Economic Inequality and Government Policy

[bigfield]

Wiki article on the causes of economic inequality
http://en.wikipedia.org/wiki/Economic_inequality#Causes

A quick summary of each:

Labour market
Low demand for labour relative to supply in blue-collar jobs, where competition for employment is perpetually very high and workers can be replaced at a low cost. These jobs generally pay minimum wage, or the minimum permitted by industrial awards, where such minimums exist at all.

A free, unregulated market for labour cannot lead to increased real wages in these job sectors, because a majority of the people in the labour pool, for various reasons, cannot sell their labour in higher-paying markets.

Taxation
Progressive taxation serves to reduce the growth of economic inequality, by reducing the amount of capital available to the wealthy, thereby reducing their ability to generate more income and capital gains. The tax revenue from progressive taxation can also be invested into social security to prevent the poor from declining into poverty, and can be spent on public services which indirectly allow people of lower economic status to accumulate wealth (e.g. education services, health services, transport services, etc.)

Education and other Public Service
Education is closely related to the labour market. Jobs requiring a minimum of education, qualification and training have a perpetually high supply of workers because there is an abundance of people with a minimum of education and no qualifications.

By gaining higher levels of education, people are generally able to get higher-paying jobs were the ratio of labour supply to demand is lower. Providing education services freely or cheaply enable people to gain education and do higher-paying work than they could otherwise do.

Other public services also improve economic outcomes. Healthcare services, plus and health and safety regulations, keep people healthy and therefore economically productive. Emergency services prevent people and their property from being damaged, and therefore protect their economic position.

However, some laws and regulations have a negative effect on economic prosperity. For example, the legalisation of cannabis would increase tax revenues and therefore public spending, and well as provide entrepreneurial and employment opportunities for people, and reduce theft and violence related to illicit drugs. For another example, zoning rules for pharmacies prevent viable pharmacies from opening and providing employment and market competition.

Trade Unions
Unions influence wages by limiting the supply of workers within a given industry sector or workplace. By reducing the supply of labour relative to demand, the price for labour can increase.

Free Trade Agreements
The removal of import tariffs expands the labour pool for many industrial sectors from a national one to an international one. For workers in these labour markets in the First World, this generally leads to either lower wages or unemployment, as businesses are ablke to buy labour at a much cheaper rate from developing countries. On the flip side, workers in developing nations experience (slightly) increased wages as the demand for their labour increases.

Gender (and Parenthood)
Men and women are subject to discrimination in the workplace, with the net effect of lower average wages for women, even after other factors are controlled for. Those other factors, which also cause a gender gap, include differences trends in career choices. Equal employment opportunity laws reduce the discrimination by prohibiting gender-based discrimination in employment, reducing its prevalence. Industrial relations laws mandating penalty rates, sick leave, parental leave and annual leave all enable primary caregivers (usually mothers) to retain better-paying employment, by giving them more opportunities to work and by giving the primary breadwinner more opportunities to to take on parenting duties.

Individual Preferences
Some people are willing to do more work in order to accumulate more wealth. Some people will choose not to take economic opportunities available to them, e.g. higher education, if they are content with the alternatives. This, compounded by lack of opportunity for other people, increases the labour pool for relatively unskilled jobs.

Wealth concentration
Those with capital are able to invest it in order to generate more income and more capital, and therefore they generally do so, as opposed to spending that capital on consumption. This has a compounding effect: as more capital is accumulated by groups or individuals, their increase in potential income accelerates.

Rent seeking
A form of wealth concentration, whereby owners of capital use their assets and influence to bring about political changes that increase their wealth. This is mitigated somewhat by anti-corruption laws that prevent outright bribery, but the owners of capital have almost unchecked ability to influence politics through the media and through political lobbying and party funding.

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Your thoughts, additions, insights, analyses of the matter, all welcome.

In particular, what influences can government policy have on economic inequality? Which policies are the most effective, sustainable, and realisable?

 

[untermensche]

Trade Unions
Unions influence wages by limiting the supply of workers within a given industry sector or workplace. By reducing the supply of labour relative to demand, the price for labour can increase.

Yes, unions oppose the labor market.

The labor market is just a tool of the already rich to drive the price of labor down to it's lowest point. It is a system to remove the pay of labor from any connection to the value the labor imparts.

Being against a labor market is not being against some dictate from heaven.

It is only being against a scheme created by rich people.

 

[bigfield]

Trade Unions
Unions influence wages by limiting the supply of workers within a given industry sector or workplace. By reducing the supply of labour relative to demand, the price for labour can increase.

Yes, unions oppose the labor market.

The labor market is just a tool of the already rich to drive the price of labor down to it's lowest point. It is a system to remove the pay of labor from any connection to the value the labor imparts.

Being against a labor market is not being against some dictate from heaven.

It is only being against a scheme created by rich people.

