Evaluation of 3 Government Policies to Reduce Inequality
In this HUB I take a look at evaluating three different approaches governments could use to reduce inequality.
Education and Gender
By investing in and removing barriers to education, an equal starting point could be given to all. However by giving equality of opportunity, the pre-conditions of a meritocracy are established (especially in a capitalist system) and the inevitable of this (when not combined with a fixed income rate) is inequality of outcomes and therefore inequality of income.
Despite this, by removing barriers to education for women, many would consider this a step forward for gender inequality despite the possibility of the afore mentioned long term inequality. The role of women in some societies has both a cultural and religious stigma attached to it which may reduce a gender equality policy's effectiveness.
Supply side education policies could be combined with refocusing government spending on those that need it most, however this may be difficult due to the government possessing imperfect information.
Annual House Price Change
Geographic mobility of labour
By improving geographical mobility of labour i.e. to make it easier for people to move from declining regions to prosperous regions, people would have a chance to access higher paid jobs and more prosperous labour markets. Tackling this problem would mainly involve compensating for regional variations in house prices, which is severe in the UK. This could be done by targeted housing subsidies for those moving into more affluent areas. However, there are three main problems with this;
1. Firstly the bureaucracy and asymmetric information of the government may lead to mis-allocation of resources.
2. Secondly, this kind of regional migration could lead to a "brain drain" and lower Aggregate demand, sending the region into a spiral of decline.
3. Thirdly, and perhaps most importantly, the cost to the government of providing this subsidy would reduce revenue available for other government spending programmes, which could result in increased inequality, along with increasing the government deficit.
Eliminate Subsidies For Uncompetitive Industry
The government could eliminate subsidies for uncompetitive industries. By doing this, it increases competition and the emergence of infant industries which increases employment. However, the employment trade off between removing subsidies for large industry (employing many) and increasing the number of small but competitive infant industries is hard to calculate. Also by removing subsidies, the market could be flooded with cheap imports and the industry completely lost.