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Immigration - How does this affect labour market?
Increases the supply of labour (!) ; may create unemployement for the current population, as they may offer services at a cheaper rate...
May bring in more skilled labour, hence making labour supply more inelastic in general. Eval- most immigrants are not particularly skilled though, and many claim benefits, hence reducing the level of benefits available to the currently unemployed, therefore forcing them to seek work; but work may be less readinly available since the labour demand has contracted
is that correct? Any more..?
You guys are really going at it 
Good stuff
If I had time, I would go through all the stuff you wrote and hopefully add more to it, but unfortunately I have to prepare for an exam tomorrow. Gool luck with Econ!
Good stuff
If I had time, I would go through all the stuff you wrote and hopefully add more to it, but unfortunately I have to prepare for an exam tomorrow. Gool luck with Econ!
b) Pure monopsony exsists where there is a single buyer of workers in the market, though the theory applies to any powerful buyer of labour in the market. There is evidence that monopsony power exsists as the government is the main buyer of public sector labour, as seen by the fact there have been labour shortages during the 35 hour working week. The disadvantage of having a monopsonist is that it is easy for the firm to expolit the individuals as there is non additional buyer and wages can be kept down.
In the private sector the fact that so many firms are in the markets (Renault and DaimlerChrysler, Michelin to name a few) shows that there are many in the market and that competition will negate the effect of any one single monopsonist. So this highlights the divide in the private and public sector of the French and Germany economies.
There is strong evidence of monopoly power, being a single seller of labour in the market. French trade unions have kept the 35 hour working week despite low productivity and the fact that 54% believe it is a mistake. French and German trade union representation is much higher than the rest of Europe and these provide powerful in trade and wage negotiations.
I struggled with that.
In the private sector the fact that so many firms are in the markets (Renault and DaimlerChrysler, Michelin to name a few) shows that there are many in the market and that competition will negate the effect of any one single monopsonist. So this highlights the divide in the private and public sector of the French and Germany economies.
There is strong evidence of monopoly power, being a single seller of labour in the market. French trade unions have kept the 35 hour working week despite low productivity and the fact that 54% believe it is a mistake. French and German trade union representation is much higher than the rest of Europe and these provide powerful in trade and wage negotiations.
I struggled with that.
rahulsood
Increases the supply of labour (!) ; may create unemployement for the current population, as they may offer services at a cheaper rate...
May bring in more skilled labour, hence making labour supply more inelastic in general. Eval- most immigrants are not particularly skilled though, and many claim benefits, hence reducing the level of benefits available to the currently unemployed, therefore forcing them to seek work; but work may be less readinly available since the labour demand has contracted
is that correct? Any more..?
May bring in more skilled labour, hence making labour supply more inelastic in general. Eval- most immigrants are not particularly skilled though, and many claim benefits, hence reducing the level of benefits available to the currently unemployed, therefore forcing them to seek work; but work may be less readinly available since the labour demand has contracted
is that correct? Any more..?
I don't believe they are able to claim benefits - obviously unless you can find work then you are unlikely to immigrate. However, when the work the money they earn do not go to the economy, going through the multiplier. Instead they are often sent to the country where they emmigrate from.
Also, there is an argument that alot of skilled labour comes over from abroad in addition to unskilled, e.g. doctors from Poland. Also - they work harder (general view) and therefore they are offering a better service to UK consumers, thereby increasing their living standards.
Of course there is always the point that they are taking away jobs from UK citizens - Eval- are the UK citizens going to take the jobs they go for anyway, i.e. jobs people are either unqualified for or would not do because they feel it is below them.
(I swear economics can be very depressing at times
)Immigrantion is the movement across boreders into another country. These will not always be members of the working population, but it is likely there will be one potental income earner in each family that migrates, this is seemingly the incentive for moving. There may be language or cultural barrers so they may become dependants rather than earner. The labour market may gain one earner but may also gain a large dependant family
Young bright tworkers are likely to immigrate, these workers are likely to be productive in the economy they join, offering high value added.The gain of these workers would have a positive multiplier effect and aggregate demand would rise - with economic growth leading to increased employment as well as labour market flexibility.
