Causes of Inequality and Redistribution of Income
Question 3
Explain the causes of inequality and redistribution of income?
Inequality of incomes is clearly not good as well if it results from government privileges. With the inequality, it can sets up perverse incentives. Inequality also arises from unequal labour market outcomes and from unequal ownership of capital driven by differences in human capital and discrimination. A Gino ratio can used to measure the level of inequality. When the Gino ratio increases, it means the income inequality has also increases, and the situation is vice versa.
The causes of inequality in human capital * Demand, supply, and wage rates
As the differences in the earnings, it will arise from differences in human capital. For example, a manager handles many tasks and works that his employee cannot perform. In the other words, the tasks that the manager had performed are valued highly or known as high value of marginal product, by their clients who are willing to pay for the services, than the works done by the employee to them. As the value of marginal product of labour determines the demand for labour, thus the manager also has a high demand on his services. Due to the human capital is costly to acquired, so the supply of manager services is smaller compared to the employee’s. The demand for and supply of labour determine the wage rates that earns. By this way, the manager earns a higher wage rate than the employee because the demand for manager is greater and his supply is smaller. The gap between the wage rates reflects the higher value of marginal product of manager which refer to the demand, and the cost of acquiring human capital which means the supply. By this, the inequality occurred. * Education and training
Human capital had added more to the earning power generally and on average. Rates of return on higher education have been estimated up to 10 percent after allowing for inflation. When there is a high demand for workers, it will create high wages for
Explain the causes of inequality and redistribution of income?
Inequality of incomes is clearly not good as well if it results from government privileges. With the inequality, it can sets up perverse incentives. Inequality also arises from unequal labour market outcomes and from unequal ownership of capital driven by differences in human capital and discrimination. A Gino ratio can used to measure the level of inequality. When the Gino ratio increases, it means the income inequality has also increases, and the situation is vice versa.
The causes of inequality in human capital * Demand, supply, and wage rates
As the differences in the earnings, it will arise from differences in human capital. For example, a manager handles many tasks and works that his employee cannot perform. In the other words, the tasks that the manager had performed are valued highly or known as high value of marginal product, by their clients who are willing to pay for the services, than the works done by the employee to them. As the value of marginal product of labour determines the demand for labour, thus the manager also has a high demand on his services. Due to the human capital is costly to acquired, so the supply of manager services is smaller compared to the employee’s. The demand for and supply of labour determine the wage rates that earns. By this way, the manager earns a higher wage rate than the employee because the demand for manager is greater and his supply is smaller. The gap between the wage rates reflects the higher value of marginal product of manager which refer to the demand, and the cost of acquiring human capital which means the supply. By this, the inequality occurred. * Education and training
Human capital had added more to the earning power generally and on average. Rates of return on higher education have been estimated up to 10 percent after allowing for inflation. When there is a high demand for workers, it will create high wages for