Question

Briefly discuss the major causes of income inequality. What factors have contributed to greater income inequality since 1975

Answer 1

Major causes of income inequality are :

1. The differences in abilities and talents among individuals .

2. The differences in the amount of education and training an individual obtains.

3. Labor market discrimination.

4. Inequality in the distribution of wealth.

5. Differences in tastes and preferences toward work and job attributes.

6. Ability to use market power to transfer income to oneself .

Many Factors have contributed to the greater income inequality since 1975.

Main factor is the structural changes that have occurred in the U.S economy.

There has been an increase in the demand highly skilled workers compared to the demand for unskilled workers.

During the 1970s and 1980s :

- A lot of young people entered the labor force , thus reducing their incomes.

- Increase of single mothers with few labor market skills.

- Educated people tend to marry other well educated people ,thus placing these families in the highest quintile an thus increasing the income to those in those quintile.

- More import competition :

(a) Decrease in the demand or the employment of less skilled workers.

(b) Increase in immigration of unskilled workers.