Why is income inequality increasing despite government policies to the contrary?
Abstract
This questions aims to bring insight into why income inequality has been rising in recent years, despite apparent government policies to decrease it. It was evident from initial research that income inequality was increasing. I then looked at the policies that had already been implemented or can be seen around the world and tried to understand therefore, if they were in place, why income inequality was still increasing. This was why I also looked at reasons for the increase in income inequality. Overall, I found that the policies that were in place were half-formed, there needed to be a more effective version. For example, income tax could be much higher if they indeed wanted to reduce income inequality. This leads to the conclusion that many apparent ways in which the government could be perceived to be attempting to reduce income inequality are instead politically motivated in order to maintain favour with the public. Or at least it may be because they do not feel that it is a major problem in the economy and other issue deserve more attention.
Introduction
Income inequality is a huge topic and therefore it will be difficult to try and cover all the aspects in order to answer the question. Income is a flow of revenue that can come from many different sources, not just wages, but interest on savings and dividends from shares owned as well (Priester & Mendelson, 2015). Income inequality is therefore the unequal distribution of these things. Income inequality is a controversial topic as views on it often also govern a persons’ own political beliefs as well. It is important to research not only because of its current increase, but also because of why it has been increasing and why not a big enough move has been implemented to stop this increase.
Review of literature
Introduction
The nature of inequality is very broad and therefore, I have tried to categorise the topic into themes. It is based on why inequality is so high and how it can be reduced. In this review of literature, the following themes can be identified:
(i) Economic theory of inequality
(ii) Measurement of inequality
(iii) Government policies to reduce inequality
(iv) Examples of government policies in action: China
I have first looked at the economic theory of inequality. This explains why inequality is currently high and why it still has not been reduced. There is a particular focus on the Kuznets’ hypothesis. Secondly, I have looked at the various ways of measuring inequality and data that presents the various levels of inequality around the world, with the main way being the Gini Index. Current or proposed government policies that should, in theory, reduce inequality was the next theme. As well as this, I looked at Piketty’s work, which suggests worldwide policies to reduce the levels of inequality. Finally, I researched works that centred around China’s growing difficulties with inequality. This focused on both proposed policies that they could attempt to implement and policies that they have already introduced. Many of the sources do suggest that China has tried to improve income inequality, however, due to its immense size, it has been difficult to reduce it to more globally accepted levels.
(i) Economic theory of inequality
There are many theories on income inequality such as Ricardian, Marxist and Neo-classical (Gallo, 2001). These theories suggest links between economic growth and income distribution. For example, the Lewis’ Model in terms of how an economy develops from a traditional one into a modern one (Gallo, 2001). However, one of the most important theories suggested in terms of income inequality is the Kuznets’ hypothesis.
The Kuznets’ hypothesis was first developed in 1955 by Simon Smith Kuznets (Melikhova and Čížek, 2014). It was the first suggestion that there was a link between income inequality and income per capita. The graph below is an example of the Kuznets’ hypothesis produced using data from the World Bank. It shows the pattern that the Kuznets’ hypothesis suggests, which is the theory of the inverted U-curve (Melikhova and Čížek, 2014). This arises from the suggestion that income inequality is low when an economy is undeveloped and increases as the economy develops but once it has finished developing then the change is reduced.
Figure 1 Kuznets’ hypothesis
There are many arguments that also suggest that the Kuznets’ hypothesis is an inaccurate suggestion because the data that it is based on is historical data (Ganaie & Kamaiah, 2015). As the theory is based on data that comes from the last century which may not be correct. However, the graph above uses data from a wide range of countries in different economic situations. This may therefore be subjected to less reason to believe its false. This is instead of looking at one particular country over the time of it’s development. Furthermore, many developed nations have since seen a dramatic rise in income inequality since the 1990s, which goes against the Kuznets’ hypothesis theory (Chang, 2014).
Different countries may follow the Kuznets’ hypothesis more closely than others. It is likely that countries with less social support (redistribution of income) will follow it more closely (Melikhova and Čížek, 2014). China is currently developing and it’s current extremely high inequality which has risen dramatically could suggest that up to its current point, China has kept in line with the Kuznets’ hypothesis. In 2005, the GINI coefficient reached 0.5 (Chan & Kulkarni, 2006). China’s unique history over the past 30 years influenced the current high levels of inequality as Deng Xiaoping’s policies brought rapid change to China and developed some parts much faster than others (Chan & Kulkarni, 2006).
