Labor Productivity and Marginal Tax Rates - Essay Example

Productivity is the measure of how efficient a person, machine, factory, process or the overall system is. It is calculated by dividing average output in a certain period by the total resources in terms of labor, raw materials, energy or any other cost incurred in the process in that same period (Business Dictionary). Labor productivity specifically refers to the goods and services produced by labor in a certain period. It basically measures the amount of real GDP produced by the labor within a specified amount of time. (Investopedia) Labor productivity is of particular importance for both the economic as well as statistical analysis of any country. It is a reflection of numerous economic indicators, offering an overall measure of the economic growth, competitiveness, and the living standards that are dominant in an economy. It is labor productivity which explains the basics needed to understand econmic growth and social development (Freeman). Increase in labor productivity is said to increase the standard of living in an economy. When productivity increases, the price of products and services decreases which in turns increases domestic as well as foreign consumption for those particular products and services. To meet this increase in demand, overall production increases which utilizes more use of equipment and a greater demand for workforce. Hence, employment increases, real wages of the working class grow and the overall economy flourishes (Galarneau and Dumas). The first 3 paragraphs of the article ‘One Pay Gap Shrinks, Another Grows’ basically tells about how income distribution has not been equal. It is said that the major argument is not whether men have done better than women or vice versa. It is true that women are winning the race of obtaining college diplomas and male high school dropouts are at the top of those suffering the repercussions of the poor job situation. However, it is not only the education system that needs to be revised for better income distribution. The question that matters and need to be answered is ‘why the median worker hasn’t earned more’. There certainly has been an increase in overall wages, but this increase is very moderate. It is also believed that productivity is good but not at par with growth 1947-1963. According to the sources, the bottom 80% of the people would have had $670 billion more of what they have now if the growth rate would had been constant from 60s. This means that the growth rate is perfectly fine but the income has not been distributed equally. If the income had been distributed equally, the rate would still have been the same but the average income of both men and women would have risen by a far greater margin. Wages of men in 1996(from the graph in the article)-$42000 Wages of women in 1996(from the graph in the article)-$30000 Supposed wages of men (if entire productivity growth into income growth): 42000+ (42000*0.3) = $54600 Supposed wages of women (if entire productivity growth into income growth): 30000+ (30000*0.3) = $39000 Actual wages of men (from the article): $42261 Actual wages of women (from the article): $32515 Difference between what wages should have been, and what they are (men):54600-42261=$12339 Difference between what wages should have been, and what they are (women):39000-32515=$6485 According to an article published in ‘The New York Times’ in 2006, it was stated that 40% of the income was going to the 10% richest Americans. Many different findings show the negative impact of this unfair distribution. Scientists argue that inequality leads to deteriorating health of the population which in turns decreases labor efficiency. Not only will that but government spending on public health will have to increase. Researchers have also found out that corruption that becomes a part of the society due to unequal resource distribution is magnified in democratic countries. Corruption hinders economic growth by reducing competent allotment of public and private resources and distorts investment. It could create an asset price bubble. It is also said that that inequality simply breeds more inequality. The wealthy will become richer, gain more power and back policies that would further their own cause possibly at the expense of the powerless and unrepresented. Inequality decreases the overall morale and productivity of the workforce. The work force cannot resign because of the unfair system, working is a necessity. However, they will retaliate by working less (Bernasek). Hence, inequality destroys the entire social fabric within a society. The entire point of being part of a society is that people help each other out. If someone is doing better than the other, it needs to be considered whether that individual was given more opportunity. To maintain social justice and ensure that the society as well as the economy keeps growing, it is important that people grow out of the mindset that rich shouldn’t help poor because they are poor because of their own fault. The long terms repercussions of inequality needs to be recognized and the government and individuals need to take a proactive approach to solve the problem before this whole situation blows out of proportion. A study where the impact of government policies on inequality was studied, it was found out the share of transfer programs because of growth in Medicare transferred more funds to the upper and middle classes. The welfare reforms resulted in decreasing the transfer of funds to the lower income households because there was a decline in the money spent on Aid to Families as well as Temporary Assistance for Needy Families. Such reforms not only decreased the government’s role in distributing income equally, it also causes income inequality to soar. (Ryan) Furthermore, marginal tax rates have a huge effect on income redistribution and equilibrating welfare effects than social insurance and transfer programs. Except for Supplemental Security Income which has a positive impact on equality, social insurance programs do little to curb the issue of income inequality. (Wu, Perloff and Golan) It is extremely important that the government redesigns its policies to deal with this issue. If that is not the case, the overall economic growth, well being of individuals as well as the social justice will be negatively affected. Also, income inequality according to a World Bank report threatens the political stability of a country. It has also been said that income inequality breeds corruption and limits the economic growth because resources are not made available equally. Hence, it is imperative that the government takes measures to resolve this problem and design strategies which give the government a greater role in distributing income more equally. Bibliography Business Dictionary. Business Dictionary. 2012. 1 december 2012. . Freeman, Rebecca. "LABOUR PRODUCTIVITY INDICATORS." 2008. Document. Galarneau, Diane and Cécile Dumas. "About Productivity." Perspectives on Labor and Income 5 (1993). Document. 1 December 2012. . Investopedia. Labor Productivity. 2012. 1 december 2012. . Ryan, Paul. "A Deeper Look at Income Inequality." 2011. Wu, Ximing, Jeffrey M Perloff and Amos Golan. "Effects of Taxes and Other Government Policies on Income Distribution and Welfare." 2006. Bernasek, Anna. "Income Inequality, and Its Cost." The New York Times 25 June 2006: n. pag. The New York Times. Web. 1 Dec. 2012. Read More