reducing labour market segmentation will alter the wages a persons endowments will be paid in the labour market
-Basic institutional structures of the economy (property rights, unions, competition policy) all change the relative bargaining power between groups as well as reservation options, which in turn changes the income distribution