On the other hand, another theory to do with the way income inequality develops in countries as they themselves develop is the Ricardian theory. The original theory was that the demand for low-skilled workers in a country will increase as richer countries demand cheaper labour, therefore, low-skilled worker’s wages will increase but high skilled wages won’t increase at such a high rate, therefore, income inequality will decrease (The Economist, 2014). However, it is argued that this is incorrect as income inequality is increasing in many developing countries. A theory to correct the current Ricardian theory is one suggested by Eric Maskin (The Economist, 2014). It suggests that more high skilled workers are working more with developed countries more than low-skilled workers leading to them improving their skills more and earning more money, increasing the wage gap.
(ii) Measurement of income inequality
There are many ways to measure income inequality. Firstly, I simply used data that I obtained from the Central Intelligence Agency, 2015. I plotted the Gini index of these countries aqainst the GDP per capita. I wanted to see what the general pattern was, following on from the idea of the Kuzents’ hypothesis in which richer countries should be less uneqal than poorer countries which is what the graph appears to suggest.
Figure 2 Gini Index against the GDP per capita
The most popular method of measuring income inequality is the Gini coefficient (De Maio, 2007) and is closely linked with the Lorenz curve. The Lorenz Curve is a visual representation of the GINI index. The Lorenz curve has the percentage wealth on the y-axis and the percentage households on the x axis. The line is constructed as the certain percentage of the population will own a certain percentage of the wealth. This line is drawn up to 100% of the population earning 100% of the wealth. Assuming the country is completely equal the line is known as the line of absolute equality which is a straight line from the origin which has a gradient of 1 (Economics Network).
Figure 3 Lorenz Curve
Other measures on income inequality include the Atkinson Index which gives greater sensitivity to inequalities in different areas of the income spectrum, similar to the General Entropy Index which also provides weighting based on location. Another suggested measure is the Kakwani Index which measures the progressivity of a country’s tax system (De Maio, 2007). There is also a ratio suggested by Gabriel Palma that proposes ratio between the income share of the top 10 percent and the bottom 40 percent in order to be more accurate (Chang, 2014). Another, less quantitative measure, is to measure inequality of people’s living standards rather than their income (Roser, 2015). This then relates to the way that people spend money rather than what they receive.
(iii) Government policies to reduce inequality
There many suggested policies that have been put forward to reduce income inequality. One of the most common suggestions is to increase income tax on the higher earners and make the tax system more progressive (Piketty, 2014). However, another suggestion is to also increase capital gains tax to 15%. This would also reduce the amount of income that some people receive from the capital that they own which often provides another stream of income for the wealthier.
There are also policies that have been suggested to reduce income inequality while still promoting economic growth. This acts as an argument against the suggestion that a reduction in income inequality would lead to a slowdown in economic growth. Suggestions for policies were promoting equality in education, reducing the gap between temporary and permanent work and promoting the integration of immigrants (OECD, 2012). These polices are all suggested to improve the quality of the workforce. Other policies along these lines would be to prevent illicit outflows so that less money from those who are more wealthy leaves the country (Galasso & Wood, 2015). Another policy would be to enforce a living wage so that there is almost a restriction on how low a person’s wages can be and therefore a restriction on how extreme the income inequality can be.
Other policies that were suggested were also designed to reduce income inequality before tax as it is currently still high before the implementation of income tax in the majority of countries. These polices suggested are making it easier to start and join a trade union – which gives workers (especially lower salary workers) more power to increase their wages. Another policy is to weaken the dollar (or whichever currency is in question) in order to make exports more affordable abroad and promote manufacturing in the country. A further suggestion includes reforming Intellectual Property laws (Matthews, 2012). These IP laws are often argued to reinforce inequality as they protect powerful businesses and allow them to keep monopolies on their products for long periods of time and make supernormal profit as a result.
There are also those who argue that taxing progressively, although effective, is only a short term solution because it allows for the change of policy once those in government leave. For a proper solution, a social change needs to occur in the economy (Wilkinson & Pickett, 2009). The suggestions made were similar to the policies of John Lewis, in which the private sector is more employee-owned. A further suggestion would be to make it so employees were unable to sell back the shares that they are given as part of their salary.
