Macroeconomic Policies, Government Attitudes towards Inequality - Essay Example

? Macroeconomic Policies, Government Attitudes towards Inequality Macroeconomic Policies, Government Attitudes towards Inequality Answer 1 Effects of Inequalities on the Economic Growth Inequality badly affects the economic growth because due to this there arises different sever problems those affect the growth level. Like due to inequality in the wages or income of the workers many people cannot gain the all opportunities of the life so overall standard of living of society decline. The other point is about the riskiness of jobs, due to inequality the risk of getting good jobs arises in the societies its mean the loss of jobs is directly proportion to the cost of health insurance that is beneficial for the poor and the lost of home (Stiglitz, 2012). So, this represents the economic insecurities and unemployment in the economy which reduce the growth level. Those countries which have inequality pattern in the recent years always face fewer opportunities in the future. The basic problem that arises due to inequality is the polarization of society that affects the growth level because in these middle skill jobs are not the part of the employment pool. So, the inequality can be harmful for the economic growth in the long run (Stiglitz, 2012). Polarization of the Labour Force Its mean the disappearance of the middle skill jobs, this is happening for last three decades that the share of middle skill jobs reduced from the employment pool that is the result of recession in the economy. The four important sectors of middle skill jobs like sales, office and administrative workers, operators and production workers have lost their most of the portion from the employment pool. So, the wages and earnings of this area labour force have fallen over the three decades. This term shows the inequality between the top level societies and middle skills societies because the disparity between the wages of the top and middle increased means the wage level of the middle skill jobs have gone down. So, the polarization of the labour force shows that top-level are going to be rich further and more people are moving towards the bottom (as poor as possible) (Needle, 2005). Theories Theories regarding the labour market polarization are; Spatial Polarization Theory and Social Polarization theory (Thornley, 1992). These theories are discussed below; Spatial Polarization Theory A main differentiation in labour market theory is that between the idea of continuity and discontinuity. In general, when this distinction is used for labour market change, it tends to raise the debate between “social polarization” views and “Inequality theory.” The previous perspective begins by mentioning the undisputable shifts in the labour demand. Such process of industrial transformation has occurred in Europe and United States, result to a decrease in the chances that offer for occupational mobility (Thornley, 1992). This process is the selective emigration of urban occupants, in which middle-class (particularly white) families leave, at the beginning to the suburbs and afterward to the villages to become a new rural middle class. This is process of involves two sides one is the supply side and the second is the demand side. However it creates “inequality” between the supply of suitable labour and the newly increasing demand for technical qualifications. This spatial polarization theory is useful in describing the impacts of post industrial change in an area. It is true at a great cost that national minorities are extremely vulnerable to such changes (Thornley, 1992). Social Polarization Theory The segregation process in a society which might arise because of the inequality of income, economic restructuring and so on is called as social polarisation i.e., the distinction which might comprise of several social groups, from high-income to low-income. This social polarization theory deals with the growth of low-skilled services jobs as well as the expansion of elite of higher professionals (Thornley, 1992). This socialisation process was seen in the United Kingdom during 1979 to 1993. However, that polarization was not from the top and bottom income groups but not grown at the expense of the middle. On the contrary, the higher income group has grown substantially at the expense of the middle income group which creates inequality in term of income for these peoples. This increase in income for high income level was much faster than at the bottom (Thornley, 1992). Government Policies Progressive Tax Rate Government can reduce this problem through applying progressive tax system this means as income increases the tax rate also increases so through this rich people pay high tax while poor people pay low tax to the economy this kind of policy can attain the vertical as well as horizontal equality. Sometimes those people whose lowest income is not matching the band of tax rate they don’t pay the tax rate. So, this policy option is available to the government for the purpose of poverty alleviation from the society (Boyes & Melvin, 2012). Public Benefit Support Programs Government also intervene in promoting equity in the society through providing different benefits to the low income people that comes from the high income people those pay tax and government distribute these taxes in the form of welfare benefits to low income society. Directly or indirectly that shows the expenditure on the redistribution of income from the public sector (Boyes & Melvin, 2012). Direct Method In the direct method whole benefits accrue to the targeted person like unemployment benefits, old age pensions and sachet as it is distributed in many countries so in these cases beneficiaries receive direct cash transfer from the government. There is also exist direct in kind benefits in which state transfer some services or units of particular commodities free of cost to the targeted people. Like education, healthcare facilities at the point of consumption (Boyes & Melvin, 2012). Indirect Method The other one is indirect benefits of which wholly or partial benefits are passed on the others due to implication of economic force like subsidies provided