Microeconomics Report: Analyzing Income Inequality in the USA

This microeconomics report investigates the escalating income inequality in the USA, focusing on the widening gap in earnings and its underlying causes. The report delves into the perspectives of two propositions: one attributing the disparity to individual effort and a culture of dependency, and the other emphasizing policy decisions favoring the wealthy. It examines the impact of factors such as educational costs, skill premiums, and labor market dynamics, including the roles of automation and international competition. The analysis further explores potential policy solutions, including skill development programs, social integration strategies, wage adjustments, and social insurance policies. The report draws on various academic sources to support its findings and offers insights into the complex interplay of economic forces driving income inequality.

Running head: MICROECONOMICS
Microeconomics
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................3
Reference list...................................................................................................................................5

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Answer 1
According to the author, the income inequality is an evolving concern for the USA
economy over the last two decades. The sharp dispersion in the earnings across different labor
sections has growing widen compared to other developed countries. The major portion of the
income has been concentrated by only 1% of the USA population. Rest of the 99% households
has been reported to face lack of higher education, wage premium and cognitive ability. The
sheer improvement in the skill has led to the difference in the employability and earnings
capability.
Referring to the paper, three reasons have been mentioned to analyze the growing
disparity in earnings to education and skills. First, the educational cost has surged up in several
numbers of advanced countries over the last couple of years. Around two-thirds of the earnings
inequality is accountable for the growing expenditure related to the secondary and postsecondary
education. This creates great wage dispersion as higher educated people earn more than the low
educated people. Second, literature plays as an influencing factor between demand and supply of
labor. It has been observed that the changes in the skill premium has doubles the income of the
college graduates during last three decades. As a result of that, the economy encounters with
different purchasing power of the citizens. Third, skill premium highlights the gap in terms of the
social value. It illuminates the constructive function of the public policy in order to maximize its
benefit and reduce the cost of inequity.
As per the article, the real value of the minimum wage has been deteriorated to an
extreme level. This has resulted in the decrease in the demand for the employment opportunities
for the non-college students (Jaumotte and Osorio 2015). These students have not been employed

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even for the clerical, production and administrative sector. The deployment of the automation
system further has raised the demand for the college graduate students. Moreover, the intense
completion in the international market and successive reduction in the marginal tax rate has
intensifies the real wage difference among the less-educated workers (Ahlquist 2017).
Meanwhile, the bargaining power of the USA labor unions has failed to enhance the demand for
the less-educated labors. Data suggests that return to education has been reported to give
impressive outcome from 1984to 2004.
Answer 2
In terms of the author, it is a complex task to recommend a perfect policy to mitigate the
inequality within the economy. The growing inequality is considered as a market phenomenon.
Structural development has been experienced as the most effective remedy from the long-term
perspective. Improvement of the working skill for the successive generation can assure the
development of the real wage and work capacity of the workers (Alt and Iversen 2017). As the
realm wage determines the purchasing power of the people, the hike in the real wage augments
the aggregate demand in the market. In addition to that, it enhances the accession power to the
governmental assistance related to education and health sector. The access to the pre and post
high school education improves the technical skill and employment opportunity for the educated
workers. Further, getting reach to the standard health facility and nutrition level provides
standard health care system to the low wage earners (Card et al., 2018). In this way, the average
medical expenditure gets reduced enhancing the government expenditure on the public health
care sector. Altogether, life expectancy gets improved. Skill development program is termed as a
multigenerational process which may bring little positive impact on the society in the short term.
However, it will bring the most effective solution for the socio-economic development. It

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Meanwhile, the public policy should be developed with the aim of improving the
integration between different sections of people. This will build up strong social association
which will further help to combat the income inequality in the economy. In terms of the social
consequences, the economic dependency on the non-collegiate students will be improved. In this
way, a large section of the people accompanied with below education standard will be getting
employed into the general workforce system (Blundell, Pistaferri and Saporta-Eksten 2016). This
will develop a well-crafted socio-economic background for the labors. The implementation of
appropriate wage law will ensure the employment security as well as the exploitation of the labor
will be controlled. Introduction of wage subsidy, income tax credit and increasing pay-off are
expected to improve the total employability within the economy (Schor and Attwood‐Charles
2017). Apart from that, the USA government can offer numerous number of social insurance
policies, like, health insurance, food insurance, food assistance, disability insurance and disaster
assistance to mitigate the inequality from the economy.

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Reference list
Ahlquist, J.S., 2017. Labor unions, political representation, and economic inequality. Annual
Review of Political Science, 20, pp.409-432.
Alt, J. and Iversen, T., 2017. Inequality, labor market segmentation, and preferences for
redistribution. American Journal of Political Science, 61(1), pp.21-36.
Blundell, R., Pistaferri, L. and Saporta-Eksten, I., 2016. Consumption inequality and family
labor supply. American Economic Review, 106(2), pp.387-435.
Card, D., Cardoso, A.R., Heining, J. and Kline, P., 2018. Firms and labor market inequality:
Evidence and some theory. Journal of Labor Economics, 36(S1), pp.S13-S70.
Jaumotte, M.F. and Osorio, M.C., 2015. Inequality and labor market institutions. International
Monetary Fund.
Schor, J.B. and Attwood‐Charles, W., 2017. The “sharing” economy: labor, inequality, and
social connection on for‐profit platforms. Sociology Compass, 11(8), p.e12493.