(iv) Examples of Government Policies in Action: China
China faces an already large income gap that is still growing (Salidjanova, 2013). China’s largest inequality gap is between the East coast and the West, with the East being much richer than the rest. There are certain policies and targets that the government has already implemented to combat this. These include doubling personal income by 2020 and raising minimum wage, restrictions on government officials’ income (which is also an attempt to reduce inflation), another factor is introducing a social safety net, of which China currently has none. A social security net would help to raise the living standards of those on lower income (Gan, 2013). Further suggestions are tax reform, land rights and Residence Permit System (Salidjanova, 2013). However, the majority of these have only been set as targets by the Chinese government and so have not yet been completed.
There are other policies that have been put forward in order to reduce inequality but these policies are simply suggestions and their usage has in no way been confirmed. One suggested policy is regional development strategy which may be to improve the living standards and incomes of those who live in poorer provinces to the West of China (Cheng, 2007). Furthermore, increasing labour mobility has also been suggested so that those in poorer regions do at least have the opportunity to move to the larger and more prosperous East Coast cities to work and maybe find a better paid job.
Another major policy put forward would be to improve education in China (OECD, 2012). Currently, education is seen as the only way that people can obtain a highly paid job and support their parents in the future. Therefore, parents invest a lot of money in education and extra classes in order to give their child the best prospects of getting into a good university. However, this again leads to inequality of opportunity as it exacerbates the income inequality for future generations.
In conclusion, this demonstrates that there is a lot of information available on the topic of inequality. Many major organisations (OECD, World Bank, CIA) have devoted resources towards researching inequality all over the world. As a result, there is a large databank providing information on inequality. In addition, there have been many papers and books written about reducing inequality, that all give me the opportunity to investigate various views and ideas that would decrease inequality, as well as explanations as to why current policies haven’t been able to reduce the levels of inequality.
Throughout this review of literature, I focused on four different themes. Within each of them, I also looked at various ideas. Throughout the economic theory of inequality, I looked proposed theories behind why inequality has increased, looking at thoughts like neo-classicalism, leading on to the Kuznets’ hypothesis and the opposing views to this of Ricardo. Secondly, I looked at the way in which inequality can be measured. This included, the Gini Coefficient, Lorenz Curve and obscure but sometimes more effective ways that income inequality can be measured. As well as this, I gathered data to show the differing Gini coefficient in various countries. Then, I went on to government policies that could reduce income inequality these are from a wide range of sources that give varying suggested polices, some of which have already been implemented, some haven’t. Finally, I focused on China, looking at its current polices on income inequality, previous ones and suggested policies that were tailored to China’s requirements. In addition, I have found much more data to do with the US throughout this piece because the data is readily available.
Discussion
In this discussion, I will look at several factors to answer the question:
1) Income inequality concept
a) Is inequality increasing?
2) Mechanisms that have led to inequality
a) Market Factors
i) Globalisation
ii) Education
b) Government policies
i) Regressive taxation
ii) Taxation on income and capital
c) Political situation
i) Decline of trade unions
ii) Immigration
3) Multiplier effect
a) Theory of the effect
b) Evidence of its effect
4) Scale of inequality
a) Local inequality
b) National inequality
c) Global inequality
5) Possible policies to reduce inequality
a) Progressive taxation
b) Trade Unions
c) Education funding
d) Transfer payments
6) China’s polices to reduce income inequality
a) Social welfare
b) Labour mobility
1) Concept of Income Inequality
a) Is Inequality Increasing?
The question assumes that inequality is increasing. As researched by the OECD, inequality is increasing in almost all of the countries that the organization includes (OECD, 2011), which is the majority of the developed, westernized nations.
Figure 4 Increasing Income Inequality
Clearly, it is a growing dilemma in this type of demographic, and also contradicts the Kuznets’ hypothesis (Ganaie & Kamaiah, 2015) of decreasing inequality once countries have become developed.
Developing countries such as China, India and Indonesia are also exhibiting the same characteristics as many Western and English speaking countries, with inequality falling throughout the 20th century until around 1980, where almost all countries displayed (in this particular data set), a rise in inequality, (Alvaredo, 2011). In addition, this data is not completely reliable as it is the result of the rise in income inequality over an entire century. The data, especially from less economically developed nations at the beginning of the 20th century is unlikely to be completely reliable.
