Inequality in California - Assignment Example

TO: Elected decision maker at the state of California Problem statement Income inequality has been a great problem in the state of California and USA at large. As a matter of fact, California is among the leading states in inequality. Despite steady reduction in poverty rates, poverty is still higher in California at 16.9% as compared to the nation’s 14.7%. Africans and Latinoethnic groups, who happen to compose the greatest percentage of the whole population, at 23.6% and 24.5 % respectively, are the poorest (PPIC. 2013). Based in rich agricultural zones and containing some of the largest gaps, farmers and laborers have continuously been humiliated by the elite, making the former’s income reduce as the latter’s continue rising. Therefore, modifying social, wage and labor policies can reduce these gap between the poor and the rich. As mentioned earlier, the poor communities consist of laborers and farmers. Unemployment rates remain at 8.7% which are not very high despite being higher than the nations rate which lies at 7.3%. For this reason, inequality in California is greatly influenced by lowlabor force compensation. A great percentage of the poor families have at least one working member, with 37% having full employed member and 25.7% a part time work. Notably, consisting of large cities, Californiacontains high tech investors specialized in various manufacturing industries. The influx of immigrants increases the supply of labor, being leaned more on casual laborers who require little skills, hence lowering wage rate. The compensation to the labor yields high profits hence the rich grow richer expounding the gap. The use of minimum wage to improve the lower end class has shown a great improvement to wards inequality. This proposal supports its use but suggests that the minimum wage should be raised from the current $8 to $12 and not $10 as proposed by the states congress. High pay to workers has had several impacts on the economy; Firstly, low wages yield high profits, making the rich richer and poor poorer. Moreover, California’s employment sector has differentiated skilled labor from unskilled labor, with the former attracting a larger pay. The gap between these two types of workers has been increasing over time. Experience also adds to the differentiated pricing of labor. Moreover, with the modern invent of technology, businessesdemand highly skilled labor and the unskilled personnel, leaving the middle class to tarmac for their fortune. These semi-skilled individuals, who make about 40% of the Californian population (PPIC. 2013), with majority being immigrants, end up getting low paid jobs, hence increasing the low class percentage. The problem of inequality is thus a as a result of tradeoff between profits and wages, and labor differentiation. In this case, increase in minimum wage rate would trigger an improvement of the lower class min several ways: such as increasing reward to work hence motivate low class employees to spend more hours in work, strengthening the middle class which is proposed to strengthen the economy and assisting parents, especially single mothers meet their daily requirements, hence improved social welfare. The proposed minimum wage of 10% is based on nominal wage. However, in terms of real wage, which is adjusted to accommodate inflation, the $10 per hour reflect 1968’s minimum wage. The impact on inequality by this is therefore supposed to result to 1968’s situation in terms of real income which is considered to be high. For this reason, a more favorable minimum wage of $12 per hour is more effective. Note that with the current growth in the economy accompanied by technological advancements, companies will still make profits. For instance, Google Inc. which is one of the California’s largest enterprises offers a minimum wage of $11 per hour and does not breakeven. Moreover, companies such as Costco, have supported wage increment in the past, associating it with increased production, hence expansion which increases employment levels. Therefore the policy would also curb unemployment. Evidence California is one of the most economically developed states, characterized by major cities. In contrary, poverty rates recorded outdo other regions, not considered as economically improved. According to Doig et al (2011), California has high rates of malnutrition cases, benefiting from the Medicare service. This implies that majority of Californians, especially the aged are not able to afford balanced diet foods. Malnutrition has been referred as a third world disorder and its existence in California is a conflicting idea. All the same, it’s evident not only signifies poverty but also shows the extent of poverty. In contrary, California is termed as one of the most expensive regions to stay. Possibly as a result of economic development, general prices range higher than in other regions. Housing is a major threat, in California. High immigrants have also added to the demand of basic necessities hence hiking market prices. Therefore, despite the high employment levels, the minute wages offered isn’t enough to sustain the family. The student loan programme has had negative impacts on the on graduates. Despite the fact that employment is easily accessible upon graduation, the current wages available aren’t favorable. Considering the high prices prevailing in the Californian state, the minimum wage can only sustain personal consumption living very little for savings. Considering that loan payment is mandatory, new graduates have been forced to cut on their consumption.Trimming the student’s loan would trigger major economic problems given that California is a labor intensive zone. Therefore, increased minimum wage, which many companies use as the starting salary, can help improve this condition. Status quo Currently, wages have been reviewed with the minimum wage set to rise to $9 in July this year and 10% in 2016. This policy is a bit effective, but the standards set are too low to significantly impact the growing inequality. Additionally, both the federal and state governmentshave put some other noticeable policies towards poverty reduction. In the welfare section, the Medicaid and Medicareimprove health statuses of the poor and therefore positively impact on eradication of malnutrition. A however, based on the philosophy that prevention is better than cure, then Medicare and Medicaid ought to be used as supplementary solution, having dealt with the causes first. Education support programmes initiated by the government and other organizations also boost the level of