The Education and Income Inequality Final Paper

The Education and Income Inequality Final Paper

ECO204

Principles of Microeconomics

Income inequality exists in every society and country and may have an impact on many different areas including the economy, education, crime, health, and even life expectancy. Education has been shown to be one of the primary factors that cause income inequality. The gap between workers with a High School education and those with Bachelor’s and more advanced degrees has been widening. And as those less educated workers become poorer, it is more difficult to send their children to college (Choi, 2016). This paper will discuss the following topics:

Amacher, R. and Pate, J. (2019). Principles of microeconomics (2nd ed.). Retrieved from https://content.ashford.edu

  1. Describe how a country can measure its income inequality.
  2. Evaluate the effect of income inequality on the U.S. economy, such as unemployment, economic growth, and other economic factors.
  3. Estimate the gap between those who hold bachelors and higher (master or doctoral) degrees and those who do not.
  4. Explain reasons why the inequality gap between educated and less-educated workers has been widening.
  5. Evaluate whether increasing opportunities for higher education can reduce income inequality.
  6. Analyze what else causes U.S. income inequality to widen.
  7. Recommend how to reduce educationally based income inequality or other factors if you were a federal policy maker.
  8. Describe how a country can measure its income inequality.
  9. Many economists are divided on just how to define and measure income inequality. Federal Reserve economist Arthur Kennickell wrote in a 2009 paper, “’Inequality’ may seem a simple term, but operationally it may mean many different things, depending on the point of view” (DeSilver, 2015). Income is one way to measure the inequality of income. A recent report from the Organization for Economic Cooperation and Development shows that the richest 10% of the population earn 9.6 times the income of the poorest 10%. The U.S. Census Bureau publishes two measures of income inequality each year. According to a report from 2014, the top 5% of households received 21.8% of equivalence-adjusted aggregate income, while the bottom 60% received just 27.1%. Equivalence-adjusted estimates factor in different household sizes and compositions. The Gini index is also reported by the Census Bureau. This is a summary statistic that measures dispersion of incomes using a scale of zero where everyone has exactly the same income to one where one person has all the income. Some economists will argue that income data has too many flaws to be used as the primary measure of income inequality. Many use income before accounting for taxes and transfer payments. Social Security, food stamps, and unemployment are transfer payments that act to reduce inequality. Some studies have found that consumption is a better measure of economic well-being. These studies usually show that consumption inequality is less than income inequality. A 2012 study done by the American Enterprise Institute using data from a consumer survey found that the top 20% of households by income accounted for nearly 40% of total expenditures, while the bottom 20% accounted for less than 10% of expenditures. But other economists have reached other conclusions concerning the use of consumption. They have found that consumption inequality grew about two-thirds as much as income inequality between 1985 and 2010. A third way to look at economic inequality involves household wealth. People that have accumulated wealth may not receive much in the way of income. They may have trust funds, gains on stocks, and other investments while people who earn a large wage but also have high expenses may not consider that they are wealthy. Wealth inequality tends to be much higher than income or consumption inequality, but it does not vary much over time. Edward Wolff, a New York University economist found that in 1962, the top 1% of households held 33.4% of all wealth and in 2013 the percentage was 36.7% (DeSilver, 2015).
  10. Evaluate the effect of income inequality on the U.S. economy, such as unemployment, economic growth, and other economic factors.
  11. Income inequality exists in every society or country due to differences in education, gender, race, and region. This inequality can impact the economy, education, crime, and health and life expectancy (Choi, 2016)
  12. According to the Organization for Economic Cooperation and Development, the gap between the richest and poorest in most member countries is at its highest in the last 30 years. This analysis points to a significant correlation between income inequality and economic growth (Sherman, 2014). The unemployment rate is an important economic indicator. A high rate of unemployment indicates that available resources are not being utilized in an efficient way. Economic growth is stunted when resources are not used efficiently (Unemployment and Inequality, 2010)
  13. Estimate the gap between those who hold bachelors and higher (master or doctoral) degrees and those who do not.
  14. The table below shows that there is a significant relationship between income levels and degrees of education. The higher the education level, the higher the income. An example is people with professional degrees earned six times more than people who did not graduate from high school. (In 2009: $128,000 vs. $20,000).
  15. The next table shows that it is not just income but also U.S. employment rates and education level are also related. The better educated a group of people is, the lower the unemployment rate. The figures in the table suggest weak demand in our economy for less educated workers, and a greater demand for more educated workers.
  16. If you have less than a high school education the unemployment rates range from 7% to 15%. With a college degree the unemployment rate is 4.5%, compared to an overall rate of 9%.
  17. It seems that our two economies have created two separate societies. People with little education drift between recessions and depressions and have little stability. People with more education experience increased wealth, mild recessions, and much personal growth (Strauss, 2011).
  18. Explain reasons why the inequality gap between educated and less-educated workers has been widening.
  19. Since the late 1970’s the income inequality gap between degreed workers and non-degreed workers has been widening. This can be explained by basic supply-demand. Some economists explain that as our society has developed more advanced technology, firms have demand for more skilled and educated workers but there is a shortage of educated and skilled workers so the earnings gap between educated and non-educated workers is widening (Choi, 2016)
  20. Evaluate whether increasing opportunities for higher education can reduce income inequality.
  21. Some economists are claiming that by producing more college graduating workers, income inequality can be reduced. According to two economists, Carnevale and Rose, income inequality would be reduced if 20 million postsecondary-educated workers were to be added to the workforce. An increase in college-educated workers will cause the supply curve of this group to shift to the right (more college-educated workers are supplied) and the supply curve of the workers with high school diplomas will shift to the left (fewer non-educated workers are supplied). The earnings gap may then be reduced between the two groups. When income inequality has been caused by the differences in education, it is possible to reduce that gap by supplying more degreed workers through traditional and on-line education institutions (Choi, 2016).
  22. Analyze what else causes U.S. income inequality to widen.
  23. Growth in technology can widen the income gap. Growth in technology can render joblessness at all skill levels. For unskilled workers, computers and machinery perform a lot of tasks these workers used to do. Packaging and manufacturing jobs can be done even more effectively and efficiently using machinery. Jobs involving repetitive tasks have largely been eliminated. Skilled workers are not immune to the nightmare of losing jobs. The rapid development in artificial intelligence may ultimately allow computers and robots to perform knowledge-based jobs. Gender can be another factor that causes the income inequality gap to widen. In many countries, including the United States, there is a gender income gap in the labor market. In the United States, the median full-time salary for women is 77 percent of that of men. Women who work part time make more on average than men who work part-time. And, among people who never marry or have children, women make more than men (Leung, 2015).
  24. Income inequality has also been blamed on cheap labor in China, unfair exchange rates, and job outsourcing. In order to remain competitive, companies sometimes have to put profits ahead of workers. Many companies have outsourced high tech and manufacturing jobs overseas which were higher paid union jobs. While service jobs have increased, they are lower paid jobs (Amadeo, 2018).
  25. Recommend how to reduce educationally based income inequality or other factors if you were a federal policy maker.
  26. There are policies that could address and directly reduce inequality include increasing the minimum wage rate, adopting more progressive taxes, targeting government expenditures to benefit the poor, and simply allocating more resources to education. Other solutions include allocating more existing resources to need-based financial aid. The government and foundations could create incentives. Higher education institutions could also create incentives on their own and be true to their missions. Colleges and universities did this in the 1970s in response to the civil rights movement, increasing the representation of African Americans without waiting for government incentives.
  27. Conclusion
  28. Economists have shown that while not the only cause of income inequality, education is one of the primary factors. The gap between degreed and non-degreed workers is widening. “Should the goal of redistribution be equality of opportunity or equality of results?” (Amacher & Pate, 2019), If it is a goal of opportunity maybe penalties could be imposed on employers who discriminate or mandate government investment in human capital through technical schools, student loans and grants, or training programs (Amacher & Pate, 2019). As those less educated workers become poorer, they find it more difficult to send their children to college (Choi, 2016)
  29. References:

