How does diversity of employment affect the welfare(income per person) in cities of America - Dissertation Example

HOW DOES DIVERSITY OF EMPLOYMENT AFFECT THE WELFARE (INCOME PER PERSON) IN MAJOR 30 CITIES OF THE U.S. A comprehensive review of both economic theory as well as several studies pertaining to the topic of diversity of employment and welfare (income per person) has been undertaken and relevant variables for explaining welfare have been determined. The model will try to determine whether or not the presence of diversity of employment in cities leads to an increase in welfare. Since there is only a single dependent variable, income per person being tested, only one model is being estimated.

Several independent variables must be included to explain welfare. The initial variables included in the model were average education level of population, median age, unemployment rate, income tax rate and coastal city and a dummy variable equal to identify cities with welfare. Additional variables for inclusion in the model are still being considered, for example, transfer payments. It is important to hypothesize the expected relationship between the independent variables and the income per person.

The higher average education level of the population in a city should increase the level of welfare, since, education is known to have a salutary effect on the income of a person. For median age, one would expect the welfare to increase up to a certain point and then begin to decrease after a certain peak age. This certain age, perhaps, between the ages of 18-50, as suggested in the literature, but, it is difficult to determine the sign of the coefficient for median age. It is possible there is a non linear relationship between welfare and age, with income increasing with age up to a certain point and then beginning to decrease after a certain age.

A higher unemployment rate should lead to decrease in income, based on theory. Typically, single family homes are lower income households, which would also indicate a negative association between unemployment and income, because the unemployed have no means of earning their livelihood. It is difficult to determine the affect, the extent of diversity of industry has on the unemployment rate. Unemployment rates should decrease as the diversity of industries in a city goes up and therefore the variable would have a positive impact on employment.

High income tax rates should also adversely impact welfare. As the rate of income tax goes up, the income per capita in a city will diminish, at a decreasing rate. Also, higher income tax, makes leisure more attractive to working. It can also reduce the incentive to work and do overtime; in other words, a higher income tax rate discourages people from work. Finally, it does appear that a coastal city does have an advantage over a non-coastal city. Coastal cities generally offer better avenues of employment in terms of exports, shipping, marine trade and commerce, marine food processing industry etc.. This results in a higher average income per person.

Therefore, it can be hypothesized that coastal cities attract higher welfare.. In conclusion, a higher average education level and a higher median age in a city, have a positive impact on welfare. As against this, a higher unemployment rate and a higher income tax rate, adversely affects the income per person in a city. Coastal cities compared to non-coastal cities enjoy better welfare capabilities.