ChainWhat it assumes · how to break it
Start
The government increases spending on education and training, for example funding apprenticeships and adult skills courses.
1
As a result, low-skilled workers gain qualifications and skills.
human capital
human capital
Best link to attack
Assumes: The extra education reaches low-income groups.
Assumes: The extra education reaches low-income groups.
But: Better-off families often make most use of free education, especially at university level, which can widen gaps rather than close them.
2
This means their productivity rises, so their marginal revenue product rises and employers are willing to pay them more.
marginal revenue product
marginal revenue product
Assumes: Wages reflect productivity.
But: Where employers have monopsony power, they can hold wages below MRP, so workers gain less.
3
Consequently, low-paid workers move into better-paid jobs, and the gap between low and high wages narrows.
wage differentials
wage differentials
Assumes: Higher-paid jobs are available.
But: If many people gain the same qualification, its wage premium falls.
4
In addition, more people move from benefits into work, raising incomes at the bottom of the distribution.
distribution of income
distribution of income
Assumes: The barrier to work was skills.
But: Childcare costs and health problems keep many people out of work regardless of skills.
End
Income inequality narrows.
Attack the whole chain: Wealth inequality depends mainly on assets such as property and inheritance, not earnings, so even if pay gaps narrow, wealth gaps may not.
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Questions this answers
- Assess the effectiveness of education spending in reducing income inequality.
- Discuss the policies a government could use to reduce poverty.
- Evaluate supply-side policies as a way to reduce inequality.
Diagram
Lorenz curve: the curve moves closer to the line of equality and the Gini coefficient falls.
Reverse and related
Cuts to education and training → skills gaps persist → wage gaps widen.