Economists believe that historically, countries with more income inequality have
ID: 3203687 • Letter: E
Question
Economists believe that historically, countries with more income inequality have had lower unemployment rates. For example, an economist in 1996 developed the table below containing the following information for 10 countries during the 1980-1995 time period:
The change from 1980 to 1995 in ratio of the average wage of the top 10% of all wage earners to the median wage.
The change from 1980 to 1995 in unemployment rate.
Country
WIR Change
UR Change
Germany
-6.0%
6.0%
France
-3.5%
5.6%
Italy
1.0%
5.2%
Japan
0.0%
0.6%
Australia
5.0%
2.4%
Sweden
4.0%
5.9%
Canada
5.5%
2.0%
New Zealand
9.5%
4.0%
Britain
15.6%
2.5%
U.S.
15.8%
-1.8%
1. Explain why the ratio of the average wage of the top 10% of all wage earners to the median measures income inequality. (Explain clearly.)
2. What other data would you need to be more confident that increased income inequality leads to lower unemployment?
Country
WIR Change
UR Change
Germany
-6.0%
6.0%
France
-3.5%
5.6%
Italy
1.0%
5.2%
Japan
0.0%
0.6%
Australia
5.0%
2.4%
Sweden
4.0%
5.9%
Canada
5.5%
2.0%
New Zealand
9.5%
4.0%
Britain
15.6%
2.5%
U.S.
15.8%
-1.8%
Explanation / Answer
1. Explain why the ratio of the average wage of the top 10% of all wage earners to the median measures income inequality.
Ans:if this ratio is high then a relatively large share of all income is being made by th epeople in the upper 10% hence it is inequality
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