employment. Students loans, lifelong training funding programmes as well as bursaries and scholarships offered to both natives and immigrants have positively impacted the education level of Californians. Given that, education and employment go hand in hand, unemployment levels have reduced significantly. However, the current real wage rates do not align with the educational qualification, with California’s situation being worsened by high standards of living. As a matter of fact, the effort to assist graduates via loans relief isn’t of much help as the relief is limited to Federal Direct Loans only. Proposed policy Intuitively, inequality gap results from a small percentage of the population earning extremely high income while the rest get peanuts. In California, the gap is exaggerated byevidentreduction inthe income of the lower class. This proposal is a modification of the minimum wage proposal that was approved by the states senate. It’s deemed to adjust the minimum wage proposed to cater for inflation so as to achieve its perceived purpose. Since an abrupt increase in cost of production would can negatively affect business development significantly. It’sproposed that the increment is done in phases. The first phase goes in line with the recent proposalthat byJuly 1st minimum wage is adjusted to $9 per hour. The second and last phase require that $ 10.5 minimum wage by July 2015 and $12 in July 2016 respectively. The policy is deemed to positively affect the entire community, both rich and poor. From a salary increment, the lower class will therefore be able to acquire not only basic necessities but also some saving capability. Note that, the policy does not waive any aid that accrued to the lower class such as food trumps, Medicare and Medicaid. New graduates will also repaytheir students loans easily(Wei 3). Arindrajit (2010) asserts that, increment does not negatively affect employment rates as it raises the employer’s capability to not only retain and motivate employees but also attract potential ones. Secondly, the impact of increase in cost of production due to l wage rise is temporary. In the long run, wage rise is seen to increase output labor ratio, hence benefiting the organization. Depending more on labor-intensive industry, California’s aggregate production will grow in line with the wage rise. Combining, economic growth, wage increment and increased production then the unemployed also stand a better chance of getting job positions. Societal consequences i. Status quo The current policies mentioned earlier have successfully curbed poverty to some extent. Remarkably, unlike in other regions such as Mexico, Californians inequality is widened by the existence of high income earners. However, as economic conditions have made the poor poorer, then poverty conditions are no better in California. Medicare programs enable the poor acquire quality health facilities bringing some sense of equity (Lowrey 2014). Students loans, both by the federal and stage government have improved education status but the current low wages ruin life after school for the borrowers hence making them part of the loosing team. ii. Proposed policy The proposed minimum wage policy modifies the existing one to accommodate inflation as well as the interest rates on the student’s loans. Therefore, it will mostly impact on graduates who happen to be new employees and the lower class. The aged and children are considered to be purely dependent and therefore not considered while implementing the policy. Employers will be forced to pay higher wages as an increment in minimum wage progressively increase all wage levels, hence reduced returns to capital. However, these impacts are short-lived as output –labor ratio prompted by the policy would restore the existing profits. Although we claim that minimum wage increment does not reduce employment rates, the effect is sequential. At the implementation of the policy, unemployment is expected to rise as per labor market forces requirement, but later reduce following output expansion. Arguments /counter arguments Minimum wage challengers would question the unemployment impact of this policy. Many economists argue that increase in minimumwages negatively affects the minimum wage earners as most of them lose their jobs, and under this critic, then it’s of no use to increase the minimum wage requirements. According to Neumark & wascher (2011), a raise in minimum wage has two effects, which all economists agree upon; i.e. it increases the income of some low income earners to a level above the federal poverty threshold, which is the positive side of it. On the pother, some individuals lose their jobs upon reduced labor demand, where the antagonists base their arguments. The latter is catered for in two different ways. First, employees’ rights are protected by unions and labor laws and thus the employer can easily shift profits to wages rather than trim employees. Secondly, the effect is short-term in nature and the wages will be adjusted for inflation, employment will perceive in the long-run Conclusion Inequality is a wide arethat’s resulting from many sources. Therefore, state government ought to interlink several policies in efforts to curb it. As cutting earnings from the rich would reduce the state’s economic growth, then it’s advisable that policies that lift the standards of the poor are apprehended. Minimum wage increment is such a policy, but in addition to inflation there is need to look at the effectiveness of the percentage increase. Work cited Altman, Morris. "Involuntary unemployment, macroeconomic policy, and a behavioral model of the firm: Why high real wages need not cause high unemployment." Research in Economics (2006):. Print. Flinn, Christopher J. The Minimum Wage and Labor Market Outcomes. Cambridge, Mass: MIT Press, 2010. Internet resource. Lowrey, Annie. "Income Gap, Meet the Longevity Gap." The New YorkTimes 15 Mar. 2014: n. pag. Print. LOWREY, ANNIE. Minimum Wage Increase Would Have Mixed Effects, C.B.O. Report Says (2014): n. pag. Print. Martin, Philip L, Michael Fix, and J E. Taylor. The New Rural Poverty: Agriculture & Immigration in California. Washington, D.C: Urban Institute Press, 2006. Print Nevile, J W. "Evidence or Assumptions? The Basis of the Five Economists' for Real Wage Cuts." (2001): Print. PPIC."Poverty in California (PPIC Publication)."Public Policy Institute of California (PPIC).N.p., Aug. 2013. Web. 23 Apr. 2014. . Public Policy Institute of California (PPIC).income inequality in the golden state; why the gap has widened between rich and poor . N.p., 1999. Web. 23 Apr. 2014. Read More