Young bright tworkers are likely to immigrate, these workers are likely to be productive in the economy they join, offering high value added.The gain of these workers would have a positive multiplier effect and aggregate demand would rise - with economic growth leading to increased employment as well as labour market flexibility.
Mokert23
This is helping me revise so much. Anymore questions to be posted. I might have some more if people want to try?
yes please I want to try them!
It's much better than wafting through loads of pointless theory, since most of it is common sense once you've answered a similar question once!
(brb in a minute though!)
Okay, I'm tired so want to kid myself into thinking I'm revising, therefore I'm posting the exam I just did in proper exam conditions, any tips would be most welcome (I'm fairly certain my evaluation is lacking/non-existent). This is the June 2007 paper, question 2.
a) With reference to Extract 1, discuss the significance of the reasons why poverty has increased in the UK in recent years. [15]
By poverty we are addressing relative poverty - when incomes are significantly below the median income. It has, as the text states, risen dramatically since 1979. Three main reasons why this has occurred are the growth in the wages of top earners, the 'workless households' and the reduction in wages of the low skilled.
Wages of high earners has increased significantly in the past 30 years, for several reasons. Firstly, the top tax band was reduced from 60% to 40% in 1988. This has meant that relative poverty, post tax/benefits, has increased as high earners are better off post tax.
A second factor causing top earners incomes to rise is the economic boom the economy has experienced over the past 13 years. This causes high incomes to grow more rapidly than low incomes [why is this?], thus increasing the gap between high and low earners.
Because of these two factors incomes of the top earners has increased more rapidly, thus raising median incomes and thus causing the relative poverty line to increase, therefore pushing more people into relative poverty.
Another factor causing poverty to increase is the growth of 'workless households'. As the text states, households with no one working are very high compared to other OECD countries. This could be because of the unemployment or poverty trap. These traps occur when there is little incentive to work as working would result in a loss of benefits. For example, if you are unemployed, you may decide not to work because it would result in you losing Job Seekers Allowance and you would be taxed, therefore the marginal rate of tax (extra income minus both benefits lost and tax taken) can be so high the incentive to work is minimal. If this is the cause of 'workless households' they will be on very low incomes, but government benefits ensure they are not in absolute poverty. Therefore the unemployment trap (workless households) can result in relative poverty.
The final factor causing an increase in poverty is that low skilled wages have been reduced. This is the case, according to the text, due to a fall in demand for low skilled employment and an increase in its supply (line 21-24). This has caused low skill wages to fall, as shown. [Graph showing increase in supply and fall in demand, with supply being elastic] This shows how these effects have reduced wages. Because of this, low earners incomes have fallen, thus increasing relative poverty.
Having said this, government intervention, in the form of the National Minimum Wage, prevents employees being paid too little, thus reducing the possible damage of this fall in wages.
Furthermore, government initiatives, such as Working Family Tax Credits, are aimed at reducing the unemployment trap by encouraging people to work.
These two forms of government intervention mean that the main cause of the increase in relative poverty is the increasing incomes of high earners.
I may post b), c) and d) if people are kind enough to give pointers
By the way, help will be rewarded by past papers, and possibly mark schemes, woo!
a) With reference to Extract 1, discuss the significance of the reasons why poverty has increased in the UK in recent years. [15]
By poverty we are addressing relative poverty - when incomes are significantly below the median income. It has, as the text states, risen dramatically since 1979. Three main reasons why this has occurred are the growth in the wages of top earners, the 'workless households' and the reduction in wages of the low skilled.
Wages of high earners has increased significantly in the past 30 years, for several reasons. Firstly, the top tax band was reduced from 60% to 40% in 1988. This has meant that relative poverty, post tax/benefits, has increased as high earners are better off post tax.
A second factor causing top earners incomes to rise is the economic boom the economy has experienced over the past 13 years. This causes high incomes to grow more rapidly than low incomes [why is this?], thus increasing the gap between high and low earners.
Because of these two factors incomes of the top earners has increased more rapidly, thus raising median incomes and thus causing the relative poverty line to increase, therefore pushing more people into relative poverty.
