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Poverty and Income Inequality Review

Nowadays, poverty and income inequality are serious issues that have disturbing trends in the US. Poverty rates have fluctuated with time, rising during times of job loss and falling in periods of economic recovery. Nonetheless, since 1967, there has been a steady and slow rise in income inequality in the US. There are different causes of poverty and income inequality, but one of the most critical is an education issue. This issue is connected with the fact that people without college education earn less in comparison to people with a degree, and in modern conditions of the globalization and technology revolution, people with a degree are most demanded in the labor market. In turn, it provokes income inequality. Therefore, it is critical to consider education as the crucial factor that impacts income inequality because without education equality it is impossible to reach income equality.

Labor markets that determine the salary of employees do not consider the income families need to survive. Therefore, poverty and income inequality become quite serious issues. Poverty refers to the number of people who find themselves below a specific income level that is named a poverty line and defines the needed income for a basic living standard. Income inequality compares the total income share in a society that is gained by different groups (OpenTax 306). The poverty line is based on cash income, which means it does not involve government programs aimed at helping the poor. This makes poverty and income inequality issues highly complex and challenging (OpenTax 308).

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Another problem contributing to income inequality is a poverty trap. This problem appears when people are provided with income, health care, shelter, food, and other necessities, which reduce their need to work. There are various programs developed to reduce poverty through which the government provides assistance to the poor; however, when the poor earn some money, the government decreases the level of assistance it provides (OpenTax 309). As a result, one experiences no net gain for working, which is called by economists the poverty trap. The negative consequences of the poverty trap can be reduced by implementing an anti-poverty program, which will ensure that instead of reducing government payments by one dollar for every dollar one earns, these payments will be reduced by a smaller amount (OpenTax 311). Also, poverty can be decreased through suggesting requirements for a specific work, for the meeting which one will receive some benefits, and creating a time limit on benefits.

One more crucial issue is a safety net. The US government developed some programs in order to assist people that are considered to be below the poverty line and people who have incomes just slightly above the poverty line, particularly, near-poor people (OpenTax 313). These programs are named the safety net because they provide protection to people that have no work or income. One of the programs is the Temporary Assistance for Needy Families (TANF), which forwards payments to mothers that have children and that are considered to be below the poverty line (OpenTax 313). Under this program, the federal government provided a fixed amount of money to states that use the money for any program with an anti-poverty background (OpenTax 313). The next program is the Earned Income Tax Credit (EITC); its main goal is to help working poor people through the tax system.

Another program is the Supplemental Nutrition Assistance Program (SNAP), which is financed from federal funds. It provides poor people with cards every month, and these cards can be used for food purchasing (OpenTax 315). Hence, the amount of food that is provided to families depends on the number of children, income, and other factors. However, in general, families are expected to spend around thirty percent of their own net income on food, and if this amount is not enough to have the nutritionally proper diet, then such families participate in the SNAP (OpenTax 315). Finally, there is Medicaid, the joint health insurance program. The federal government helps to fund this program, but states are responsible for administrating it, determining eligibility, and the benefits level (OpenTax 316). It offers medical insurance to some people with low income, especially to those below the poverty line, concentrating on families with disabled, elderly, and children.

Poverty levels can be based subjectively on the general income levels of the country, with poverty being measured based on the median income percentage. Nonetheless, income inequality is connected with income distribution in terms of which group gains the least or the most income. Income inequality includes comparing those with low, middle, and high incomes (OpenTax 316). In turn, income inequality measurement presupposes division of the population into several groups and their further comparison.

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One of the known alternative ways of measuring income inequality is to rank all households ‘by income from lowest to highest and to divide them into five groups with equal people number known as quintiles’ (OpenTax 317). Such calculation helps to measure the income distribution among five groups in comparison to the total. Besides, the income inequality data can be presented in different ways. For instance, it is possible to design a bar graph that will show the income share going to each fifth of the income distribution. The alternative way of showing inequality data is the Lorenz curve that ‘shows the cumulative population share on the horizontal axis and the cumulative percentage of total income received on the vertical axis’ (OpenTax 218). In general, the US economy has quite a high-income inequality level from the global perspective. For instance, its level in the US is much greater in comparison to that of Germany. At the same time, an even higher level of income inequality can be seen in Latin America (OpenTax 319). Besides, the inequality level of the US is lower than that of Nigeria and China.

