Education and Income Inequality

Education and Income Inequality

Principles of Microeconomics ECO204

Introduction

The following paper is regarding income inequality and how it has affected various phases of our economic cycle. We will look at how a country can measure its income inequality using the SOI and other tools. After, we will evaluate the effect income inequality has on the U.S. economy, specifically unemployment. We will review how there are many gaps in those who have higher education, such as a master’s degree or higher, to others who do not hold any degree. This will show a correlation between the less-educated workers and the inequality gap. Understanding why education has a factor in income inequality will help us purpose opportunities for those in need of higher educations. As a society, we need to realize that keeping kids in school and showing them that higher education will help them succeed in life can help our future children to climb out of poverty levels.

Describe how a country can measure its income inequality.

           Economist Michael Owyang and research associate Hannah Shell advise there are three sources of data used to measure income inequality. These three databases differ depending on how they interpret income, providing economists with different perspectives on income inequality. The first to appear is the Internal Revenue Service’s Statistics of Income Program, or SOI, as generalized market income. This market income is based upon what is reported on IRS tax forms. Some standard reports are before tax income, business capital, and these forums do not include health insurance. The SOI is a good indicator of where the highest earnings are represented but do not account for all the revenue generated in households. Some contracted individuals who do not earn more than 600$ does not get generated a 1099 (self-employed) form to pay taxes on. A lot of immigrant workers working under the table would also not be represented accurately in an SOI report because they are not reporting wages to the government. (Shell & Owyang 2016)

Shell and Owyang also credit the Census Bureau’s Current Population Survey, or CPS, as another data reference report for inequality in income. Once a year, this group documents income and poverty levels obtained through monthly surveys of 75,000 citizen’s households. This report includes other cash income that the SOI previously does not, such as health insurance benefits. An interesting note about the CPS report is that it does not contain high-income data to protect individual privacy. This could lead to a misrepresentation of income inequality. (Shell & Owyang 2016)

The article also references the Congressional Budget Office, or CBO, and the ability to pull from both SOI and CPS to provide a complete overview of high and low income. From recent reporting’s, Owyang and Shell commented “In other words, U.S. income inequality is not intrinsically different from what is seen in other countries, and any differences are mainly driven by the lack of income-redistributing fiscal policies in the U.S.” (Shell & Owyang 2016)

In the United States, we measure income by productivity and redistribute to less fortunate individuals through government assistance programs and charitable giving. Based on income, each tier of wage brackets is taxed differently in order to fund government programs such as Social Security, Medicare, food assistance, and others. In our textbook, Pate describes the measurement of how income is distributed as the personal distribution of income. Using a Lorenz curve will show income for households, using the percentage of households on the horizontal axis and age of income on the vertical axis. (Amacher & Pate, 2019)

Evaluate the effect of income inequality on the U.S. economy, such as unemployment, economic growth, and other economic factors.

           Steven Strauss, a contributor from the Huff Post, writes about how there are connections between income inequality and our economy. In his article in 2017, he contributes most of the income inequality to educational attainment. He stated, “if you have less than high school education, you have spent the last ten years in a recession” (Struss, 2017). During that time, there were times the unemployment rate met fifteen percent. Economists have studied that with higher educated people, there is lower unemployment rate and remains consistent. “Those with high educational attainment experience increased wealth, only mild recessions, and interesting projects with personal growth” (Struss, 2017). 

           When people are less educated, they tend not to earn enough income to cover ordinary expenses, and they also tend to need more government support than others. If there were enough encouragement to stay in school and to graduate, there would be less crime, hunger, and welfare-dependent families. The unemployment rate is significantly higher with uneducated people as more talented workers are demanded. 

