Question

I need your quick answer for this question with all the details a and b and c and d.Br/Ha

a) Describe their findings about the evolution of income inequality over time.

b) A key finding is that labor earnings have become more important over time as a share of total income among top-earners. How do the authors explain this finding?

c) Can we interpret their explanation as causal evidence? Motivate your answer.

d) Describe the three arguments for why economists think that redistribution of resources from rich to poor may be a good idea.

Answer 1

(a) We have seen the Income inequality over time among individuals. There are many reasons for this like growing economic growth, rising income level, rise in demand, unemployment over population rises. We have seen economic growth all over the world after 1970s where some of the businessman grew at very unprecedented rate with the support of politicians and bureaucrats while many people out there did not have enough money to start their business and those had were not willing to invest it. People who were doing jobs were all manual work through which they were getting very low paid. That was the time when inequality rose. After that period unemployment grew, people did not have enough jobs to get paid a good amount. Those who were rich become more richer and the condition of poor became miserable which increased income inequality.

(b) Labour earning as a percentage of top income earners reduced till 1970 because the persons among top earners are billionaire and millionaire and the labour class was getting low paid, sometimes not even the basic pay defined be government. This increases inequality among people and after 1970s there were rapid economic growth in the economy all over the world which raised somewhat the percentage of labour class income to top earners. Gini coefficient measures the inequality in economy. Higher the value of the coefficient higher the inequality is and vice versa. In 1960 Gini Coefficient was around 49.5 and it reduced to 34.5 in 2012 which shows that inequality reduced over time when economy grew as there were improvement in labour laws which helped in getting them enough pays and they were paid according to their capabilities, in short there is less exploitation now.

(d) The benefits are :

• Reduced subsidies expenditure: If there is any case when Gini coefficient is much higher, there government needs to provide adequate subsidies to push up the poor in society to provide them a adequate standard of living and provide them direct cash to survive. If there is less inequality, there must be less subsidies provided by government which reduces their expenditure on them.
• Increasing opportunities: Decreasing income inequality will devote more energy of human to exploit resources for good purposes inspite of spending their time to reduce inequality in society. Increasing human power for productive purposes will increase opportunities in long term.
• Raising standard of living: When there is less inequality, there must be a case, either rich people are earning less or labour class is earning more. Reduction in earning of rich people is very rare as no economy will want to reduce it because it affects the whole economy. There must be the case when poor people income have increased, which actually raises the standard of living in whole society of all people.