Another factor causing poverty to increase is the growth of 'workless households'. As the text states, households with no one working are very high compared to other OECD countries. This could be because of the unemployment or poverty trap. These traps occur when there is little incentive to work as working would result in a loss of benefits. For example, if you are unemployed, you may decide not to work because it would result in you losing Job Seekers Allowance and you would be taxed, therefore the marginal rate of tax (extra income minus both benefits lost and tax taken) can be so high the incentive to work is minimal. If this is the cause of 'workless households' they will be on very low incomes, but government benefits ensure they are not in absolute poverty. Therefore the unemployment trap (workless households) can result in relative poverty.
The final factor causing an increase in poverty is that low skilled wages have been reduced. This is the case, according to the text, due to a fall in demand for low skilled employment and an increase in its supply (line 21-24). This has caused low skill wages to fall, as shown. [Graph showing increase in supply and fall in demand, with supply being elastic] This shows how these effects have reduced wages. Because of this, low earners incomes have fallen, thus increasing relative poverty.
Having said this, government intervention, in the form of the National Minimum Wage, prevents employees being paid too little, thus reducing the possible damage of this fall in wages.
Furthermore, government initiatives, such as Working Family Tax Credits, are aimed at reducing the unemployment trap by encouraging people to work.
These two forms of government intervention mean that the main cause of the increase in relative poverty is the increasing incomes of high earners.
I may post b), c) and d) if people are kind enough to give pointers
By the way, help will be rewarded by past papers, and possibly mark schemes, woo!
I personally think it is a very good answer. How long did you spend on it may i ask?
I would give it 13/15. Your usuage of the effective marginal rate of tax was very good, but for further evaluation you could state that re-distribution of income is not helped by the non claiming of taxes through either the social stigma attached to it, or the fact that the forms are usually very complicated and that people find it hard to judge whether they are eligible. This is just extra and im being picky of course.
You only need three points for the 15 marks, so possibly the two bits at the ends are maybe not needed and more could have been written for the evaluation of the National minimum wage.
During times of boom, high income earners earn more because they are in higher demand and usually wage differentials dicatate that they have a higher income. During a boom the opportunity cost of working rises and therefore there is an extension is supply. This means that low skilled jobs where there is high supply wages are effetively bid downwards, meaning that those with higher incomes gain more. Also the cutting of the tax rate from 60 - to 40 mean that effectively those higher incomes in the band gained an extra 20% disposable income (this is similar to the argument that when the 10p tax band was scrapped, over night those who were in it suddenly lost an extra 12p for ever pound, those in the high tax band gained 20p) giving them a higher income increasing inequality.
I would give it 13/15. Your usuage of the effective marginal rate of tax was very good, but for further evaluation you could state that re-distribution of income is not helped by the non claiming of taxes through either the social stigma attached to it, or the fact that the forms are usually very complicated and that people find it hard to judge whether they are eligible. This is just extra and im being picky of course.
You only need three points for the 15 marks, so possibly the two bits at the ends are maybe not needed and more could have been written for the evaluation of the National minimum wage.
During times of boom, high income earners earn more because they are in higher demand and usually wage differentials dicatate that they have a higher income. During a boom the opportunity cost of working rises and therefore there is an extension is supply. This means that low skilled jobs where there is high supply wages are effetively bid downwards, meaning that those with higher incomes gain more. Also the cutting of the tax rate from 60 - to 40 mean that effectively those higher incomes in the band gained an extra 20% disposable income (this is similar to the argument that when the 10p tax band was scrapped, over night those who were in it suddenly lost an extra 12p for ever pound, those in the high tax band gained 20p) giving them a higher income increasing inequality.
Dan-IW
Okay, I'm tired so want to kid myself into thinking I'm revising, therefore I'm posting the exam I just did in proper exam conditions, any tips would be most welcome (I'm fairly certain my evaluation is lacking/non-existent). This is the June 2007 paper, question 2.
a) With reference to Extract 1, discuss the significance of the reasons why poverty has increased in the UK in recent years. [15]
A second factor causing top earners incomes to rise is the economic boom the economy has experienced over the past 13 years. This causes high incomes to grow more rapidly than low incomes [why is this?], thus increasing the gap between high and low earners.
a) With reference to Extract 1, discuss the significance of the reasons why poverty has increased in the UK in recent years. [15]
A second factor causing top earners incomes to rise is the economic boom the economy has experienced over the past 13 years. This causes high incomes to grow more rapidly than low incomes [why is this?], thus increasing the gap between high and low earners.
