Income Distribution And Economic Policy - Essay Example

Income Distribution And Economic Policy In one paragraph, explain the actual distribution over time of income in the U.S. as is laid out in TSOWA (you could look at your first exam). Explain how the neoclassical view justifies income distribution (TWER pg 47). The median household income in the United States has increased by 31% since 1967 with varied fluctuations. The median household income for American family is $ 49, 500, fluctuating from time to time. Even though the August 2011 recorded uneven trend in household income, the resent September 25th 2013 and November 8th 2013 survey gives an upward trend of at least 1% growth. Generally, the annual household income in the United States of America declined during the periods 1979 to 1983, 1990 to 1993, 2000 to 2004, and finally, 2008 to 2012, with an upward trend in the intervening years. Per capital as well as household income in the United States is proportional to the educational attainment. The higher the educational achievement of an individual, the more the expected salaries. Most of employment opportunities are generally determined by one’s gender, for instance, more men were ready to accept jobs that required a lot of muscular that women in the states during the year 2008. The number of dependants, marital status and general family commitment and set up play the role of motivating the income earners to strive for better income. Some Americans have strived with a little success, if any, to alleviate poverty. Their efforts have been thwarted majorly by the existing racism and negative ethnicity. In the United States, the income of a household increases as the age of the householder advances until retirement. At this age, the household income starts to decline. About 42% of American household have at least two income earners. This improves the overall per capital income of the nation. b) Attempt to come up with a theory that explains the structures that enforce the current distribution using the reality of U.S. policy including but not limited to tax policy (TWER page 39), union policy, trade policy, unemployment policy, minimum wage policy, (all in SOWA) and economic stability (pick at least 3 to explain). (See the chapter “Inequality, Power and Ideology,” pg 22 in TWER.) Tax policy Tax policy in the united state has affected the income distribution among the American population. One’s taxable income increases as he climbs up the ladder in basic salary and allowances. The higher the tax imposed on individual salary, the more his income is affected, hence varied distribution on income. Workers’ and trade unions influence the individuals’ income since the unions have the bargaining power for salary increment and other wages. Trade policies like payment of trade tickets and other product related policies affect the income of traders and property owners. Unemployment is one of the major crises of every government. Every governing body has to stipulate well, the policies pertaining to unemployment to accommodate the unemployed within the same society. Every government must outline the least remuneration expected by every employee at each category depending on one’s qualification. Economic stability of any given state determines how better it can pay wages to its state workers and employees. c) Which groups are represented amongst those influencing and making policy in the US? (See the chapter “Inequality, Power and Ideology,” pg 22 in TWER.) Political leaders influence decision making on matters affecting economic stand of any given state or country. Businessmen and traders may make a collective decision that either directly or indirectly affects the entire economic status of the country. This group majorly determines the terms and conditions of employment especially in the private sectors. The government on the other hand sets up remuneration committee, which is charged with the duty of setting standard salary for all employees of given categories. Political activists may also advocate for workers without unions, lowering of commodity prices and better living conditions for the oppressed, hence causing varied income distribution. 1. GROWTH/INEQUALTIY TRADEOFF (5 points) What are the arguments surrounding inequality and growth from the neoclassical economic perspective and from an alternative perspective? See “Geese, Golden Eggs, and Trapps” in TWER, pg 106, and refer to the Scully article on Canvas. What evidence is available to support arguments either way? Use the Lindert article on Canvas or any info that you can reference on the performance of the economy during eras of lower inequality vs. those of higher. The classical theorists, during post- industrialization, argued that inequality is an efficient tool and is of great benefit to a country’s economic growth. They further suggested as evidence, that resources should be channeled towards individuals with higher marginal property since marginal property to save increases with one’s income.The neoclassical paradigm, which dominates the field of macroeconomics, dismisses the hypothesis proposed by the classical theorists, which says that inequality is a benefit for economic growth. The neoclassical economists, on the contrary, stand on from the viewpoint that equal income distribution is of great significance to economic growth. The modern analysis of economic growth by the neoclassical economists utterly rejected heterogeneity and conveniently replaced it with homogeneity in wealth distribution among people of varied economic standards. An approach called Credit Market Imperfection exposed the robustness and detrimental effects of inequality on economic development. It demonstrates that investment in education and occupational choices, together with the fixed coast associated with them and credit market imperfections are affected by income distribution. A better equal income distribution encourages human capital investment hence increased economic growth. As the country becomes more economically stable, income distribution becomes less significant since due to the less binding nature of credit constrains. Political economy approach strengthens the viewpoint inequality is of adverse detrimental effect on economic development. Wealth distribution in most political regimes affects political decisions and governance policies at large. Neoclassical paradigm and classical theory hypotheses fail to unify the entire conflict. A unified Theory of Development and Inequality explains both the merits and demerits of each of the two theories. It provides a reconciliatory approach to the Classical viewpoint and the modern perspective (Hirschey 78). SOCIAL STRUCTURES AND CULTURE AT PLAY or SOMETHING ELSE? (5 points) Recall the arguments for the distribution of income according to the neoclassical theory. If CEO compensation relative to average worker pay is vastly different in the US from the ratio in other historical circumstances and countries, what does this mean about the arguments for the distribution of income? Structural inequality or simply social stratification results from a situation where a certain category of people who assume a certain social status cling together, denying others an access. If this is not properly checked in the society, neoclassical theory of wealth distribution may hold, creating poor distribution. Cultural and social activities among people of varied economic backgrounds are one of the remedies to this crisis. Of course, the CEO of any given company earns an unrealistically huger salary compared to the average employees. This indicates that the income distribution of citizens in the United States is not properly checked. There is therefore a need for a major harmonization of salary among workers. This will ensure equitable distribution of wealth and income among the American population. Works Cited Hirschey, Michael. Fundamentals of Managerial Economics 9th Ed. Boulevard: Cengage Learning, 2009. Read More