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Education and Income Inequality Essay

Income inequality refers to the manner in which income is unevenly distributed in a given population. When a population is less equal, the rate of income inequality is said to be higher. Some of the notable implications that come with income inequality include low levels of economic growth especially when then human capital tends to be neglected for other high-end consumption purposes. Income inequality can be as a result of many factors such as unequal distribution of resources, increased unemployment levels and differences in the levels of education (Akee et al.,2019). These and many other social factors have been identified to have a significant relationship with increased income inequality levels. This task will look at how a country can measure its inequality levels, the implication that income inequality has to the US economy and an estimation between the people that have degrees and those that don’t have. Other aspects to be considered in this task include evaluating whether higher opportunities for higher education can help reduce the rate of income inequality.

Task 4 Culture, Diversity and Language Essay

Measuring Income Inequality

Income inequality refers to the concentration of income in the hands of a few people resulting in a higher gap between the rich and the poor. In financial statistics, income inequality is often measured using the Gini coefficient. Theoretically, the coefficient ranges from 0 which indicates that every person has the same income level to either 1 or 100 which shows that a given individual or a population receives the whole income at the expense of another population. Amacher & Pate (2019) contends that the coefficient takes values of either 0 or 1 and when all the people enjoy a similar income levels, the Lorenz curve will be along a given diagonal and hence the coefficient will be given as 0. On the other hand, if a given population of one person enjoys 100% of the income, the curve will lie on the horizontal axis as well as the right vertical axis and therefore the Gini coefficient will be given as 1.

To determine income inequality, economists often rely on individual household incomes. A formal interview can be done such that owners of households are asked to disclose their income sources against their consumption patterns. In the economist’s calculation, the income inequality can be given as the total income of a given household less the direct taxes and then the result is divided by the population of the people residing in the target household. Thereafter, all the residents in the household are ranked say from the richest to the poorest as dictated by their per capita in the household. Other than the use of the Gini coefficient and the method described herein, the income inequality can as well be determined by using an equivalent adjusted income estimate which looks at the population of people residing within the household and how they share the resources within the household.

Implication of income Inequality in the US

Income inequality is set to have significant negative implications to the US population. The impact will range from unemployment, economic growth as well as other economic factors.

Economic Growth

In any country, economic growth can be realized in a situation where people are willing and capable to spend their money. However, there are only few people with this ability in the US. While the people at the low economic cadre are supposed to spend more, majority may not have the financial ability to so and hence may not contribute to the economic wellbeing of the country. On the other hand, the people at the apex of the financial ladder cannot consume as well as spend at a rate similar to what the wider population does. Bidabad, (2019)argues that there are more people in the lower cadre in terms of economic abilities as compared to those that can help to build any country’s economy. Consequently, unless the economy comes up to solve economic issues rather than seeking to address poverty, it may not be possible to fully meet the needs of a given target population. The high poverty index is witnessed by a high percentage of people who are low in terms of financial abilities leaving only a percentage few who can afford to drive the economy forward. The US can be argued to be at the top of the scale of income inequality as shown in Figure 1

Although the US has recorded significant progress in addressing wage inequality, there s still much to be desired if the projected economic growth has to be achieved.

Unemployment

Continued lack of employment has become a notable concern not only in the US but also other countries. The situation is even more wanting for developing countries that are not industrialized and hence employment opportunities are somehow limited. Income inequality has notable implications to the rate of unemployment in the US. Employment also goes with the available skills which implies that continued unemployment may suggest that either the employers are not getting the required skills or the working conditions such as salary scales are never conducive for applicants. A significant number of employees can withdraw from the labor force if they find that formal employment is marred by increased wage disparities. Furthermore, aspects such as flat taxes, fiscal austerity and other regulatory reforms make the rate of income inequality and the unemployment rates worse. The unemployment rates for the people who are highly skilled have often been found to be low and beyond possible full employment. As at 2016, the rate of unemployment for the highly skilled group were placed as low as 2%.

Other Factors

There are many factors that can be blamed for increasing cases of income inequality in the US. Some of the factors include availability of cheap labor, outsourcing of jobs as well as unfair exchange rates. Walker, (2019) argues that a quarter of the American workers make less than $ 10 in an hour which according to the federal poverty index, such people are below the poverty line. Another possible factor is increased discrimination especially on the basis of race as well as gender. For instance, while there are many African Americans who possess the required skills that can make them employable in different organizations, some are not given a chance to do so and those who succeed are often likely to be offered less pay. On the basis of gender, women in the US are often paid less even when they posses’ same skills and are in the same job group as their male counterparts. Although economists have argued that discrimination may not be a serious factor to consider when looking at income inequality, the notable implication is still evident. Some economic theory models have simulated that sexual and racial factors may no longer play a remarkable role as they may not exist for a long time since entrepreneurs find such factors costly to the organization. However, such factors cannot be downplayed as they have a critical role to play in defining the country’s economy.

Other than the factors highlighted herein, there are other factors that may likely result in increase in the economic gap. Such factors include an increase in globalization that has resulted in competition with some of the most skilled people preferring other countries. Improper taxation policies that tax the low paid people more than those that earn more have also increased the income inequalities since those that don’t earn much feel that they are overburdened with many taxes. Increased income inequalities can as well be due to increased job outsourcing especially by multinational companies that leave the local potential workforce unable to find possible employment opportunities. Furthermore, organizations are often blamed for putting profits ahead of the worker’s welfare. Some of the US companies tend to compete for Asian companies that are low priced and hence may not offer their employees salaries that are commensurate of their competences and skills level. Consequently, some high-tech companies have been forced to look elsewhere as they seek to utilize their competencies and skills. Although it is not clear the percentage of job losses that the US reports every year, it is possible that brain drain will continue to be witnessed with notable financial losses made due to outsourcing of expatriates by some organizations.