Figure 5 Income Inequality in Developed Countries
2) Mechanisms that have led to inequality
a) Market Factors
Market forces lead to inequality because incomes are allocated one the basis of production, as a result, there is a large market failure because there is an inequality of incomes. Without government intervention, it can be that the poorest members of society, may have a worse standard of living.
i) Globalization
It is suggested by this dissertation that inequality has increased due to globalization. Inequality has been increasing while globalization occurs. According to (Berger & Bank, 2014), this can happen in two scenarios, that lead to inequality becoming worse, with two varying degrees.
Some countries conduct policies on the principle that inequality is a necessary side effect of economic growth, therefore it should be tolerated if growth should continue. As a result, Ricardo’s theories of comparative advantage, which means countries specialize in goods and services that they have a competitive advantage in, will benefit the whole economy. However, depending on the good or service, it could lead to an increase in wages in certain sectors and not others.
Globalization leads to inequality because the production of goods, is now spread out over many countries. As a result, the higher-skilled workers in developing countries, have the opportunity to match with foreign, even higher-skilled workers, from developed countries. This sometimes leaves those less-skilled workers out of the production process, so they cannot experience the rise in wages that higher skilled workers are obtaining. As a result, their wages may begin to fall while others rise.
Maskin does suggest that raising the skills of low skilled workers, may also reduce inequality as they would be able to find opportunities in the international market.
On the other hand, as mentioned in (The Economist, 2014), globalization could lead to a decrease in inequality. In developing countries, lower skilled workers are more in demand from other countries that want to manufacture there. As a result, wages rise in these sectors of lower-skilled workers as they are in more demand than their high-skilled counterparts. Therefore, inequality is decreasing.
However, current data suggests that inequality is increasing in developing countries, disproving these theories. For example, China’s GINI Index has increased by 34% in the twenty years (The Economist, 2014). Multinationals tend to also employ higher-skilled workers and also pay higher wages than local companies. Furthermore, the opportunities that higher-skilled workers get from working with multinationals also further improve their skills, increasing the inequality of income as wider disparities of skills emerge.
Overall, the evidence suggests that globalization has led to a rise in inequality, especially in developing countries when low-skilled workers may be left behind as the rest of the country accelerates.
ii) Education
It is suggested that educational inequality has also lead to the worsening of income inequality. Of course, educational inequality does arise from income inequality and regional inequality. However, this ought not to be the case because the differences between the private and state education should not be so vast. As well as this, educational inequality seriously reduces the literacy rates of leavers from worse off backgrounds and makes them less desirable in the work place.
Education gaps definitely do lead to inequality as the graph from the Tax Foundation (Hodge, 2012). That argues that inequality has arisen from educational differences, rather than the more popular belief that it has come from unfair taxation by a free market government. Many suggest that income inequality arising from having a being educated until obtaining a degree is acceptable because they are more skilled. Society does need better skilled and poorer skilled workers in order to work at full production possibility capacity. People need to be incentivized with higher wages, in order to attract the most talented workers to that field and perform the more challenging jobs.
Figure 6 Education Income Gap
However, it is the equality of opportunity that is important. Disadvantaged pupils ought to have the same start to life and the same opportunities as pupils from richer backgrounds. (Chalabi, 2014) states, “In 2012/13, 64.8% of pupils not eligible for a free school meal obtained at least 5 A*-C grades including Maths and English. But that percentage drops dramatically to just 38.1% among pupils who are eligible for free school meals.” This suggests that people whose household income is lower, achieved much lower qualifications, decreasing their likelihood of going to university and obtaining a degree. The problem is not with the inequality of these skills leading to higher ages, but the inequality of opportunity, for example, a worse school, that has led to lower qualifications and therefore a lower income.
In conclusion, inequality arising from being a more skilled worker is acceptable, however, the inequality of opportunity arising from a poorer schooling background, leads to disadvantaged pupils (who may also have the potential to be successful) not having the opportunity to receive further education because of their poor educational background earlier on in life, eventually leading to them working in a worse paid and poor-skilled job, that they could have surpassed with the right opportunities.
b) Government Policies
Inequality is sometimes exacerbated by government policies, despite their attempts to try and reduce market failures. These examples are explored in this section.
i) Regressive taxation
Includes any taxation that taxes a larger proportion of people on lower incomes, and therefore means that income inequality is increased. Examples of regressive taxation include taxes such as VAT and excise duty, as those with lower incomes pay a larger proportion when they buy products.
