The impacts of income inequality on the US population are also different. Income inequality had an enormous impact on the United States’ history with the Great Depression that occurred in 1929. The principal impact of income inequality is surely the poverty rate that increases in the United States because a lot of the income goes to the richest population. As explain in this paper there are a variety of different technics to calculate the inequality within a country, some methods are more reliable than others. The most commonly used method is the Gini coefficient, which can help to compare the level on inequality between countries.
For firms, inflation causes cost or production to income since workers’ demand pay rises, as well as making it difficult to firms to plan for future. Inflation is an increase in general price levels and has undesirable impacts on households and firms which means the government is justified to use policies to maintain price
For instance, of the causes are considered the extreme unemployment benefits, excessive minimum wage and hiring cost, too high real wages level, the disparity between the unemployed labour and job offers on the market in terms of skills and many others reasons (Bell, 2000). At the same time unemployment impacts the economy and the society. Economy experiences decreased spending power of the families and extra expenditure on unemployment benefits, the society meets changes in the mental health, crimes and violence, standard of living and others. There were many studies conducted on dependencies and mechanisms of unemployment. Unemployment can explained by many factors as well as inflation.
DISADVANTAGES Long term financial development puts an awful effect on the inhabitants of any nation. Long term economic developments may be identified with expansion, as inflations may increase. Inflations usually increase the cost of products on sale, and as the costs are higher, it will be an issue to the nationality in question to be able to buy their needs There is a limited amount of time involved in the growth of an economy as it involves an increase in GDP. The hypothesis and practice are both diverse. The hypothesis is the thing that economists are able to figure out for themselves; however, to be able to use the hypothesis in reality is the main task.
Due to the way wealth is concentrated it also affects the nation’s economy. Most of the consumer spending depends on individuals who are at the bottom. Having a country which is controlled by the wealthy affects the growth of the economy. Although income inequality has many negative effects on a nation, it also is a symbol of growing success for the rich and the poor. For instance “income inequality (different incomes among different people with different skills and
Inflation is the rate at which the general level of prices for goods and services is rising, and, then purchasing power falling over a period of time. When price level rises, dollar buys fewer goods and services. Therefore, inflation results in loss of value of money. Inflation is divided into two categories Cost-push and Demand pull inflation: Cost-push inflation means that prices have been hiked up by increases in costs of any of the four factors of production such as (labor, capital, land or entrepreneurship) when companies are already running at maximum production capability. With higher production costs and productivity at it maximum, companies cannot maintain profits by producing the same amounts of goods and services.
At the same time, the problem of unemployment also existed. Actually, unemployment remained high in the twenties. Although the government had policies to take income tax in order to balance the income between the rich and the poor, the actual income of the big companies were much more than what they pay for tax. The effort made by government did not help workers effectively. After the Great Depression, the New Deal programs benefited people who suffered from inequality a lot.
The unemployment rate increased because of neoliberalism. In neoliberalism, unemployment will target any person with less working ability which might cause hatred. Also, it caused a widening inequality of both wealth and income in Latin America. Skilled workers have an opportunity to get higher wages; on the other hand, low-skilled workers can only get low wages. Neoliberalism causes a limit to wage
Another cause of poverty is high inflation. High inflation is the rapid increase of prices in the country; whether it is the increase of the price of gas, food, electricity, water and other things. Not everyone can pay the bill every time it increases because some people have an exact salary to pay all their bills and if the bills increase, they would come up short on money. So where are they going to get the money to pay the bills? They will experience difficulties in paying the bills and finding another source of income to be able to pay.
A more detrimental impact on the current minimum wage in our economy is the inflation rates and the fact that inflation tends to reduce the populations purchasing power of money. According to input by McConnell, Brue, and Flynn, inflation is caused by an excess of total spending that exceeds a firm’s production volume (McConnell Pg 206). In other words, by raising the minimum wage and creating human stimulus, businesses can reach full employment and maximum output. Minimum wage affects inflation because inflation imposes a domino effect in overall economic health and success. Increased costs reduce supply resulting in less total output and employment cuts.
If the minimum wage increases, it doesn’t necessarily mean that the economy will get better or our standards of living will be better. If wages go up, then the standard of living will also increase. There are statistics that have proven why the raise of the minimum wage will actually cause more issues. As the minimum wage increases, the unemployment rate will increase. As well, there is a huge potential of causing small business to collapse due to higher wages and being unable to afford it.
According to Robert Reich, inequality is a major problem in the United States because of both economic and political issues. Taking a look at the economic standpoint, one can see the major discrepancies between the top 1% and the other 99%, showing that the United States has the most inequality for a developed nation. But why is this? A point Reich introduced is the vicious cycle; wages stagnate, workers buy less, companies downsize, tax revenues decrease, government cuts programs, workers are less educated, unemployment rises, and then the cycle begins again. The stagnation of wages, when productivity goes up but wages remain the same, causes workers to buy less which is a problem because 70% of the US economy is made up by consumer spending.
Since this causes a high unemployment rate many of the people will get on a government welfare program to pay for their family and that is even more money being lost in the economy, making the nation fall into a deeper recession. In addition, the economy will not do so great in the near future if the government does not clean up its act and fix the problems that are going on; such as the national debt and how it can be causing a recession in the United States. With the contributing factors of how the taxes should be taken care of, certain healthcare programs draining the little money the government has to offer, government welfare programs not being more supervised by not allowing people to take advantage of it, and lastly not allowing the government to borrow so much money from foreign countries to make our debt rise to the