by the public sector in which government ask the producer to supply the goods at the minimum price level to the people but government pay the producer as much as its requirement. This policy largely depends upon the demand and supply elasticity’s of the target commodities (Boyes & Melvin, 2012). Answer # 2 Macroeconomics and monetary policy always focus on the inflation because through low level of the inflation market economy can be flourished but high level of inflation can be sever for the economy and create the problems. It shows the reduction in efficiencies as well as loss of resources as a result of this economy cannot attain the potential level. There arise different choices for attaining growth through trade-off between inflation and unemployment. This trade-off shows low inflation if unemployment is high that affects the lower workers mostly poor and middle class worker because they can face the loss of their jobs that reduce the growth level. If unemployment goes down it reflect high inflation rates that also affects the bondholders (Stiglitz, 2012). Inequality creates critical economy’s instability in the nation and macroeconomics and monetary policy failed in producing stability. Like higher unemployment means lower income for the bottom and the middle class those levels depend upon the daily earnings, working hours. That also affects their standard of living so this process hurts the economy badly (Stiglitz, 2012). Then Central Bank takes a part through monetary policy that create the ratchet effect through this wages going to maintain but as soon as wages maintain policy makers focus on inflation and apply the tight monetary policy that result in form of maintained unemployment at high inflation. Macroeconomics Failure towards the Economic Stability There are different kinds of source that is responsible in instability of the economy like through poor macroeconomic management as well as exogenous shocks. Exogenous shocks includes term of trade shocks, natural disasters and reversal of capital flows that moves the economy towards the instability like developing countries those trade commodities based on a few things so due to shocks in the economy can hurt these low income countries. The other factor of instability is poor macroeconomic management like an expansionary fiscal policy that increase the aggregate demand for the goods and services puts pressure on the balance of payment as well as domestic prices so through this also disequilibrium arises that is basically self induced (Gwartney, 2009). Monetary Policy Failure towards the Economic Stability Monetary policy can also affect the bottom through different variables like output, inflation and real exchange rate. High prices mean inflation can hurt the poor because it restrains the growth as well as it acts as a regressive tax. Output fluctuations also put direct pressure on the income of people that’s result is decreasing standard of living of the nation. Monetary policies can affect these fluctuations in different ways like as we know that the money supply can affect the real variable (real interest rate) in the short run. So, it reflects the effect on output level. The Second way is the country’s exchange rate increases the exogenous shocks; in the end exchange rate influences the poor through country’s external competitiveness through devaluation of nominal rate that affects the bottoms life. So, monetary and exchange rate policies are unable to manipulate the short run real exchange rate (Samuelson & Nordhaus, 2010). As a result of using these polices actively they’ve introduced the instability in the economy. Macroeconomics Failure towards the Better Growth Level Macroeconomics instabilities also refer to the poor growth performance its means macroeconomics can face the failure in producing the highest growth level that is beneficial for the society’s citizens. Like in loose fiscal policy government expenditure increases that improve the highest budget deficit on the nation and may reduce the growth level of the economy in the future. There are also several reasons those increases the deficit of government sectors like due to loss of the jobs from the country, tax collection will be reduced. This problem can be resolved through the efficient allocation of resources and money like if tax revenue increased by cutting unemployment benefits (Samuelson & Nordhaus, 2010). Monetary Policy Failure towards the Better Growth Level Monetary policy makers always want to overcome the inflation rate through increasing the real interest rate but this method increases the fluctuation in the output level as well as improve the other factors those affects the growth of the economy like high unemployment will be the result of this critical situation so, the growth level fluctuates over the potential employment level and cannot match it in the short run. Due to unemployment the income of the low wages people reduce and they can’t even enjoy the benefits of the life as well as their standard of living will reduce that pay an impact on the overall growth of the society. Side by side exchange rate also plays a role in dampening the growth because the high exchange rate invites the exogenous shock those are harmful for the economy (Samuelson & Nordhaus, 2010). So it is proved that macroeconomics, monetary policy and institution can move towards the instability situation as well as can reduce the growth level of the society that is harmful situation for the nation and needs more time to come out from these horrible situations. References Boyes, W. J., & Melvin, M. (2012). Economics. Australia, Cengage Learning South-Western, p. 740-745. Gwartney, J. D. (2009). Macroeconomics: private and public choice. Mason, OH, South-Western Cengage Learning, p. 335-343. Needle, D. (2005). Business in context an introduction to business and its environment. Princeton, N.J., Recording for the Blind & Dyslexic, p. 130-135. Samuelson, P. A., & Nordhaus, W. D. (2010). Economics. New Delhi, Tata McGraw Hill, p. 35-46. Stiglitz, J. (2012). The Price of Inequality: How Today's Divided Society Endangers Our Future. W. W. Norton, p.143-153. Thornley, A. (1992). The Crisis of London. Routledge, p. 111-116. Read More