Top earners have both Wealth and Income, whilst low earners have very little wealth. Over time, Wealth also contributes to income, for example property and rents. The top earners also build up wealth at a faster rate than lower income earners. Low income earners on the other hand do not have enough discreationary income after purchasing their necessities to buy wealth such as housing or precious materials. As such, they do not build up wealth.
Top earners are generally much more qualified than low earners, and in an economic boom when there is alot of trading going on, top earners have better oppourtunities to exploit this, compare a Tesco worker (sorry!) to someone working in the LSE. The stock trader is obviously going to be able to exploit the growth much more effectively than the Tesco worker. Therefore those with higher incomes generally reach even higher incomes in economic growth, thus causing even more inequality.
Ah, thank you people. I always took it as Gospel, but never knew why.
I spent a bit too long on that question, about 25mins (I aim to spend 13mins on 10 markers, 20mins on 15. and 27mins on 20, very precise I know!).
Thanks very much Mokert, you can have past papers/mark schemes if you want, although rahulsood managed to get them without helping! The cheeky bastard!
Next part, woo!
b) Using demand and supply analysis, asses two factors which have ‘substantially weaken the low skill labour market’ [10]
The low skilled labour market has been ‘weakened’ in that wages and employment levels are lower. The two causes for this is a reduction in demand for low skilled labour and an increase in supply of low skilled labour.
Demand for low skilled labour has reduced because of the deindustrialisation and restructuring of the economy that took place over the past 30 years. It resulted in many heavy industries, such as steel making, moving abroad due to cheaper labour. This left many low skilled workers occupationally immobile – they do not have the skills required in the service based economy. Because of this, there is less demand for low skilled employees.
Furthermore, supply of low skilled employees has increased. This is because workers no longer have the right skills for a service based economy, shown by the fact that 20% of the working population are ‘close to illiterate’. This would have been less important while manufacturing jobs were prevalent, but the service based economy demands higher skills. Thusly, the supply of, what is now, low skilled workers has risen. These two effects are shown below: Graph showing this, with supply being elastic
The supply increased, from S1 to S2. While the demand decreased, from D1 to D2. Resulting in lower wages, W1 to W2, and lower employment, Q1 to Q2. Therefore these two affects have ‘weakened’ the low skilled labour market.
Furthermore, its affects have been amplified by the elastic supply of low skilled labour. This has caused wages and employment levels to reduce by a proportionately greater amount.
I spent a bit too long on that question, about 25mins (I aim to spend 13mins on 10 markers, 20mins on 15. and 27mins on 20, very precise I know!
).Thanks very much Mokert, you can have past papers/mark schemes if you want, although rahulsood managed to get them without helping! The cheeky bastard!
Next part, woo!
b) Using demand and supply analysis, asses two factors which have ‘substantially weaken the low skill labour market’ [10]
The low skilled labour market has been ‘weakened’ in that wages and employment levels are lower. The two causes for this is a reduction in demand for low skilled labour and an increase in supply of low skilled labour.
Demand for low skilled labour has reduced because of the deindustrialisation and restructuring of the economy that took place over the past 30 years. It resulted in many heavy industries, such as steel making, moving abroad due to cheaper labour. This left many low skilled workers occupationally immobile – they do not have the skills required in the service based economy. Because of this, there is less demand for low skilled employees.
Furthermore, supply of low skilled employees has increased. This is because workers no longer have the right skills for a service based economy, shown by the fact that 20% of the working population are ‘close to illiterate’. This would have been less important while manufacturing jobs were prevalent, but the service based economy demands higher skills. Thusly, the supply of, what is now, low skilled workers has risen. These two effects are shown below: Graph showing this, with supply being elastic
The supply increased, from S1 to S2. While the demand decreased, from D1 to D2. Resulting in lower wages, W1 to W2, and lower employment, Q1 to Q2. Therefore these two affects have ‘weakened’ the low skilled labour market.
Furthermore, its affects have been amplified by the elastic supply of low skilled labour. This has caused wages and employment levels to reduce by a proportionately greater amount.