It is critical to understand the causes of growing inequality. One of them is the changing composition of American households. It was found that the number of working married women is growing, which means that more households have two earners (OpenTax 320). Another cause is a shift in the wage distribution, which became noticeable in the 1970s; as a result of this shift, the gap between earnings of the low-skilled and high-skilled labor has started to increase (OpenTax 322).

There are several directions of the government policies aimed at reducing income inequality. One of them is redistribution, which means ‘taking income from people with higher incomes and providing income to people with lower incomes’ (OpenTax 324). The next direction is the opportunity ladder. Economic inequality mostly grows in case this ladder is not talent- or effort-oriented, but instead, is determined by the conditions under which a person has grown (OpenTax 324). Public policy should be able to ensure every person has equal opportunities; in other words, despite the fact that all children come from different families and go to different schools, each of them needs to have a chance to receive economic stability in a society based on their efforts, talents, desires, and interests.

Another direction is inheritance taxes. The US has the estate tax, which is B”a tax imposed on the inheritance values that suggest a willingness to limit how much wealth can be passed on as the inheritance’ (OpenTax 324). Nonetheless, according to the Center on Budget and Policy Priorities, in 2015 estate tax was imposed only when inheritances left amounted to more than 5.43 million of dollars; thus, it is imposed only on a small number of people with high levels of income (OpenTax 324). Moreover, a great role in this situation has the tradeoff between income equality and incentives. Therefore, government policies, in order to decrease poverty or to improve economic equality, can harm incentives for economic output (OpenTax 326).

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Education inequality as income inequality cause

Income inequality became the topic of public discourse some time ago. One can see a widening gap in the income distribution in the US with the top 5% of households accruing the increasing resources share (Karageorge 1). As it was already mentioned, a great role in such income inequality nowadays plays the education inequality. In particular, limited opportunities for people without a degree, just as education attainment disparities.

During last several decades, incomes have increased at the income distribution top, promoted by the technological revolution in addition to the slowdown in supply of qualified employees with a college degree, which, in turn, has increased the returns to universities and colleges (Mather and Jarosz 12). What is more, structural differences in the US economy have decreased the real salaries of people with fewer skills and less education. Manufacture-oriented jobs that recently were considered highly paid were replaced by service-oriented ones with lower salaries, which led to decreased wages for people without education (Mather and Jarosz 12). Therefore, a great economic gap is present between people with and without a college education.

Moreover, it was found that ‘the poverty rate for adults whose age is twenty-five and older without a high school diploma fell slightly in 2013, but around 28% was found to double the poverty rate among high school graduates, while only 5% of a college graduate was considered poor in 2013’ (Mather and Jarosz 12). Despite the fact that there are numerous work positions that do not require higher education, due to increasing globalization, highly skilled and educated employees in the US appear to be more in demand (Mather and Jarosz 12). In general, for each person, going to a university is a vital step that could be taken in order to become independent from the financial perspective.

Those graduating from college tend to have impressively higher lifetime income in comparison to people without higher education; besides, people with a degree also have fewer chances to experience unemployment. Moreover, they can have a number of various health, economic and social benefits. Parents that got university degrees also have more chances that their children will get higher education as well, so its benefits are passed from generation to generation (Mather and Jarosz 12).

Another important aspect of the problem is the growing number of young Latinos in the US who have fewer chances to complete a high school or university in comparison to people from US-born families (Mather and Jarosz 12). Therefore, among people whose age is from twenty-five to twenty-nine, Latinos have fewer chances to get a college education, while the highest rates of attaining a college degree are among Asian Americans and whites (Mather and Jarosz 13). Hence, with a great number of Latinos that seems to grow rapidly, the demand for college-educated employees will increase unless this gap is properly addressed.