Government or private programs that reduce unemployment and improve the match between workers and jobs are also indirect forms of poverty relief. Not only do these programs increase total output, they generally improve job opportunities and earnings for workers at the lower end of the wage scale. Anything that the government does to promote economic growth and reduce cyclical fluctuations will also reduce unemployment for all groups. Since the poor are so often the last hired and first fired, they would benefit more than most from such programs. Even programs that reduce the obstacles to working, such as those that improve public transportation or subsidize daycare, help the poor who can work. The goal of equality of opportunity is to offer the working poor a chance to improve their earnings and escape from poverty. (Amacher & Pate, 2019)

           The ability as a society to give to others in need helps reduce economic impacts such as hunger. With the assistance of educational services, governmental agencies can help impact the lives of under-educated employees. This will help reduce the amount of assistance needed by improving the lively hood of those who choose to better themselves. The unemployment agencies locally help match jobs to those who are in despite need of work. Places like these help people get off on a good start and builds economic value in return.

Estimate the gap between those who hold bachelor’s and higher (master or doctoral) degrees and those who do not.

The Huff Post article (2017) uses a SAUS table and describes that in 2009, the estimated gap between those who hold a bachelor’s and higher degrees made, on average fifty-seven thousand dollars or more. Compared to an Associates, which was seventeen thousand dollars less than a Bachelor’s. The median range of individuals wages who had a high school diploma was thirty-one thousand dollars. The SAUS program that gathers data for the Census Bureau as of October 2011 no longer collects data.

It should only be fair to say those who have a higher education, even at an associate’s level, should earn more wages than someone who could not finish a high school education. There are some instances where an individual could not finish due to circumstances unbeknownst to them. Those who need assistance should receive the necessary items in order to maintain a healthy lifestyle. There is almost a divided line amongst those who have a degree and those who do not. 

Based on our textbook, the percentage of those below the poverty level at a bachelor’s degree or higher is at 4.5 percent. Looking at someone who only some college, this rate increased by five. The individuals who lack a high school diploma are at a significant rate of 26.3 percent poverty level, whereas someone with a degree is 12.9 percent. (Amacher & Pate, 2019) It goes without question that employers that are recruiting look for talented people with an education.

Explain the reasons why the inequality gap between educated and less-educated workers has been widening.

           Since the 1970s, the gap between educated and less-educated workers has been widening. In Ashford’s career tips, it seems as though it is a supply and demand relationship. There is a more significant push for tech-savvy workers, and those born in the baby boom are at a disadvantage. This need for higher-advancement careers created a shortage of educated workers and wedged a gap. (AU, 2016)

           Some other reasons why the inequality gap between educated and less-educated workers has been widening is the fact that those with lower salary pay, some people cannot afford education and therefore do not try to go. Other times, in lower-income areas, it is custom to drop out of school to start bringing home extra money to the home. My father is an excellent example of someone with a lower income status, dropped out of school in ninth grade to enter the coal mines to earn a living so he could help bring home money to his family. 

Evaluate whether increasing opportunities for higher education can reduce income inequality.

           Increasing opportunities for higher education can reduce income inequality. With my employer, Sykes, I can go to Ashford and earn a free bachelor’s degree in business administration. Where I am from, this is not an opportunity given to everyone, so I am taking full advantage. Studies have shown, according to Ashford’s career tips article “According to Carnevale and Rose, the income inequality would decline if 20 million postsecondary-educated workers were added to the workforce (p. 8)” (AU, 2016). This information shows that with the more education someone has, the more valuable they are to an employer. With adding value to someone’s career potential, there would be less inequality because everyone would have the opportunity to higher education. “Programs that promote equality of opportunity encourage work and are less costly to taxpayers than those that promote equality of results” (Amacher & Pate, 2019). More educated employees are more likely to work harder, and employers who promote educational benefits find that it is not expensive for the company.

           Most studies show a positive change in the unemployment rate and the wage-earning of higher educated groups. Making opportunities for lower-income and poverty level to have access to free higher education would increase employment and ultimately attempt to balance the income inequalities. This would spike the demand for specialized groups of people in the long run.