Ok ... here we go (could you pm me the markscheme please :P, i need evaluation points)
First paragraph, while service based economy is fine I prefer the term knowledge (or weightless economy) because the UK's primary exports are financial such as banking etc. I actually think the point is good, but maybe it could be better the other way around. The low skilled labour market has been damaged by cheaper labour abroad, through the forces of globalisation and the UKs transition to a knowledge economy, this has resulted in structural unemployment and damge to the low skills market. Just personal preference.
The rest is fine however I would use low investement in human capital as an evaluation point. The government has made education to intensive and the costs associated with further university education make it unaffordable to many low income earners despite the provisions of grants and such. Even sixth form the opportunity cost of gaining and education is often not as high as the need for employment in the short term. By not gaining qualifications this is increasing the supply of low skilled workers, puting downward pressure on wages in a time when the labour force is actually contracting.
I would mark it 9/10 you have two points, clearly and concisely presented with evaluation throughout. Think that the first paragraph could have been slightly better (in my book theres no full marks)
EDIT: Just making a quick lunch, if you post your C and D ill look at them when im back
First paragraph, while service based economy is fine I prefer the term knowledge (or weightless economy) because the UK's primary exports are financial such as banking etc. I actually think the point is good, but maybe it could be better the other way around. The low skilled labour market has been damaged by cheaper labour abroad, through the forces of globalisation and the UKs transition to a knowledge economy, this has resulted in structural unemployment and damge to the low skills market. Just personal preference.
The rest is fine however I would use low investement in human capital as an evaluation point. The government has made education to intensive and the costs associated with further university education make it unaffordable to many low income earners despite the provisions of grants and such. Even sixth form the opportunity cost of gaining and education is often not as high as the need for employment in the short term. By not gaining qualifications this is increasing the supply of low skilled workers, puting downward pressure on wages in a time when the labour force is actually contracting.
I would mark it 9/10 you have two points, clearly and concisely presented with evaluation throughout. Think that the first paragraph could have been slightly better (in my book theres no full marks)
EDIT: Just making a quick lunch, if you post your C and D ill look at them when im back
I don't think this is answered well, I wasn't quite sure what the question was getting at...
c) With reference to Extract 2 and Figure 2, assess the view that the raising of the National Minimum Wage is likely to have a major impact on the poverty of part-time women workers and a negligible effect on employment. [20]
Figure 2 shows that the National Minimum Wage (NMW) mainly affects female part time workers, they account for 48% of people on the NMW. Figure 1 shows how the NMW has increased from £3.60 in 1999 to its current £5.35.
One of the main arguments for the NMW is that it reduces poverty. Therefore, by it increasing workers incomes rise and one would assume poverty is reduced. The poverty of part time workers may well have been reduced as a result of the NMW. This is because a large proportion of these people are likely to be working single mothers, who have to fit their jobs around looking after their children. For these people an increase in the NMW is likely to reduce poverty, as their incomes are higher. However, there will also be a large amount of female part time earners who are on the NMW but are not in poverty, as they are supplementing an already ‘acceptable’ income, from their husbands. Therefore amongst these people poverty will not be reduced, as it did not exist.
However, the NWM may increase poverty. This is because, despite what the text says, it may well cause unemployment. This is because the NMW is set above the equilibrium wage rate of some incomes, especially areas where part time females are likely to work, such as clearing. This is shown below. [Graph showing the NMW above equilibrium]
This shows an occupation where the equilibrium wage is below the NMW. As a result of the NMW (Qa – Q2) people are unemployed. If this is the case, poverty amongst female part time workers will increase. Furthermore, the elastic nature of the supply of low skilled employment exasperates the matter, meaning more are unemployed. Therefore, an increase in the real value of the NMW would cause more occupations to be below its wage rate, thus causing greater unemployment and therefore poverty.
However, there has been no proof of the NMW causing unemployment. This may have been because of the economic boom, as firms were more able to absorb costs. However, with this boom ending, and a recession looming [almost poetic?], firms will be less able to absorb costs. Therefore the NMW is likely to have a greater impact on employment in the coming months/years. Therefore, an increase in the NMW may cause unemployment for female workers in the long term.
