Contemporary Issues in Economics (ECO1016)

• What is an example of a social movement that raised awareness of the problem of inequality?


  Occupy Wall Street (2011)
• What are the different types of inequality?

  • Income
  • Wealth
  • Health
  • Political access
  • Gender
  • Geography
  • Opportunity
• What is more unequally distributed wealth or income and why?


  Wealth is generally more unequally distributed due to inheritance mostly.
• What years did inequality rise between?

  1820 - 1910
• How much income is distributed to the top 10% of highest income earners?


  50-60%
• How much income does the bottom 50% receive globally?


  5-15%
• What is the difference between market income and disposable income?


  Market income refers to income from wages, businesses and investments whereas disposable income refers to income from wages, business and investments once you deduct taxes and transfers.
• Why is disposable income more equal than market income?


  Because of the tax and transfer system
• What may reduce social mobility?


  The growing value of inheritances.
• How can we counter the reducing social mobility?


  To redesign the inheritance tax system.
• What are the three ways to measure inequality?

  • Gini coefficient - a measure of how different groups receive differing shares of total household income and is a value ranging from 0 to 1.
  • The Lorenz curve - a plot of the cumulative share of income against the cumulative share of households by income.
  • The 90:10 income ratio - a measure comparing the income of the richest 10% against the income of the poorest 10%.
• What did the Gini coefficient change to between 1980 and 1990 in the UK?


  0.26 in 1980 to 0.34 by 1990
• What did the 90:10 ratio change to between 1980 and 1990?


  3.2 in 1980 to 4.4 by 1990.
• What caused the 90:10 ratio and Gini coefficient to change?

  • Skill-based technological change
  • Weaker trade unions
  • Regressive tax and benefit system changes
• What were the three episodes in where income inequality changed?

  1. Late 1990s/Early 2000s - 'inclusive growth' period
  2. Financial Crisis (2007 - 2009) - higher-wage earners suffered greater than lower-income earners.
  3. Mid 2010s to COVID - fiscal austerity caused incomes at the bottom to fall despite increased earnings and hours causing inequality to rise.
• What has caused structural changes leading to income inequality rising?

  Technical change causing the service sector to take over the manufacturing sector in the UK.
• What two types of jobs does the servicing sector offer?

  • Low skill, routine jobs
  • High skill jobs (e.g. managerial jobs)
• What is the regional income difference in the UK?

  Wages in the south of England (especially London) > wages in the north of England
• What did Daron Acemoglu's research detail about the effect of automation on income inequality?

  • Automation increasingly replaces labour rather than complements it.
  • Responsible for more than 50% of the increasing wage gap between American workers.
  • This is happening because tax policies strongly incentivise investment in machines and software.
• What are the benefits of inequality?

  • Incentive effect.
  • Trickle-down effect.
  • Rewards hard work
  • Rewards risks and investments
• What are the costs of inequality?

  • Social unrest
  • Can lead to poverty
  • Reduced economic growth
• What can be done to address inequality?

  • Redistributive policies to reduce income differences
  • Predistribution - greater equality of endowments like properties
  • Providing incentives for businesses to invest in labour enhancing tech
  • Consider the effects of globalisation
• How much has public spending on education increased by from 1960 to 2010?

  £18.3bn in 1960 to £113.3bn in 2010
• How much did public spending on education fall by from 2010 to 2020?


  From £113.3bn in 2010 to £95.9bn in 2020 - a fall of around 15%
• When was spending on education at is highest as a share of GDP?

  Mid 1970s and 2009/10
• How has spending per pupil changed in England?

  • Rose significantly until start of 2010s.
  • Fell during 2010s.
  • Additional £3.2billion funding announced by the government in 2023 brings spending (primary and secondary only) back to 2010 levels.
  • Therefore, spending in real terms haven't increased at all for 14 years.
• What life outcomes does education impact?

  • Employment/Earnings
  • Health
  • Happiness
  • Marriage
  • Intergenerational benefits
• How does education impact employment?


  Higher levels of qualifications are associated with higher levels of employment with the exception of early 20s (university students).
• What is the graduate age premium?


  the difference between graduate earnings and non-graduate earnings.
• What is the current real grade premium in the UK?


  £8000 in 2024 - 29.75% higher than a non-graduate wage.
• What else can higher earnings signify?


  Overall academic ability and family background
• What are returns to education?


  monetary benefits that can be directly attributed to education itself.
• What is the 'mincer equation'?


  An equation used to regress wage earnings on education and experience.
• What does the mincer equation explain?


  It explains earnings as a function of the schooling and labour market experience, giving a sense of the average monetary returns of one additional year of schooling.
• Why is the mincer equation useful?


  It can be used to inform policy making.
• What private rate of return to schooling does an additional year of education produce?


  On average, 5-8%
• What do the variables in the mincer equation mean?

  • w - wage earnings
  • s - education (years of schooling)
  • x - work experience (age)

  
• Where do we see big differences between returns to education?

  • Ethnicity
  • Family background
  • Gender
  • Schools, universities people atteneded
  • Subject
• What are important determinants of educational attainment?

  • Gender
  • Ethnicity
  • Geographical location
  • Family background (the largest effect)
• What is the education production function?


  A function that can be used to analyse the effects of different factors on educational attainment.