Families with lower income often have problems with covering the education costs for their children (Mather and Jarosz 13). Hence, students from such families tend to enter more frequently community colleges that have fewer resources and institutional support than those from families with greater income. It was found that for students in community colleges, the competition rate is only 18%, while a 90% competition rate can be noticed among students that choose private educational institutions (Mather and Jarosz 13). Thus, it is critical to consider the further changes of this situation.

It is predicted that future employees will have the same education incomes as the youngest current working cohorts. These changes in education levels are supposed to influence education inequality (Coady and Dizioli 15). Moreover, the research showed that changes in education outcomes will continue to have a dampening influence on income inequality over the period till 2025 (Coady and Dizioli 15). At the same time, it is possible to suggest that income inequality reducing education influence can be expected to fall while as the education level rises, while the education inequality decreases in developing and emerging economies (Coady and Dizioli 15). Therefore, there is clearly a need to decrease education inequality to improve the situation with income inequality.

Personal experience

Education issue in the context of income inequality has also impacted people that I know, particularly my classmates from the high school. The problem was that some of my classmates were not from wealthy families, and, as a result, they were not able to go to college. Without a college education, their income now is considerably less than the income of people with a degree I know. There is a great income gap between them due to the great impact of an education factor. This only proves that the education issue has an enormous influence on income inequality in the US.

Later, I also started to notice some cases when people of other nations, especially Latinos, have some difficulties in gaining the same education as others. In general, the main reason was a lack of money for college education, while whites were attending colleges mostly without such difficulties. It can be seen that education inequality with time transforms into income inequality. These Latinos are not able to get a good and well-paid job because, in the period of globalization and technological progress, good skills and a good education play a great role. Therefore, income inequality only grows due to these factors. In particular, I can see how some people that I know from the past have income challenges because they simply do not have enough money to handle all basic spending. At the same time, none of the people close to me do have such problems. Hence, the education issue has a great impact on income inequality and it is crucial to introduce some ways of changing a situation in a better way.

One of the possible solutions is an investment in education because it will help to reduce disparities between population groups. Education from preschool to university provides people with equal opportunities for success in their further life (Mather and Jarosz 13). Finishing high school forces children to become more productive adults. Therefore, a college degree usually leads to great work, upward mobility, and higher income. It is critical to understand that education is a great predictor of longevity and health (Mather and Jarosz 13). Those who have higher education levels have higher income, can afford better food, insurance, medical care, and live in better neighborhoods. Therefore, the government has already set the impressive goal to raise the share of the adults whose age is from twenty-five to thirty-four with higher education to 60% by 2020 (Mather and Jarosz 13). Nonetheless, it is projected that the US will fail this goal.

What is more, policymakers can improve the chances of getting higher education through the tuition assistance rise in families with lower income in order to help children that grow in such families to have the exact access to colleges just as people from higher-income families (Mather and Jarosz 13). Moreover, it is possible to reach out to future college students that live in underserved and remote areas, especially communities located in rural and high-poverty areas. Another solution is to provide transporting, housing, and child care help to families with lower income; this will help parents to achieve their own occupational and educational aims and then pass the same expectations and aspirations to the children (Mather and Jarosz 13). Additionally, it is possible to ensure that children in middle and high school are prepared from the academic perspective for college (Mather and Jarosz 13). Hence, in these ways, the government could try to solve the education problem that, in turn, would reduce the income inequality gap.

Overall, nowadays, such issues as poverty and income inequality are highly disturbing in the US. There are many causes of these problems, but education inequality is probably the most pressing one. It is crucial to understand that education inequality leads to income inequality because people that have no possibility to get a college education have fewer chances to receive a well-paid job. At the same time, people with a college education and needed skills, in general, have good work with a good income. Such a situation created income inequality in the US market and provoked poverty. The main point is that often people due to income inequality can move below the poverty line. Such a situation is unhealthy and it needs to be solved. Possible solutions can be investments in education and the improvement of the educational policy.

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