In conclusion, although the NMW has reduced poverty for part time females until now, it is likely it will damage their employment prospects in future because of the likely recession. Therefore, making them unemployed or working illegally, either of which would increase poverty.
I’m not sure if I’m actually answering the question for this one
c) With reference to Extract 2 and Figure 2, assess the view that the raising of the National Minimum Wage is likely to have a major impact on the poverty of part-time women workers and a negligible effect on employment. [20]
Figure 2 shows that the National Minimum Wage (NMW) mainly affects female part time workers, they account for 48% of people on the NMW. Figure 1 shows how the NMW has increased from £3.60 in 1999 to its current £5.35.
One of the main arguments for the NMW is that it reduces poverty. Therefore, by it increasing workers incomes rise and one would assume poverty is reduced. The poverty of part time workers may well have been reduced as a result of the NMW. This is because a large proportion of these people are likely to be working single mothers, who have to fit their jobs around looking after their children. For these people an increase in the NMW is likely to reduce poverty, as their incomes are higher. However, there will also be a large amount of female part time earners who are on the NMW but are not in poverty, as they are supplementing an already ‘acceptable’ income, from their husbands. Therefore amongst these people poverty will not be reduced, as it did not exist.
However, the NWM may increase poverty. This is because, despite what the text says, it may well cause unemployment. This is because the NMW is set above the equilibrium wage rate of some incomes, especially areas where part time females are likely to work, such as clearing. This is shown below. [Graph showing the NMW above equilibrium]
This shows an occupation where the equilibrium wage is below the NMW. As a result of the NMW (Qa – Q2) people are unemployed. If this is the case, poverty amongst female part time workers will increase. Furthermore, the elastic nature of the supply of low skilled employment exasperates the matter, meaning more are unemployed. Therefore, an increase in the real value of the NMW would cause more occupations to be below its wage rate, thus causing greater unemployment and therefore poverty.
However, there has been no proof of the NMW causing unemployment. This may have been because of the economic boom, as firms were more able to absorb costs. However, with this boom ending, and a recession looming [almost poetic?
], firms will be less able to absorb costs. Therefore the NMW is likely to have a greater impact on employment in the coming months/years. Therefore, an increase in the NMW may cause unemployment for female workers in the long term.In conclusion, although the NMW has reduced poverty for part time females until now, it is likely it will damage their employment prospects in future because of the likely recession. Therefore, making them unemployed or working illegally, either of which would increase poverty.
I’m not sure if I’m actually answering the question for this one
Its a strange question. I think you have answered it quite well. Other points you could put in are that. The proportion of single mothers in the UK is increasing and that the minimum wage may not be enough to tempt single mothers into work because if they do work payments for child care take up a significant proportion of money earnered (link to effective marginal rate of tax).
You can argue that the NMW also reduces wage differentials between men and women as it is a glass ceiling, although some discrimination still may occur.
Basially it should be two paragraphs on women and the way that they can be taken out of/put back into poverty. Secondly another two paragraphs on the impact on unemployment. I dont think you should try and mix the two together like in the last paragraph It seems to be unneccesarily complicated.
EDIT: Looking again at the question its actually quite difficult. Firstly you have to assess the major impact on the poverty of women, I believe that poverty in women will actually increase. Firstly the effective marginal rate of tax will mean that women will probably only be supplementing income or stay on benefits. Secondly those that arn't working will therefore be in greater poverty as a result of the NMW. As training and recruitment costs go up then there is likely to be more discrimination towards women especially with children.
These arguments then have to be followed up by why employment changes are neglible, which you have adequately done.
You can argue that the NMW also reduces wage differentials between men and women as it is a glass ceiling, although some discrimination still may occur.
Basially it should be two paragraphs on women and the way that they can be taken out of/put back into poverty. Secondly another two paragraphs on the impact on unemployment. I dont think you should try and mix the two together like in the last paragraph It seems to be unneccesarily complicated.
EDIT: Looking again at the question its actually quite difficult. Firstly you have to assess the major impact on the poverty of women, I believe that poverty in women will actually increase. Firstly the effective marginal rate of tax will mean that women will probably only be supplementing income or stay on benefits. Secondly those that arn't working will therefore be in greater poverty as a result of the NMW. As training and recruitment costs go up then there is likely to be more discrimination towards women especially with children.