Analyze what else causes U.S. income inequality to widen.

           Resources from the Balance indicates that the U.S. income inequality stems allegedly from outsourcing labor in china and the Federal Reserve interest rates. Labor costs to employ Americans are significantly higher than of someone in China or India. Most tech companies like Microsoft and even my own company Sykes uses outsourcing to these countries for the ability to make up financial losses. Statistics show that “the United States has lost 20% of its factory jobs since 2000. These were traditionally higher-paying union jobs. Service jobs have increased, but these are much lower paid” (Amadeo, 2019). Outsourcing is not the only reason income inequality widens, but the Federal Reserve kept interest rates low to increase incentives for others to but a home. While the market has been even in the last few years, the median household could not buy a house even still. This event only caused good fortune to those well-enough to own stocks and bonds.

Recommend how to reduce educationally-based income inequality or other factors if you were a federal policymaker.

           If I were a federal policymaker, I would reduce educationally-based income inequality by providing free secondary school to everyone. Unfortunately, in most states, this is already in place. Most state community colleges already offer adult programs, but still, most people do not see a value returned by attempting to go. The biggest issue I feel is within our current school system. The top 5 countries based on Forbes are Singapore, South Korea, Hong Kong, Taiwan, and Japan. The reason being is that their government is directly involved with educational programs. The United States has cut educational budgets to their bare-bones, which forces teachers to use their salaries to buy classroom supplies. 

           Cutting educational programs such as home economics, which teaches high school students basics of living, such as balancing a checkbook and cooking, will be the first to be removed. Cutting funding from schools also reduces teachers’ salaries, and coming from experience, this decreases the teachers’ morale and worsen curriculum. 

Conclusion

           In conclusion, many of us have taken for granted what a good education can do to someone’s lifestyle. We need to keep funding in school programs and keep kids in school learning. If our teachers were appropriately salaried, they could bring more positivity and morale to the classroom, which will help keep kids in school. By increasing governmental funding in school and having more parts like other countries like Singapore, we can increase school success rates. Adult education programs are in dire need of free education support, and this can lead to a far more productive society. We can utilize resources like the SOI, to map our areas of lower-income and start with higher education outreach programs. Income inequality is drastic amongst the top percentile of the U.S., utilizing some of their funds for the benefit of others will help us reach sustainability.

Resources:

David R. Henderson, 2020. The truth about income inequality: http://eds.b.ebscohost.com.proxy-library.ashford.edu/eds/pdfviewer/pdfviewer?vid=0&sid=36cf992e-13bd-49fe-a70b-5f1b65ff52ae%40pdc-v-sessmgr02

Giovanni Dosi, et al. 2018. The effects of labor market reforms upon unemployment and income inequalities: an agent-based model: http://eds.b.ebscohost.com.proxy-library.ashford.edu/eds/pdfviewer/pdfviewer?vid=0&sid=bf62f0e1-d0c3-4ad7-ac34-ed16ca71f6b5%40sessionmgr101

Steven Strauss, December 06, 2017. The connection between education, income inequality, and unemployment: https://www.huffpost.com/entry/the-connection-between-ed_b_1066401?guccounter=1

Michael Owyang and Hannah Shell, July 21, 2016. How Is Income Inequality Measured? Retrieved from https://www.stlouisfed.org/on-the-economy/2016/july/how-income-inequality-measured

United States Census Bureau, 2012. Section 12. Labor Force, Employment, and earnings retrieved from https://www.census.gov/library/publications/2011/compendia/statab/131ed/labor-force-employment-earnings.html

Ashford University Career Tips, May 30, 2016. Income inequality and the earnings gap between educated and non-educated workers retrieved from https://www.ashford.edu/blog/career-tips/income-inequality-and-the-earnings-gap-between-educated-and-non-educated

Kimberly Amadeo, December 16, 2019. Income inequality in America https://www.thebalance.com/income-inequality-in-america-3306190