Advanced Macroeconomics
Advance Macroeconomics
1. Why the rich become richer and poor become poorer?
It is because of the rising in inequality. He rich have got richer, and the poor have become relatively poorer. It is not that the real incomes of the lowest paid have fallen (though in some cases real incomes have been stagnant) but, they have fallen behind higher income earners. The gap between the highest paid and lowest paid has increased. In the past couple of decades it feels like the ‘rich have got richer and the poor have got poorer’. Why is this?
Reasons for Rising inequality in past 2 decades
Reforms to Welfare State.
Governments have sought to retreat from expensive universal benefits. In the UK, benefits have been linked to inflation. This means that benefits have increased at a slower rate than real wages. Therefore, those surviving on state benefits have become worse off. It is also more difficult to get benefits in UK and US
Cut in Income Tax.
Both the UK and US have seen cuts in the top rate of income tax, and increases in indirect taxes. This has made the tax system less progressive. (e.g. top rate of income tax in UK used to be 80% now it is 40%.
Importance of Skills in Global Economy. Arguably globalization and economic development have changed the nature of the economy. There is now less demand for unskilled manual labour. This is because there has been a shift in manufacturing to the east. Therefore, workers with low skills and qualifications have found it harder to get well paid work. However, those with good qualifications and education have seen significant rises in real pay. There has been a rise in bonuses for top executives.
Growth in Insider / Outsider Economy.
There has been a growth in the insider / outsider model. Basically, there has been an increase in the number of poorly paid, part time, temporary jobs which offer little protection. This is known as the ‘outsider’ economy. The other part of the economy ‘insider’ involves
1. Why the rich become richer and poor become poorer?
It is because of the rising in inequality. He rich have got richer, and the poor have become relatively poorer. It is not that the real incomes of the lowest paid have fallen (though in some cases real incomes have been stagnant) but, they have fallen behind higher income earners. The gap between the highest paid and lowest paid has increased. In the past couple of decades it feels like the ‘rich have got richer and the poor have got poorer’. Why is this?
Reasons for Rising inequality in past 2 decades
Reforms to Welfare State.
Governments have sought to retreat from expensive universal benefits. In the UK, benefits have been linked to inflation. This means that benefits have increased at a slower rate than real wages. Therefore, those surviving on state benefits have become worse off. It is also more difficult to get benefits in UK and US
Cut in Income Tax.
Both the UK and US have seen cuts in the top rate of income tax, and increases in indirect taxes. This has made the tax system less progressive. (e.g. top rate of income tax in UK used to be 80% now it is 40%.
Importance of Skills in Global Economy. Arguably globalization and economic development have changed the nature of the economy. There is now less demand for unskilled manual labour. This is because there has been a shift in manufacturing to the east. Therefore, workers with low skills and qualifications have found it harder to get well paid work. However, those with good qualifications and education have seen significant rises in real pay. There has been a rise in bonuses for top executives.
Growth in Insider / Outsider Economy.
There has been a growth in the insider / outsider model. Basically, there has been an increase in the number of poorly paid, part time, temporary jobs which offer little protection. This is known as the ‘outsider’ economy. The other part of the economy ‘insider’ involves