That doesn't make sense: Unions participate in the labour market by manipulating the supply curve, and therefore make it their tool.

 

[untermensche]

Yes, unions oppose the labor market.

The labor market is just a tool of the already rich to drive the price of labor down to it's lowest point. It is a system to remove the pay of labor from any connection to the value the labor imparts.

Being against a labor market is not being against some dictate from heaven.

It is only being against a scheme created by rich people.

That doesn't make sense: Unions participate in the labour market by manipulating the supply curve, and therefore make it their tool.

No they work to remove the decision of pay from a market and make it have a relation to the value of the work done.

Deciding pay solely in a market is simply deciding pay on what is the lowest people in that market will accept. Pay starts low and moves up to meet demand. Where it meets is the lowest possible pay.

 

[bigfield]

That doesn't make sense: Unions participate in the labour market by manipulating the supply curve, and therefore make it their tool.

No they work to remove the decision of pay from a market and make it have a relation to the value of the work done.

Unions do not do that in practice. Increased pay and conditions negotiated by unions are still based upon supply and demand.

Deciding pay solely in a market is simply deciding pay on what is the lowest people in that market will accept. Pay starts low and moves up to meet demand. Where it meets is the lowest possible pay.

Unions operate within that same paradigm; employers pay the lowest that the union - acting as a price monopoly - is willing to accept. Just because the union is involved does not mean that the process no longer occurs within a market.

Perhaps you could point out to me how that conflicts with the notion of a market economy that uses a price mechanism.

 

[untermensche]

No they work to remove the decision of pay from a market and make it have a relation to the value of the work done.

Unions do not do that in practice. Increased pay and conditions negotiated by unions are still based upon supply and demand.

No, the pay is is based on the money generated by the work. The cost of ownership is figured in as well.

The pay is based upon the owners opening up the books and showing what the operation makes. As well as what it spends.

That is not what happens in a market.

Deciding pay solely in a market is simply deciding pay on what is the lowest people in that market will accept. Pay starts low and moves up to meet demand. Where it meets is the lowest possible pay.

Unions operate within that same paradigm; employers pay the lowest that the union - acting as a price monopoly - is willing to accept. Just because the union is involved does not mean that the process no longer occurs within a market.

Perhaps you could point out to me how that conflicts with the notion of a market economy that uses a price mechanism.

In the situation of the union you have an understanding first of what the work is worth, what kind of profits it can generate. And the negotiation works from what is not the lowest price.

So the union is actually getting the highest possible price since the price drops from an ideal possible highest price. The highest possible price has to take actual operating costs and actual profits before labor costs into account.

But in a market the negotiation begins at an ideal for the employer. So even if the worker can somehow drive up the price it is still the lowest possible price, not the highest.

These two situations are opposite from one another. In one the union agrees to drop from an ideal high. In the other the employer agrees to raise from an ideal low.

But, and this is the crucial difference, the ideal high is based on something real, while the ideal low is based on desire alone.

 

[Nice Squirrel]

That doesn't make sense: Unions participate in the labour market by manipulating the supply curve, and therefore make it their tool.

No they work to remove the decision of pay from a market and make it have a relation to the value of the work done.

I take it you've never been involved in a union? Because the market is a big player in wage negotiations.

 

[Nice Squirrel]

Unions do not do that in practice. Increased pay and conditions negotiated by unions are still based upon supply and demand.

No, the pay is is based on the money generated by the work. The cost of ownership is figured in as well.

No it isn't. It is based upon the perceived value of the work and the market rate of similar employers. Have you ever worked in human resources?

 

[untermensche]

No they work to remove the decision of pay from a market and make it have a relation to the value of the work done.

I take it you've never been involved in a union? Because the market is a big player in wage negotiations.

This is forced into the negotiation by management.

It has no place there, but in the US management has always had the upper hand.

 

[dismal]

I take it you've never been involved in a union? Because the market is a big player in wage negotiations.

This is forced into the negotiation by management.

It has no place there, but in the US management has always had the upper hand.

No, because a worker can always leave and start a business for themselves they have the upper hand.

 

[Nice Squirrel]

I take it you've never been involved in a union? Because the market is a big player in wage negotiations.

This is forced into the negotiation by management.

It has no place there, but in the US management has always had the upper hand.

Funny, when our union enters negotiation with management there is much discussion about market wages. One stresses the lower end, the other higher end. We must be an anomaly.

 

[Playball40]

This is forced into the negotiation by management.

It has no place there, but in the US management has always had the upper hand.

No, because a worker can always leave and start a business for themselves they have the upper hand.

Bologne. A worker cannot up and leave as the system and large corporations have placed too many barriers to entry.

 

[bigfield]

Barriers to entry into what? Solo enterprise?

 

[dismal]

No, because a worker can always leave and start a business for themselves they have the upper hand.

Bologne. A worker cannot up and leave as the system and large corporations have placed too many barriers to entry.

