Paper Example on Education and Income Inequality

Income inequality refers to the concentration of wealth or income from an extreme extent in the hands of few people. In other words, it is the gap between the richest and the rest of the population. Over 30 years, income inequality has been increasing in the United States, which means that the rich have progressively become richer while the rest of the population has become poorer (Stiglitz, 2016). The income includes the salaries, wages, dividends, rent, profits gained from the sale of assets as well as interest accrued on savings. Income determines the living standards of the people hence the reason why a country must measure income inequality.

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Measuring Income Inequality

The most common measure of income inequality is gene coefficient which is better described using a Lorenz curve (United Nations, 2015).

The Lorenz curve shows how income is distributed within a particular economy. This measure of the income distribution was developed in 1905 by Max O. Lorenz (United Nations, 2015). The curve represents the cumulative distribution of income from various sections of income levels in the population. In this curve, the richest are 10 percent of the entire population, and they possess 45 percent of the country's wealth. On the other hand, the poorest are 90 percent of the population and possess 55 percent of the entire wealth. This is a clear indication of extreme income inequality as the rich are few; hence, they possess almost the same percentage of wealth as the poor who are the majority. The Gini coefficient, however, is not an effective measure of income inequality because it lacks the capability of differentiating the kinds of inequalities in a particular economy.

Atkinson Index

This measure of income inequality was developed by Anthony Barnes Atkinson, who was an economist in Britain (United Nations, 2015). This measure is very useful in determining the end of distribution that had a greater impact on the inequality. The Atkinson coefficient has parameters which can start from 0 to infinity. 0 is where the researcher is not concerned about the nature of the distribution of income, and infinity is where the researcher emphasizes the position of income of the population which is the lowest in the income group. The strength of this approach as a measure of income inequality is that a sound interpretative helps in calculating the income that would be required in a particular group of population to help achieve income equality.

Decile Ratios

This is a measure of income inequality that is easy to calculate and effective. It examines income inequality by calculating the decile ratios (United Nations, 2015). Decile ratio is obtained by, for example, dividing the total income of the 10 percent of the richest households with the total income of the 10 percent of the poorest households. Decile ratio approach has been used by researchers such as Gold et al. who carried research on income inequality and teen births. The aim strength of this measure is that it is possible to conduct a sensitivity analysis. This is very critical as it helps the researcher to identify the areas that are critical social determinants of health.

Effect of Income Inequality on the U.S. Economy

It is important to measure the level of inequality in an economy because it affects the employment rates, as well as the growth of the economy (Stiglitz, 2016). Income inequality has greatly affected the growth of the United States economy. The main reason why growth has been reducing is that more income is distributed to the rich who save more than they spend. The aggregate demand, which refers to the spending by the government, households as well as the businesses, has declined by approximately 2 to 4 percent. The wage for 90 percent of the population has not been increasing even though they are the ones who channel the growth of the economy.

The second effect of increasing income inequality is low employment rates. If there is slow or lack economic growth, it means that the businesses are not growing. Therefore, they cannot employ more people (Stiglitz, 2016). In some cases where there is no growth at all the companies results in laying off workers to cut down the operating costs. The United States of America unemployment rate is at 3.7 percent as of August 2019.

Estimate of the Gap Between Those Who Hold Bachelor’s and Higher Degrees

The level of education greatly impacts the employment levels and has a connection to income inequality. Those who have attained higher education are paid better than their counterparts whose highest level of education is high school (Stiglitz, 2016). The disparity is even more when it comes to comparing the income of those with higher education and those who never graduated from high school. Those with professional degrees are paid six times more than those with no qualifications. Although the rate of bachelor degree has been increasing, the disparity with the rate of master degree, professional degree as well as a doctorate is evident.

Majority of the students have a bachelor's degree while only a small percentage proceed to get post-graduate degrees. As of 2018, 48.2 million people had a bachelor's degree, 21.0 million had a Master's degree, 3.2 had a professional degree, and 4.5 million had Doctorate. Approximately 30.9 percent of the students who graduated from high school in 2018 are not enrolled in colleges. This is the reason why there is income inequality because those who are paid more are less as compared to low-income earners. In 2017, for example, a person with an advanced degree earned 3.7 times more than someone who dropped out of high school (Stiglitz, 2016). The unemployment rate for those who are highly skilled is low.