These arguments then have to be followed up by why employment changes are neglible, which you have adequately done.
Here is part d Thanks very much Mokert, it's very helpful to get feedback.
d) Evaluate three policies, apart from changes in the National Minimum Wage, which are likely to reduce inequality in the future.
Inequality is the difference in incomes of the top earners in comparison to the bottom earners. It is shown geographically by the Lorenz curve and numerically by the Gini coefficient. Inequality has risen substantially over the past 30 years, largely due to the move to a freer market economy, meaning lower taxes and benefits.
Inequality can be reduced by taxation. This is because progressive taxes take a greater proportion of high earners’ income than low earners. The effectiveness of this has increased in recent times with the increased number of tax bands, namely the 10p tax rate. This means that low earners only 10p to every pound they earn, meanwhile high earners pay 40p. Because of this progressive tax system inequality is reduced.
However, the progressive nature of income tax means that the incentive to increase income can be very small, due the high effective marginal rate of tax. This means that workers may not earn more because it would mean moving from a lower tax band to a higher one, thus reducing the incentive to work more. This can increase inequality because it can cause people to be in the poverty trap, where they chose not to work more because of the lost income through taxes and benefit reduction. Therefore, although progressive tax does in general reduce inequality, its effects are diminished due to the poverty trap.
The benefit system can also help to reduce inequality. This is because low earners are given more benefits than high earners, as many benefits are means tested. The introduction of the Working Family Tax Credits has helped to reduce inequality by giving benefits to low earners, but also increasing the incentive to work more, thus reducing the problem of means tested benefits – that they can cause the poverty trap. Therefore benefits are able to reduce inequality.
A final policy that has, and can in future, help to reduce inequality is the New Deal. This is because it has helped to train the long term unemployed so that they are no longer occupationally immobile. This helps to increase the wages for low, or even no earners. However, its effectiveness is doubted.
In conclusion, the tax and benefit system has the most scope for reducing inequality. However, in recent times there seems to have been a move away from this objective. This is because of the abolishment of the 10p tax band, meaning low earners pay the 20p tax band instead and the reduction of the highest tax band, from 60% to 40%. These two moves have lessened the extent to which taxes and benefits reduce inequality.
I should have talked about education, as it clearly is emphasising ‘in the future’.
Thanks very much Mokert, it's very helpful to get feedback. d) Evaluate three policies, apart from changes in the National Minimum Wage, which are likely to reduce inequality in the future.
Inequality is the difference in incomes of the top earners in comparison to the bottom earners. It is shown geographically by the Lorenz curve and numerically by the Gini coefficient. Inequality has risen substantially over the past 30 years, largely due to the move to a freer market economy, meaning lower taxes and benefits.
Inequality can be reduced by taxation. This is because progressive taxes take a greater proportion of high earners’ income than low earners. The effectiveness of this has increased in recent times with the increased number of tax bands, namely the 10p tax rate. This means that low earners only 10p to every pound they earn, meanwhile high earners pay 40p. Because of this progressive tax system inequality is reduced.
However, the progressive nature of income tax means that the incentive to increase income can be very small, due the high effective marginal rate of tax. This means that workers may not earn more because it would mean moving from a lower tax band to a higher one, thus reducing the incentive to work more. This can increase inequality because it can cause people to be in the poverty trap, where they chose not to work more because of the lost income through taxes and benefit reduction. Therefore, although progressive tax does in general reduce inequality, its effects are diminished due to the poverty trap.
The benefit system can also help to reduce inequality. This is because low earners are given more benefits than high earners, as many benefits are means tested. The introduction of the Working Family Tax Credits has helped to reduce inequality by giving benefits to low earners, but also increasing the incentive to work more, thus reducing the problem of means tested benefits – that they can cause the poverty trap. Therefore benefits are able to reduce inequality.
A final policy that has, and can in future, help to reduce inequality is the New Deal. This is because it has helped to train the long term unemployed so that they are no longer occupationally immobile. This helps to increase the wages for low, or even no earners. However, its effectiveness is doubted.
