Income Inequality Mass Unemployment

Linda Liu Econ 1301 Dr. Clark

Income Inequality and Mass Unemployment: How Are They Related and What Can the Government Intervene

Income inequality can be defined as the unequal distribution of individual or household income across the various participants in an economy. The most common causes of income inequality are usually education and training, natural talent, discrimination, preferences and risks, market power and unequal distribution of wealth. Unemployment, which occurs when a person who is actively searching for a job in unable to find employment, is often used as a measure of the health of an economy. Several different variations of the employment rate exist with different definitions concerning who is an unemployed person and who is the labor force; according to the Keynesian economics there is a “natural rate” of unemployment because the skills of workers and positions available are don’t coincide even under the best economic conditions.

The fundamental economic causes of these phenomena, their possible interaction and their consequences for income distribution have given rise to numerous debates. A socioeconomic situation of rapid technological progress and an intense globalization of the world’s economy have stimulated this growing discussion in academic and political circumstances. In the past couple years indeed, the problem of mass unemployment has been associated to high levels of output and the corresponding high living standards these can afford, in other words income inequality. As a matter of facts, the two problems are the natural result of the interplay of market forces and the drive for capital to expand itself. According to Keynes the failure to provide full employment and the unequal distribution of income is due to the lack of capability to keep the levels of investment high enough to sufficiently sustain full employment. The supply-constrained and demand-constrained economy

are also primary causes of this issue. The productive ability of goods and services exceeds the ability of the society to consume and absorb production. The military, conspicuous consumption and wastes and government deficit spending provided a strong and stable base of demand for manufactured goods. Indeed during post-World War II the spending carried out in name of the Cold War was one of the factors that contributed to the success of advanced capitalists economies. In addition, by institutionalizing consumption and waste as consumer culture and supporting values of such a culture, the market industry started downgrading home production allowing market production to take over household production; in this way the economy is most likely to fall into recession. Furthermore, government spending influences the conflict of class interests: they promote growth in real wages and by distributing income downward and help workers by generating high levels of employment and income growth.

The government could try to intervene to prevent the return of mass unemployment by introducing reforms that would try to institute a more equitable distribution of income, eliminate the scarcity value of capital through low long term interest rates, socialize investments and euthanasia of the rentier class. Nevertheless the real source of the problem relays on technological progress, which is the main obstacle to a long-term solution to the mass unemployment. Technology’s improvements are incrementing day by day, and the desire of a more efficient and less expensive production process are encouraging industries to slowly replace workers with highly innovative machines and to prevent mass technological unemployment in manufacturing it is absolutely necessary for the markets of manufactured goods to keep expanding.

To cope with these complications, the government needs to undertake three institutional changes that require a change in attitudes towards what it is needed to help our society: the connection between work and income must be partially broken, the narrow view that the only valid way to contribute and participate in society id through paid employment must be replace

with a wider conception of social participation and new ways must be devised to allocate jobs so that they will be more equitably shared and the present practice of labor hoarding will end.

In conclusion, problems such as income inequality and mass unemployment can be defined as consequences of the natural tendencies of capitalism and the drive for capital to expand itself constantly. This causes production to dissociate from demand and causes the concentration of power in the hands of few of the benefits of the economic progress. Through elements of tradition, command and market and the economic, social and political problems related to them, the ultimate goal is to promote common good and economic benefits and we all need to remember that the economy serves for this exact purpose.