2. INCOME INEQUALITY

3. INCOME INEQUALITY
Krass & Kainz

5. WE ARE NOT DEBATING COMMUNISM VS CAPITALISM

6. Assumption
GENERALLY PEOPLE ARE HAPPIER THE HIGHER
THEIR INCOMES ARE

7. Assumption
ALL NATIONS STRIVE TO ACHIEVE THE FOUR MACROECONOMICS
OBJECTIVES:
SUSTAINABLE ECONOMIC GROWTH
LOW INFLATION
EQUAL INCOME DISTRIBUTION
FULL EMPLOYMENT

8. Knowledge Issue
DO HIGH LEVELS OF INCOME INEQUALITY COME
AS A BYPRODUCT OF ECONOMIC GROWTH?

9. Knowledge Claim
YES, INEQUALITY COMES AS A BYPRODUCT OF
ECONOMIC GROWTH.

10. INTRODUCTION TO INCOME INEQUALITY
• Income inequality is when the incomes earned
in a nation are not proportionally equal
• In
communist / socialist oriented economies,
the incomes are distributed equally and not by
measure of work input

11. WAYS FOR GOVERNMENT TO
CHANGE INCOME INEQUALITY
• Progressive vs Regressive income taxes
• Flat taxes (ex. VAT)
• Transfer payments

12. THE GINI COEFFICIENT
• “A numerical measure of the level of
income inequality in a nation. Measures the
ratio of the area between the line of equality
(the 45 degree line) and a nation’s Lorenz
Curve to the total area below the line of
equality. The closer the coefficient is to one,
the more unequal a nation’s income
distribution. The closer to zero, the more
equal the nation’s income is distributed.”
- Welker's Wikinomics

13. ARGUMENTS FOR INCOME INEQUALITY
• Meritocracy (incentives to work)
• No government intervention in wages (all G Intervention leads to a DWL)
• Innovation should be rewarded
• Investment (opportunity cost & risk) should be rewarded
• More disposable income and more wealth leads to an incentive to create
jobs through investment

14. ARGUMENTS AGAINST INCOME INEQUALITY
• Diminishing Marginal Utility of Income
• Social friction
• Less Equity

15. INCOME INEQUALITY IN THE REAL
WORLD

16. AN AUDITORY REPRESENTATION
OF THE US INCOME GAP

17. AN AUDITORY REPRESENTATION
OF THE US INCOME GAP

18. GINI INDEX VS GDP PER CAPITA (PPP)

19. CASE STUDY: UNITED STATES
• Key Figures
• 480kprivate boats, 223k private planes vs. 44 million people dependent on
food stamps
• 35k of 84k UHNWI live in US
• Jon
Paulson earned salary of all 80k NY public teachers together for the
next three years in one year
• Gini Coefficient 45

20. CASE STUDY: UNITED STATES
• Social frication
• 1% vs 99%
• Occupy Wall Street
• 44 million people dependent on food stamps

21. CASE STUDY: INCOME INEQUALITY AFTER THE FALL OF
THE IRON CURTAIN
• Iron Curtain fell in 1991 - following the end of the Cold War
• Was set up as a ideological barrier between Western and Eastern Europe
• In Eastern Europe - Communism
• In Western Europe - Free Market Economies
• Before fall of Iron Curtain: Low GDP (PPP) per Capita & Low Gini
• After fall of Iron Curtain: Increasing GDP (PPP) per Capita & Higher Gini

22. % OF INCOMES EARNED BY HIGHEST 20% OF POPULATION

23. % OF INCOMES EARNED BY HIGHEST 20% OF POPULATION

24. GINI INDEX

25. GINI INDEX

26. GDP (PPP) PER CAPITA

27. GDP (PPP) PER CAPITA

28. GINI INDEX VS GDP (PPP) PER CAPITA

29. GINI INDEX VS GDP (PPP) PER CAPITA

30. CASE STUDY IRON CURTAIN
CONCLUSION
• Gini Index increases (more inequality)
• Resulting in overall increase in income per person (PPP)
• Higher percentage of total income earned by top 20%

31. So far we can conclude that:
KEY CONCEPT
THERE IS A TRADEOFF BETWEEN
NATIONAL INCOME AND EQUALITY

32. CASE STUDY: JAPAN & SWEDEN

33. Brazil
Japan
Sweden

34. CASE STUDY: JAPAN & SWEDEN
DIFFERENT APPROACHES
• Japan
• Comparably low income taxes (up to 35%)
• Legislature to minimize CEO to Worker pay ration (16:1)
• Various legislature to reduce incomes pre tax
• Sweden
• Highly progressive income tax system (up to 65%)
• Generous transfer payments
• Benefit schemes

35. Now we are confused...
KEY CONCEPT
THERE IS NO TRADEOFF BETWEEN
NATIONAL INCOME AND EQUALITY

36. Knowledge Claim
INEQUALITY COMES AS A BYPRODUCT OF
ECONOMIC GROWTH.

37. CONCLUSION
• Presented evidence to confirm and refute our KC
• No distinguishable relationship (too many factors determining economic
success or failure)
• Government play a key role in redistributing income

38. FINAL THOUGHTS
• Income inequality is not an issue as long as:
• No absolute poverty exists (only relative poverty)
• Income inequality arises due to merit and not due to unequal
opportunity
• Income gaps are not forever increasing

39. Freeland, Chrystia. Plutocrats: The Rise of the New Global Super-rich and the Fall of Everyone Else. New
York: Penguin, 2012. Print.
Maley, Welker Sean, Jason. Economics: Developed Specifically for the IB DIPLOMA. N.p.: n.p., n.d. Print.
Skidelsky, Robert, and Edward Skidelsky. How Much Is Enough?: Money and the Good Life. New York: Other,
2012. Print.
Stiglitz, Joseph E. The Price of Inequality: [how Today's Divided Society Endangers Our Future]. New York: W.W.
Norton &, 2012. Print.
http://www.google.com/publicdata/directory
http://www.npr.org/blogs/money/2011/03/09/134370052/the-tuesday-podcast-money-buys-happiness
http://www.npr.org/2011/10/29/141823761/the-income-gap-explained-with-candy-corn
http://www.economist.com/blogs/graphicdetail/2012/05/ratio-ceo-worker-compensation
http://thinkprogress.org/politics/2010/07/08/106536/japanese-ceo-american-sixth/?mobile=nc