Reasons Why the Inequality Gap Between Educated and Less-Educated Workers Has Been Widening

Education is among the primary factors that cause income inequality. The income inequality gap between educated and less-educated workers has been increasing. The income of workers with a bachelors degree and an advanced degree is high while that of the high school diploma is relatively low (Mulholland, & Shupe, 2018). One of the reasons why the gap has been widening is because of the advance in technology. More companies are using technology, so they require a highly skilled workforce. The supply of these workers, however, has not increased significantly to reduce the gap between the less educated and the highly educated. There are less-educated workers, and their earning are multiple times more than that of the less-educated workers.

The second reason why the inequality gap between the is widening is that the cost of education is high (Mulholland, & Shupe, 2018). The less educated are paid low wages, so they are unable to educate their children beyond the high school level. The cycle of less-educated having less educated children continues hence the reason why the gap continues to widen. To reduce the gap between the two groups, the disparity in income distribution has to be addressed, and necessary measures are taken to ensure that even the less educated get a reasonable salary to enable them to educate their children past high school.

Increasing Opportunities for Higher Education Can Not Reduce Income Inequality

Increasing opportunities for higher education can help in boosting the income of the less educated (Mulholland, & Shupe, 2018). This is because higher education has been liked to higher earnings. If the government, therefore, comes up with interventions that help the less educated to continue learning they will help earn more and improve their standards of living because with the skills that are relevant in the market graduates will be educated and will be paid more.

In California, for example, 60 percent of the jobs require one to be trained beyond high school (Mulholland, & Shupe, 2018). This means that without any training, it is difficult to get a job in such a state where the majority of the jobs require training. However, in general, approximately 64 percent of all jobs in the United States of America required one to have just a high school education or no formal education. Opportunities for higher education, however, would not alter the income of the rich, so the reduction in income inequality would be insignificant. Access to higher education is not an effective intervention for reducing the income inequality gap because even with the increase in the population with college degrees, the gap has been widening. To facilitate the bridging of the income gap, both the government and the private sector should work together to ensure that the factors that have contributed to stagnated wages are addressed.

Outsourcing of Cheap Labor

Apart from the wide gap between the educated and the less educated increased income inequality gap in America has been widened by cheap labor from Asia and other developing countries (Mulholland, & Shupe, 2018). The less educated Americans face a threat from the labor force from Asia and other developing countries. The people from these nations offer services at low wages, so the income that might have been earned by domestic workers go to foreign workers. The companies outsource labor from where it is cheap so that they can cut down costs and effectively compete with Indian and Chinese companies. The outsourcing of labor force has, therefore significantly contributed to the widening of the gap between the rich and the poor.

Technology

Technology is another important factor to consider as far as income inequality is concerned. The primary goal of any company is to earn profits (Mulholland & Shupe, 2018). Therefore managers are mandated to do anything ethical to cut down the operating costs to increase the profits. Payroll takes a large percentage of the company's income, and since the stockholders expect huge profits, managers have invented ways of cutting down the workforce. They are resulting in employing pat time and in contracts because full time and permanent employees require huge wages and other benefits. The technology has helped companies to achieve maximum output with fewer employees. Automation, therefore, has displaced many workers, and those who are most affected are the less educated because the technology requires employees to have certain skills.

Personal Factors

Personal abilities affect the amount of income that individuals get. Individuals have different abilities which means that their approach to work s different so they will have different income and wealth (Mulholland, & Shupe, 2018). For example, proactive individuals are more successful both in employment setup as well as in entrepreneurship. This means that they will always go an extra mile to gain extra income. On the other hand, some are contented with the wages they get, so they are not entrepreneurial at all. The most successful and wealthiest people in the world are those with businesses. Hard work is another personal ability that contributes to income inequality. Additionally, the saving culture of individuals influences the level of wealth that they accumulate. This, therefore, shows that apart from increasing access to education, there is more to be done at a personal level to lessen the gap between the wealthy minority and the poor majority.