Lesson 1: The Importance of Business Ethics

Estimating the Education Gap

There is a notable disparity between people with higher education degree levels and those who do not hold any higher degree. As at 2017, Pew Research Center, (2020) estimated that the population of people who were 25 years and above and without a higher school diploma were 24.5%. The people that had a higher school diploma but without any college level education were estimated to be 13%. On the other hand, the people with some college level education but without any degree level education were estimated to be 8.8% with a significant number of them being in poverty. Those that had at least a bachelors degree, the rate of poverty was approximately 5%. Significant research has also shown that the higher the education level, the higher the income level (Greselin & Zitikis, 2018). Ideally, people that posses’ unique skills and with professional degrees were found to earn close to five times those that only had a high school diploma but with no formal training or skills competencies. Even in an uneven or an employment market that is imperfect, it is right to argue that a high educational level will attract a better job as well as good pay for any employee. On the contrary, Strauss, (2017) contends that low educational attainment levels will attract less pay in the labor market. Strauss provides the mean salary scales for every level of employee as indicated in the table below.

Educational Level	Average Earnings
Doctorate Level	103,000
Master’s level	74,000
Bachelors Level	57,000
High school/no college level	20,000

Why Inequality Gap between the Educated and less Educated workers have been Increasing

The level of inequality between the educated and the less educated workers has always been on the rise. A Washington post in 2017 argued that Americans whose level of qualification is only a high school diploma have experienced low economic growth occasioned by lor salaries. As at 2015, graduates earned almost a 56% higher as compared to those that only have high school level of education (Čiegis & Dilius, 2019). There are notable reasons as to why this is true. Firstly, employers have resorted to sourcing for employees based on their skills level rather than based on the number of certificates or level of education. Graduates may have a better chance of being employed. However, specific skills required may play a big role for their employability. The second reason is that since the 2009 financial recession, employees with college level education have already gained on lucrative positions that gave them a better chance for employment as well as better pay. This leaves the current generation of employees with junior positions in the labor market. The other possible reason is that the old generation of employees who are retiring only had a high school level education and now employers are looking to replace them with more skilled employees.

Another reason is that college graduates may likely contribute towards a retirement plan as compared to the employees that only have a high school education level. The participation in a 401(k) style plans needs critical evaluation of whether to invest and how much to invest. Therefore, such information may not be available to people that have limited education levels.

Whether Higher Education Opportunities can help to reduce Income Inequality

The level of education has a notable role to play in helping to reduce income inequalities. As indicated in the previous sections, there is a higher gap in income for the educated and the les educated. With the advancement in technology and increased industrialization, there will be a higher demand for expertise that are well trained. The supply for the required skills in employment may never be enough as those that have skills may end up being employed in other organizations which are not necessarily within the US. Those that are very highly skilled end up asking for very high pay which often is at the expense of other potential employees who may not possess the prerequisite skills (Gnangoin et al.,2018). Therefore, if higher education opportunities are made available to a higher number of people, employability will be more competitive in the labor market. When there are more people who have higher education, employers will be compelled to increase pay lest they lose knowledgeable and skilled employees.

Attaining higher education may also not just be an equalizer in creating employment opportunities but also in developing business ideas among graduates. Ideally, education makes one to be more prepared to be self-reliant by establishing their own businesses or establishing innovations that they can patent. In science, those that pursue higher education are expected to be more innovative and possible self-employed. The education obtained from the university acts as an enabler of one’s economic independence as well as self-advancement as they don’t have to rely on formal employment opportunities.

What Else Results in the Widening of Income Inequality?

Many reasons result in the widening of the US income inequality. The first reason is the increased levels of gender disparities such that although there are laws set forth to improve gender pay, women continue to earn less as compared to their female counterparts for the same job groups. Women and other gender pay advocates have recently resorted to measures like the # me too movement that helped to condemn sexual harassment as well as fight gender inequality. Gender pay gap contribute significantly to widening gap since although women contribute remarkably to the country’s economy. Gender pay gap and other sexual disparities result in economic disparities as it denes them the ability to be economic drivers. Furthermore, when women are not given positions of leadership and are also not paid commensurate to their skills, income inequalities may exist for a long time.

Reducing Education-based Income Inequality

Education-based income inequalities can be addressed through different approaches. The first approach is for policy makers and especially the government and other relevant agencies need to come up with policies that can enable learners from poor backgrounds to get quality education which will also help them to remain competitive in the job market. Policies to address gender pay gap should also be followed such that organizations adhere to them to the latter. Girls should be encouraged to adopt STEM in their career choices so that they can as well undertake courses in science, medicine and engineering which are known to pay more. Fixing other societal inequalities especially in terms of gender can as well be key in reducing income inequalities. Besides, the training that students get right from basic learning need to focus more on skills as a way of responding to the market demands.

Conclusion

Wage inequality exist in different sectors of the economy as reflected in terms of the level of academic education, color, race and other relevant factors. This task has presented some of the approaches that can be used to measure such inequalities using methods like the Gini coefficient. The task has also looked at the relationship between factors such as the unemployment rates and inequality. To ensure reduction of income inequalities, it is critical to invest in training and other education opportunities known to reduce existing economic disparities.

Education and Income Inequality Essay