Microeconomics - Education and Income Inequality

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Microeconomics Assignment- Education and Income Inequality Education and Income Inequality Introduction American society has been witnessing increasing levels of income inequality in recent years. The position has also been accompanied by increasing rates of unemployment and poor attainments in education as the phenomenon is linked to each other (Amacher & Pate, 2019).

Lack of education opportunities and prevalent unemployment is related to income inequality.

When a country’s population is well educated, there is a low likelihood of unemployment. In some cases, people who have low education attainment drift between recession and depression while those that have high educational attainment often have increased wealth. Income inequalities are prevalent almost across all societies and affect various spheres of the society such as the financial system, access to livelihoods, healthcare and are applied as an overall measure of the society's wellbeing.

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The high and increasing income inequality across the United States has been a subject of major concern and most emphasis has been on the role of educational attainment in these disparities. The United States has diverse disparities in terms of economic inequality segregated by educational achievement and this is associated with income inequality, unemployment, the decline in economic growth, and widening gap between the educated and the uneducated, thus the need to focus on increasing opportunities for higher education learning to reduce income inequality and boost the U.S. economy.

How a Country Measures Economic Inequality Most researchers agree that wealth is the most unevenly distributed resource whereas consumption is less concentrated in the upper end compared to either wealth or income (Amadeo, 2018). Therefore, the most cited measure that countries use to measure inequality involves the dynamics of income, for example, a recently published report in economic development and organization across OECD countries indicated that the richest comprise only ten percent of the population earning 9.6 times the income of the poorest ten percent, Countries publish measures of income equality on annual basis (Amadeo, 2018). In the United States, inequality is measured by determining the top and bottom percent of households and the equivalent of adjusted aggregate income received by households. Income inequality can also be measured using the Gini index, which is a summary statistic that measures the dispersion of incomes on a scale of zero to one. The assumption is that everyone has exactly the same income whereas one person has all the income. In the United States, the income Gini has been increasing for decades (Amadeo, 2018).

However, some economists contend that income data has too many flaws to be applied as the primary measure of inequality. Therefore, income inequality can be measured through a

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comparative approach to establish the correlation between income equality and access to education and how this subsequently correlates to unemployment. Therefore, the most ideal measure to determine inequality measures the overall dispersion of income in the population at also considering the ripple effect of such distribution on access to livelihoods and education opportunities which in the long-term determines an individual’s ability to access employment (Amadeo, 2018). Therefore, the calculation of decile rations would be a simple yet effective way to examine income inequality as it considers income earned by the top 10 percent of the household and dividing the outcome by the income earned by the poorest 10 percent of the household.

The Effect of Economic Inequality of U.S. Economy: Unemployment, economic Growth & Other Economic Factors According to Strauss (2011), there is a significant link between income levels and educational attainment. Mostly, the higher the education level, the higher the income. For instance, it is estimated that workers with professional degrees are likely to earn six times as much as people who did not graduate at the high school level. There is a strong correlation between the U.S. unemployment rates and educational attainment since the better educated the group, the lesser the unemployment rate. The position affirms a weak demand for less-educated workers in the economy over a sustained period. The position has been supported by Choi (2016) who addresses income inequality and the wage gap between educated and uneducated workers.

There is weak demand in the economy for less-educated workers and it is assumed that those who have less than a high school education have spent last ten years in a recession (Strauss, 2011). With the income inequality levels continuing to rise across the American society, then more and more people will be unemployed and will have poor living standards.

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Fletcher (2014) considers the downside of economic inequality in terms of slowing down economic growth. Income inequality in United States has been attributed to suppressing growth in aggregated demand in terms of spending by households, businesses, and the government.

Therefore, a large share of income is shifted to rich households that save rather than spend, the increasing inequality has, therefore, been attributed to poor pay to typical American workers who have higher educational attainment, thus there is a challenge keeping pace with the economic productivity and growth. The increasing economic inequality has significantly slowed down growth in aggregated demand point of GDP annually in recent years. The impact of income inequality on the economy matters because the economic downturn contributed by increasing inequality has been countered by other economic and policy adjustments such as changes in interest rates.

Strauss (2011) further argues that the economic inequality has contributed to social segregation whereby the low educational attainment group drifts between recession and depressions with minimal stability. On the other hand, those who have high educational attainment have better access to employment opportunities and continue to accumulate wealth, are hardly affected by recessions, and venture into projects that contribute to their individual growth. Moreover, the lack of high-skilled knowledge workers with good education is a major binding constraint to the growth of the American economy. Therefore, the approach to counter the adverse impact of poor education attainment on the economy would be getting more people to advance in their education beyond high school so that they can have access to better employment opportunities to bridge the economic inequality gap further as they would have access to better education opportunities.

