ECO 204 Week 5 Final Paper

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Ashford University - California *

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204

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Economics

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Jan 9, 2024

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docx

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1 Running Head: INCOME AND WEALTH INEQUALITY INCOME AND WEALTH INEQUALITY Student Name ECO 204 Principles of Microeconomics Professor Name August 28,2023

2 Running Head: INCOME AND WEALTH INEQUALITY Income inequality specifies income, which is unequally appropriated throughout a population, while wealth inequality is the unequal appropriation of wealth. In this paper, income and wealth inequality will be discussed. How countries measure their income inequality will be explained. The trend of inequality in the United States from 1940-2020, and the roles of globalization and advances in technology as causes of widening income inequality in the United States will be evaluated, Wealth inequality to income inequality will be compared. The trends in wealth inequality in the United States from 1940-2020 will also be explained. Two causes of wealth inequality in the United States, the role of healthcare inequality as it relates to income and wealth inequality, and whether increasing access to affordable or free healthcare can reduce income or wealth inequality will also be evaluated. The wealth gap between those who have access to private insurance and those who do not will be estimated. Lastly, one recommendation on how to reduce income or wealth inequality as oa federal policy maker will be made. When the situation entails measuring a country’s income inequality, there are three methods. Those methods are: The Lorenz Curve, the Gini Coefficient, and the Henderson Poverty Line. As stated by David, “The Lorenz Curve is a graphical representation of a nation’s distribution of wealth and income” (David, 2019). This graph is developed from two variables, the population percentage; which is positioned on the x-axis of the graph, and the income percentage; which is positioned on the y-axis of the graph. Together with the x and y axis is a straight diagonal line, which serves as perfect wealth distribution. The most generally utilized method of measuring income inequality out of the three is the Gini Coefficient. In accordance with David,

3 Running Head: INCOME AND WEALTH INEQUALITY “The Gini Coefficient shows the statistical dispersion of the income and wealth distributed amongst a nation's citizens” (David, 2019). The Gini Coefficient is linked to the Lorenz Curve, whereas it is within the area between the Lorenz Curve and the 45-degree line; which is then divided by the total area below the 45-degree line. The Henderson Poverty Line is the third method of measuring income inequality. As stated by David, “Henderson Poverty Line is a measure of absolute poverty” (David, 2019). This method of measuring income inequality is the steady measure of poverty a nation or state is in during a period of time where individuals do not have the main human necessities that one may continue to live. The Henderson Poverty Line develops a nation or state’s absolute poverty level. The income inequality trend in the United States has varied from 1940- 2020. In accordance with Horowitz, Igielnik, and Kochhar, “From 1970 to 2000 the median income increased by 41%, to $70,800, at an annual average rate of 1.2%. From 2000 to 2018, the growth in household income slowed to an annual average rate of only 0.3%” (Horowitz, Igielnik, & Kochhar, 2020). Over the initial thirty years, the average income had been doing well with a consistent rate of 1.2% yearly. But, as soon as the twenty-first century came around, there was a gradual decline, because of the recessions which happened in 2001 and 2007. Horowitz, Igielnik, and Kochhar then continues to mention, “If there had been no such slowdown and incomes had continued to increase in

4 Running Head: INCOME AND WEALTH INEQUALITY this century at the same rate as from 1970 to 2000, the current median U.S. household income would be about $87,000, considerably higher than its actual level of $74,600” (Horowitz, Igielnik, & Kochhar, 2020). If those recessions wouldn’t have happened 2001 and 2007, the consistent average income rate of 1.2%, which occurred from 1970 to 2000, would continue to occur currently, or would have increased. There are many determinants which influence income inequality in the United States. Technology advancement and globalization are no exclusions. Globalization is a determinant which has influenced income inequality. As stated by Qureshi, “Much of the blame for the rise in inequality is heaped on globalization—often from both ends of the political spectrum. The popular backlash against globalization has been fed by a negative political crescendo” (Qureshi, 2018). Globalization affects society and its tolerant levels of inequality. As for the determinant of technology, because of the increased use of artificial intelligence (AI), robots, and digitalization, there is not as much space for humans as there was in the past. More corporations and employment opportunities demand skill sets which are exceptional in favor of keeping up with the advancement in technology. Even though globalization and technology are without a doubt, essential determinants which inspire change, productiveness, and economic development, they are also determinants which induces a widening in income inequality within the United States. Therefore, rather than these two determinants being opposed, they should be embraced. Accessibility to exceptional education and training should be allowed. Doing so will make it possible for humans to obtain the abilities required for additional employee opportunities. Regardless of the differences between income and wealth inequality, the two basically work together. Income inequality is the unequal income appropriation throughout a population. Regarding income

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