Nonsense. Corporations can't compete with worker owned businesses because they have layers of management and greedy capital providers that add no value and extract value from workers.

 

[skepticalbip]

This is forced into the negotiation by management.

It has no place there, but in the US management has always had the upper hand.

No, because a worker can always leave and start a business for themselves they have the upper hand.

Right. Management needs workers. It is workers competing against each other that is the primary determinant of wages. If there are a lot of people competing for few jobs then they will bid their salary down to get the job. If there are few people competing for many jobs then they bid their salary up. This is why people get specialized education - so they will not have as much competition from other workers for the available jobs.

 

[skepticalbip]

Bologne. A worker cannot up and leave as the system and large corporations have placed too many barriers to entry.

Nonsense. Corporations can't compete with worker owned businesses because they have layers of management and greedy capital providers that add no value and extract value from workers.

I don't know anything about the job market in Bologne but Playball may be talking about barriers like licensing requirements or government permission to begin a business. I know this is a problem in Mexico. Government regulations there are a major barrier to starting a private business.

But you are right. In the US there should be no barrier to anyone not satisfied with working for a corporation leaving the corporation and starting their own business.

 

[Harry Bosch]

Bologne. A worker cannot up and leave as the system and large corporations have placed too many barriers to entry.

?? Workers quit corporations every single day to start competing companies. Of course there are barriers to entry, nothing is easy.

 

[doubtingt]

Since the thread has become focused only on the Labor market issue, I will focus on the Taxation issue. The OP focuses on taxation effects on the relative difference in personal income, and mentions public services funded by taxation only as a means for lower income people to increase personal income.

public services which indirectly allow people of lower economic status to accumulate wealth (e.g. education services, health services, transport services, etc.)

But a critical feature of taxation is that it shifts some of private wealth into public wealth that (can) improve the well being of all and reduce the amount of personal income needed to enjoy that level of well being. It directly redistributes wealth, so long as you consider that public wealth is just as important to the things impacted by private wealth disparity. This is why private wealth disparity is only modestly related to negative social factors that it is related to. The amount of public wealth matters a great deal. There are ways in which private wealth disparities and grow slightly and yet the public wealth increases by enough to offset any negative impact of private disparity. The problem is that extreme private wealth disparities typically harm and lower the public wealth, in part but not solely because regressive taxation and massive loopholes for the rich and corporations are used to increase the wealth of the already rich while directly reducing public wealth.

Ideally, a better stat would consider a ratio of private wealth disparity over public wealth that is used to benefit all equally or even skewed toward benefits to the low end. However, this such qualified public wealth is hard to measure with any reliable precision because it means making judgment call about how each dollar in gov revenue is used. For a country like the US that spends so much of its revenue on making a handful of people in the military industry more rich, with little benefit and often harm to the rest of society, the amount of revenue way over-estimates the true amount of public wealth.

 

[dismal]

Since the thread has become focused only on the Labor market issue, I will focus on the Taxation issue. The OP focuses on taxation effects on the relative difference in personal income, and mentions public services funded by taxation only as a means for lower income people to increase personal income.

public services which indirectly allow people of lower economic status to accumulate wealth (e.g. education services, health services, transport services, etc.)

But a critical feature of taxation is that it shifts some of private wealth into public wealth that (can) improve the well being of all and reduce the amount of personal income needed to enjoy that level of well being. It directly redistributes wealth, so long as you consider that public wealth is just as important to the things impacted by private wealth disparity. This is why private wealth disparity is only modestly related to negative social factors that it is related to. The amount of public wealth matters a great deal. There are ways in which private wealth disparities and grow slightly and yet the public wealth increases by enough to offset any negative impact of private disparity. The problem is that extreme private wealth disparities typically harm and lower the public wealth, in part but not solely because regressive taxation and massive loopholes for the rich and corporations are used to increase the wealth of the already rich while directly reducing public wealth.

Ideally, a better stat would consider a ratio of private wealth disparity over public wealth that is used to benefit all equally or even skewed toward benefits to the low end. However, this such qualified public wealth is hard to measure with any reliable precision because it means making judgment call about how each dollar in gov revenue is used. For a country like the US that spends so much of its revenue on making a handful of people in the military industry more rich, with little benefit and often harm to the rest of society, the amount of revenue way over-estimates the true amount of public wealth.

Well, if the worker can capture all of the value they create by going into business for themselves, their taxes will probably go up and the taxes paid by people whose incomes depend on taking value (i.e., greedy capitalists and useless managers) that workers create will go down.

But since redistributive policies will become unnecessary we should be OK.

 

[dismal]

Bologne. A worker cannot up and leave as the system and large corporations have placed too many barriers to entry.

?? Workers quit corporations every single day to start competing companies. Of course there are barriers to entry, nothing is easy.

If the source of all the value is the worker it follows that any worker has all he or she needs to capture all the value they create. It's basic logic.