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Estimation of the Gap Between those who Hold a Bachelor’s and Higher Degree and those who do not Strauss (2011) contends that those who hold a Bachelor's and Higher Degree are six times likely to get well-remunerated jobs than those who do not. At the extremes, those who hold less than high school education is considered to have spent the last ten years in a recession. For this group, the lowest unemployment rate is estimated to have been 7%, and the highest reaching 15%. Conversely, those individuals who have received higher education and training such as undergraduate masters or doctorate degrees are only estimated to have experienced a mild recession, with unemployment rate of 4.5% compared to the overall rate of 9% in 2011 (Strauss, 2011). The impression that Strauss creates is that attaining a higher level of education increases a person’s likelihood of finding employment and minimizes their probability of being in a recession. The position has also been supported by Hill (2015) who asserts that an increase in the people in the population with higher education could decrease income inequality. For example, unemployment across developing countries tends to be highest among those with only a high school education. In reference to economic inequality, the effect is evident in the distribution of wealth and income around the world whereby those at the top of the income and wealth distinction tend to have a disproportionally large share of both income and wealth. With economic inequality seeming to be ever-rising, the problem can be effectively addressed by providing more opportunities for the public to advance their education to a higher level.

The inequality gap between educated workers and the less educated has been widening.

As asserted by Hill (2015), some economists advance the position that as society advances in technology, companies continue to demand more educated and skilled workers, increasing the supply of more educated workers. Even in cases where the demand for more educated workers

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has stagnated or even reduced, the earning gap between educated and non-educated workers has been widening, creating more economic inequality. Education and specifically higher education has been argued to be one of the main determinants of income differences. Critics argue that whereas more people are able to access higher education, the economic inequality gap continues to increase which begs the question is higher education impacts income inequality and what the effects could be (Gould, 2015). Mostly, education policies are about the redistribution of scarce resources, thus it would be irrational that these resources support interventions that do not work in addressing economic inequality.

Why the inequality gap between educated and less-educated workers has been widening Despite policy measures aimed at promoting access to education for higher education the inequality gap continues to widen between educated and less-educated workers. Educated workers have access to better jobs and opportunities with high compensation. On the contrary, less-educated workers continue to earn low despite the pool of educated workers widening. The earnings inequality gap between the educated and non-degree workers has been widening and this discrepancy is based on the basic dynamics of supply and demand. Some economists argue that will society has advanced in technology, companies are demanding more skills and more educated workers, whereas the supply of this educated personnel has stagnated or even declined.

As a result, there is a shortage of educated workers and the earning gap between educated and non-educated employees has been widening. For example, the United States has been underproducing degree-trained workers since the 1980s. Therefore, the supply for college-graduating personnel has been declining or stagnant whereas the demand for these qualified personnel has been increasing (Hill, 2015).

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However, some economists have refuted the claim and argued that income inequality among workers has little or even nothing to do with education because even degree-level educated workers are not in high demand (Hill, 2015). Therefore, whereas it may be true that college-level trained workers and degree-level personnel have been increasing, their compensation may not have been adjusting or increasing because the rate of economic inflation has remained precisely high. However, it is true that the real wages decrease for degree-trained workers was significantly smaller compared to the real wage decrease of non-degree holders.

The implication is that the gap in earnings between educated workers and non-educated workers has consistently been widening. Besides, there are indications that educated workers have least been affected by layoffs or suffered unemployment compared to their non-educated counterparts.

Evaluation on whether increasing opportunities for higher education can reduce income inequality Indeed, shifting focus to increasing opportunities for higher education can reduce income inequality especially in the modern and dynamic society where skill formation takes precedent in public policy. Lack of skills remains one of the most critical constraints that many companies face in order to remain competitive and vibrant. Hershbein et al. (2015) note that current trends indicate that the United States has advanced its higher education programs to provide a more skilled workforce and knowledge workers to operate in the automated environment. The unemployment rate especially among the uneducated youth is significantly high in some regions, thus providing them with opportunities to advance in higher education will increase their possibility of these employees join lucrative work positions in the company and earn better.

Access to opportunities for education and training for workers implies that more and more people are able to access degree-level training. Increasing the supply for higher education

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could work towards influencing more and more personnel to seek higher education training to advance their skills and qualifications (Hershbein et al., 2015). However, the intention to enact these reforms should not be done with the goal of increasing the supply of individuals with higher education, but their training needs to be structured to meet specific demands in the job sector. The emphasis on higher education may exacerbate an already significant challenge with inequality if not strategically undertaken. Therefore, the policy change to provide opportunities for people to access opportunities for higher education should be strategically implemented to ensure that the training provided conforms to the market demand for specific skills so that the new graduates are absorbed in the work environment.