Amadeo, K. (2018, October 10). Income inequality in America: Causes of income inequality (Links to an external site.)Links to an external site.. Retrieved from https://www.thebalance.com/income-inequality-in-america-3306190

Choi, K. P. (2016, May 30). Income inequality and the earnings gap between educated and non-educated workers (Links to an external site.)Links to an external site. [Blog post]. Retrieved from https://www.ashford.edu/blog/career-tips/income-inequality-and-the-earnings-gap-between-educated-and-non-educated

DeSilver, D. (2015, September 22). The many ways to measure economic inequality. Retrieved from https://www.pewresearch.org/fact-tank/2015/09/22/the-many-ways-to-measure-economic-inequality/

Hill, C. B. (2015, June 10). Income inequality and higher education (Links to an external site.)Links to an external site.. Retrieved from https://www.acenet.edu/the-presidency/columns-and-features/Pages/Income-Inequality-and-Higher-Education.aspx

Sherman, E. (2014, Dec 9). Income inequality hurts economic growth (Links to an external site.)Links to an external site.Income inequality hurts economic growth (Links to an external site.)Links to an external site.. Forbes. Retrieved from https://www.forbes.com/sites/eriksherman/2014/12/09/income-inequality-hurts-economic-growth/#5070548f591ahttps://www.forbes.com/sites/eriksherman/2014/12/09/income-inequality-hurts-economic-growth/#5070548f591a

Strauss, S. (2011, November 2). The connection between education, income inequality, and unemployment (Links to an external site.)Links to an external site.. Retrieved from https://www.huffingtonpost.com/steven-strauss/the-connection-between-ed_b_1066401.html

(n.d.). Retrieved from https://sevenpillarsinstitute.org/causes-economic-inequality/

Unemployment and Inequality. (n.d.). Retrieved from http://www.economywatch.com/unemployment/in-equality.html

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