Question

1. What are the main causes of income inequality in today’s global economy?

2. What can be done to mitigate the forces that are behind income inequality?

Answer 1

1. This challenge is rooted in the uncertainty inherent in greater inequality in the labor market. Falling labor participation, rising median incomes, and decreasing labor income share, for example, are all part of existing U.S. labor market patterns. These patterns are definitely related, but they have also been examined across various research mechanisms, which can inexorably lead to different policy implications. The understanding of the dynamic and interconnected existence of these theories is essential to the creation of policy approaches that tackle the underlying causes of inequality.

The demand for skills has gradually increased across developing countries. The capacity premium is therefore the product of skills not being offered at a pace to keep up with demand. The suggested solution to inequality caused by these factors is to expand employment and job preparation opportunities for employees so that they can get better paying jobs. Offshoring also impacted employment and salaries. All these trade trends contribute to declining wages, declining labor force participation, and low inflation-adjusted wage growth. Possible policy options for this development include those that would make US exports more profitable, including the weakening of the US dollar.

2. Policies that promote higher savings rates and lower the cost of building assets for working and middle-class households will provide more economic stability for poor families. New systems that automatically enroll employees in retirement plans and offer contribution credit or a federal match for retirement savings accounts may help low-income households create wealth. Exposure to decent, low-cost financial services and home ownership are both critical paths to income.Differences in the standard of early education and schooling are the most critical components that lead to ongoing disparities across generations. Investments in education, beginning with early childhood with programs such as Head Start and Universal Pre-K, will improve economic mobility, lead to improved prosperity and reduce inequality.

The rate of tax on capital gains must be modified so that it is in accordance with the rate of income tax. Savings opportunities designed as refundable tax credits, which treat every dollar earned equally, will provide similar benefits for low-income families.Higher rates of racial differentiation within the metropolitan area are closely associated with substantially lower levels of intergenerational upward mobility for all residents of the city. Income segregation, in particular the alienation of low-income families, also correlates with substantially lower rates of upward mobility. Eliminating income-and race-based residential segregation will improve economic mobility for everyone.