Income inequality

Today, I was surfing through the Economist and came across a quite reflective article about income inequality.

http://www.economist.com/node/18332806

It says that the gap between the richest and poorest of the rich industrialised nations of the world has widened during the recession. The article also attempted to answer the million dollar question (pardon the pun!) about what could be done.

"Does this matter and, if so, what should be done about it? To most politicians the answer to the first question is self-evidently yes. “Slipping behind Shanghai” is hardly a vote-winning slogan. And all too often the answer to the second question has involved subsidies. The European Union’s “structural funds”, more than a third of the EU’s budget, are designed to shift cash from richer to poorer parts of the single market. America has pumped federal dollars into deprived regions such as Appalachia. Now Britain’s coalition government is dusting off Thatcherite ideas for boosting left-behind areas with tax breaks: on March 5th George Osborne, the chancellor, announced the creation of ten “enterprise zones” that will get preferential tax treatment and simplified planning rules."


The thing that worries me is that people think the poor can just become rich by 'pumping dollars' into deprived regions. How would that help? Sure, you can build infrastructure or create jobs but that will hardly help because wages are determined by the skill level and demands of businesses. T


The higher the skill level coupled with a demand for those skill sets translates into a better paid job and therefore a better standard of living. Of course, you could live in a country that has monopolised businesses which can artifically set wages (as there is no other company to attract the workers needed) but we are talking about Britain and America.


The article did hit a jackpot with regards to education though;


"Second, focus on education. In Sunderland only 21% of adults have any form of higher education, compared with 39% of Londoners. Though there are other ways that the British government can help boost productivity—from strengthening infrastructure to cutting red tape—the single biggest reward will come from improving northerners’ educational performance. To be sure, the better-educated might then move. But they, and Britain as a whole, would be much better off."


Of course, when you do talk about education, in particular higher education, one has to keep  an important points in mind. Most people tend to see university education as too long, many would be impatient to start earning money quickly or feel that the job market for highly skilled workers is not too great. A mechanical engineer in Australia would earn $50,000/annum as a starting salary (does not include the tax!) and a tradesman (electrician, landscaper etc) would earn probably half that amount but their salaries would almost be equivalent after tax! One does a four year university degree and the other studies for a year at the most!