Analysis on what else causes U.S. income inequality to widen In addition to access inequalities in access to education, there are also additional factors that have contributed to inequality in the United States. There are various factors contributing to the widening inequality in the United States, and these have been categorized into technology, trade, and institutions. The inequality problem is deep-rooted in the inherent diverse labor market inequalities (Amadeo, 2018). There is decreasing labor force participation, stagnation in average wages, and decreasing share of income as evident in the U.S. as manifested in its labor market.

According to Choi (2016), the technology and education connection is the most prominent in explaining the causes of inequality prevalent in the American society present. The demand for skilled in developed countries has consistently increased over the years has created inequality s the labor force strives to cope with the demand. Training opportunities for workers are not matched with the demand to provide better-paying jobs.

Trade and globalization also account for the increasing inequality in American society.

There is growing trade between the United States and the rest of the world and this has increased

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the level of imports leading to domestic job losses, decreased labor force participation in economic development, and weak inflation-adjusted labor growth (Amadeo, 2018). The policy change to alleviate the problem include those strategies that can help make U.S. exports more competitive globally and cater to the depreciation of the dollar.

Further, The U.S. government policies created an institutional framework that resulted in to increase in inequality. For example, the deregulation, tax reforms, federal monetary policies, and other restriction s reduced wages and unemployment, Therefore, policy changes to increase labor unionization, better supervision of the money markets, increasing the minimum wage, and promote full-employment focus would effectively work towards increasing full-time employment opportunities to curb inequality and declining wages.

Recommendations On How to Reduce Educationally Based Income Inequality Income inequality attributed to differences in education can be reduced when more college-degree or more-degree advanced workers are provided with more opportunities to learn and enhance their skills. The provision of online education programs that allows students to study as they work provides an opportunity for workers to grow in their positions. The provision of grants and financial aids to students from poor economic backgrounds to pursue higher education empowers them to seek better employment terms.

The biggest challenge with the U.S. higher education system is the high cost of tuition which has been negatively affecting the push for more college degree workers. Since financial aid to further studies may not be available to every individual, the United States needs to explore ways to ensure that higher education is within reach of every deserving American. Monetary policy changes also need to be enforced to increase minimum wage and amendments done to

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provide better working terms for employees so that they can support themselves and seek higher education. However, the implementation of these changes is gradual considering the huge labor force and the massive structures that need to be put into place to support these changes.

Conclusion The discussion has outlined the economic inequality gap problem and how access to education opportunities can be a workforce solution in addressing the gap. Income inequality in the U.S. economy contributes to unemployment, hinders economic growths and further widens the gap between the rich and the poor. The economic inequality gap remains evident among those who hold a bachelor's, master's, and doctorate degree and those who have no higher education training, implying that access to tertiary education translates to improved access to job opportunities and economic wellbeing. However, despite the access to access to education opportunities, the economic gap between those with advanced education and those without continues to remain evident. The most workable strategies to addressing economic equality in the United States are advocating for monetary and fiscal changes as well as streamlining trade and industrialization to push for domestic growth of the country’s economy to create more opportunities for better employment terms. Besides, the education sector should be streamlined to match the demands in the market at the same time ensuring that everyone has access to education regardless of their economic status. The series of fiscal and structural policies to address economic growth is aimed at lobbying for domestic expansion of opportunities in the United States so that multiple opportunities are available for each citizen.

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References Amadeo, K. (2018, October 10). Income inequality in America: Causes of income inequality (Links to an external site.). Retrieved from https://www.thebalance.com/income-inequality-in-america3306190 Amacher, R., & Pate, J. (2019). Principles of microeconomics (2nd ed.). Bridgepoint Education.

Choi, K. P. (2016, May 30). Income inequality and the earnings gap between educated and noneducated workers (Links to an external site.) [Blog post]. Retrieved from https://www.uagc.edu/blog/income-inequality-and-the-earnings-gap-between-educated-and-noneducated Gould, E. (2015, February 20). Even the most educated workers have declining wages (Links to an external site.). Retrieved from https://www.epi.org/publication/even-the-most-educated-workershave-declining-wages/

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Hershbein, B., Kearney, M. S., & Summers, L. H. (2015, March 30). Increasing education: What it will and will not do for earnings and earnings inequality (Links to an external site.). Retrieved from http://www.hamiltonproject.org/assets/legacy/files/downloads_and_links/ impact_of_edu_earnings_inequality_hershbein_kearney_summers.pdf Hill, C. B. (2015, June 10). Income inequality and higher education (Links to an external site.).

Retrieved from https://www.acenet.edu/the-presidency/columns-and-features/Pages/IncomeInequality-and-Higher-Education.aspx Strauss, S. (2011, November 2). The connection between education, income inequality, and unemployment (Links to an external site.). Retrieved from https://www.huffingtonpost.com/steven-strauss/the-connection-between-ed_b_1066401.html

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