In conclusion, the tax and benefit system has the most scope for reducing inequality. However, in recent times there seems to have been a move away from this objective. This is because of the abolishment of the 10p tax band, meaning low earners pay the 20p tax band instead and the reduction of the highest tax band, from 60% to 40%. These two moves have lessened the extent to which taxes and benefits reduce inequality.
I should have talked about education, as it clearly is emphasising ‘in the future’.
Haha oops wrote a bit of an essay!!! It is shown geographically? Do you mean graphically and thats just rushed mistake? The lorenz curve is a graphical device for illustrating the extent of inequality in society by plotting percentage of income enjoyed by X amount of the population. Gini coefficent is just a numerical measure of inequality.
Your poverty trap argument is a bit confusing. At the bottom scale the effective marginal tax rate is likely to dictate that it is more likely an individual will stay on benefits than try and go out and earn. At the top end it is likely to encourage lesiure over work as the incentive is very low.
You know that if you move into another tax band the rate doesn't go up for everything you earn. I thought that before, but say its 10p for the first $1880 and then 22p for he next $10,000 and then 40p for for $30,000. Once you reach $30,000 every pound over that is taxed at 40p, every pound in the tax rate before is still at 22p. I might be wrong but you might think that once you go ove $30,000 everything is taxed at 40p? However your argument about reducing inequality is right, but it would not give a disincentive to work.
To evaluate you would say that the taxation system can only reduce inequality if those that need it the most claim the benefits. Then you can introudce social stigma and difficulty of forms and means tested benefits for further evaluation. So as you can see your first two points kind of go togehter. As the progressive tax system only works if you re-distribute through benefits.
Im not sure if it was time restraint or lack of knowledge, but you could have put a lot more indepth on the New Deal. Mention that it is for 18-24 and that it offers an incentive to get back into work or loose part of the JSA.
If no age group is specified you may want to argue that pensions should increase in line with average earnings and then bring into that the pensioners inequality arguments. To evaluate state that an ageing population has put pressure on the exsisting working population to finance it and that inflation rises are the only way to stop a large increase in taxes.
Lastly as you said education - offering more grants and subsidies for lower income families to go into education, this improves the human capital of the economy and the distribtion of income between low and high end incomes will become more equal.
I'm usure but, do you actually need to conclude these arguments? I just thought three evaluated points (for a 15 marker) would get the marks? Anyway if you prefer to do that, probably best that you continue ... just to note that you could have used the 2-3 minutes for the conclusion to write some more on the new deal.
Your poverty trap argument is a bit confusing. At the bottom scale the effective marginal tax rate is likely to dictate that it is more likely an individual will stay on benefits than try and go out and earn. At the top end it is likely to encourage lesiure over work as the incentive is very low.
You know that if you move into another tax band the rate doesn't go up for everything you earn. I thought that before, but say its 10p for the first $1880 and then 22p for he next $10,000 and then 40p for for $30,000. Once you reach $30,000 every pound over that is taxed at 40p, every pound in the tax rate before is still at 22p. I might be wrong but you might think that once you go ove $30,000 everything is taxed at 40p? However your argument about reducing inequality is right, but it would not give a disincentive to work.
To evaluate you would say that the taxation system can only reduce inequality if those that need it the most claim the benefits. Then you can introudce social stigma and difficulty of forms and means tested benefits for further evaluation. So as you can see your first two points kind of go togehter. As the progressive tax system only works if you re-distribute through benefits.
Im not sure if it was time restraint or lack of knowledge, but you could have put a lot more indepth on the New Deal. Mention that it is for 18-24 and that it offers an incentive to get back into work or loose part of the JSA.
If no age group is specified you may want to argue that pensions should increase in line with average earnings and then bring into that the pensioners inequality arguments. To evaluate state that an ageing population has put pressure on the exsisting working population to finance it and that inflation rises are the only way to stop a large increase in taxes.
Lastly as you said education - offering more grants and subsidies for lower income families to go into education, this improves the human capital of the economy and the distribtion of income between low and high end incomes will become more equal.
I'm usure but, do you actually need to conclude these arguments? I just thought three evaluated points (for a 15 marker) would get the marks? Anyway if you prefer to do that, probably best that you continue ... just to note that you could have used the 2-3 minutes for the conclusion to write some more on the new deal.
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