However, excise duty is a necessary part of correcting market failure as it encourages the decreased consumption in demerit goods and therefore reduces the total negative externalities in the country. Without it, there would be serious impacts on harmful effects on the environment and people’s health.
On the other hand, it can be argued that VAT itself is not a regressive tax because with higher incomes are likely to spend more money on certain goods anyway. As a result, they are still paying a larger proportion of their income to the government through VAT and excise duties. Furthermore, VAT is imposed more on ‘luxury’ item, basic goods. have no tax. As a result, people on lower incomes are further prevented from their current having a higher standard of living.
Currently, the richest fifth of UK households pay 15% of their disposable income to indirect tax, whereas the poorest fifth pay 29.7% of their disposable income. This clearly suggests that indirect taxation is a regressive tax as they end up paying a much larger proportion of their income. This increases income inequality as they end up spending less money on goods and services as they would have been able to without the tax.
ii) Taxation on income and capital
Taxation of income is one of the main tools that the government uses to redistribute income, as well as being the largest generator for the Exchequer. However, some claim that the income tax is not high enough to reduce after tax-income in the richer percentiles and therefore does not do enough to reduce income inequality.
Furthermore, it is suggested that having a progressive taxation in income tax is not enough to reduce income inequality. The Netherlands is given as the example as it has very similar policies for income tax as the UK and the US have, however, it has much lower income inequality, suggesting that there are many other factors that lead to having a more equal society and therefore, raising the top bracket of tax as suggested by left wing parties in many parts of the world, may not be the solution and have little impact on overall equalization as this evidence suggests.
Figure 7 Netherlands Tax Rate
Taxable Income
Tax Rate
$0—$9,275
10%
$9,276—$37,650
$927.50 plus 15% of the amount over $9,275
$37,651—$91,150
$5,183.75 plus 25% of the amount over $37,650
$91,151—$190,150
$18,558.75 plus 28% of the amount over $91,150
$190,151—$ 413,350
$46,278.75 plus 33% of the amount over $190,150
$413,351—$415,050
$119,934.75 plus 35% of the amount over $413,350
$415,051 or more
$120,529.75 plus 39.6% of the amount over $415,050
Figure 8 Netherlands Tax Rate
Overall, as this table shows, income tax is progressive, however, due to regressive indirect taxes, the tax in total in the Netherlands is a flat tax. VAT in The Netherlands is 21%, whereas the US does not have an any VAT, it does have sales tax but this is considerably lower. This could point to the solution that the impact of taxes is not as large as it could previously be argued. This is made clear by the fact the Netherlands has a Gini index of 0.29, while the US has a Gini index of 0.38.
Although, as the US doesn’t have an income tax system which is as progressive as the Netherlands, it would suggest that maybe income tax does play a role. However, as the Netherlands has a much higher VAT than America, it could suggest that having higher regressive taxes, like there are in many European countries, does not hamper reductions in inequality as many European countries have very low levels of inequality. Therefore, it is a suggestion of the fault of the government at not in the necessary regressive taxation of goods and services, but rather its reluctance to increase income tax brackets in at the highest levels.
The reasons for why progressive taxes appear not to be as effective as many proposed could be due to the fact the income is relatively easy to hide – if you have the influence. This means that those with the income and wealth that they want to hide will often have the ability to do so. The recent Panama scandal that revealed there to be many high profile individuals hiding money in Panama to avoid taxation.
However, according to what makes a good tax, income tax fulfills almost all of the qualities being efficient, generating a large income, cheap to collect and it supposedly adds a bit of restoration to society’s inequality, however this is debatable.
As Thomas Piketty has famously suggested, to reduce inequality what is needed is a wealth tax, in other words a tax on capital. Piketty’s main idea is that r > g. With r being the rate of return of capital and g being the rate of economic growth. When economic growth is low, having capital is more important, while when economic growth is high, wealth has a lower importance. Piketty used historical trends to work on this theory. It is significant because it suggests that as long as wealth keeps accumulating, i.e. inequality remains high, then economic growth will not continue as highly and the future lead to very high inequality and low rates of growth.
Wealth tax is already present in a selection of very few countries including Argentina, France, Spain, India, Norway, Switzerland and Italy. These countries are all very different levels of wealth tax and thresholds therefore making it very difficult to judge the affect that this has on inequality. Furthermore, no conclusive answer can be drawn from this because they all have very different Gini Coefficients with Norway the lowest at 0.27 and Argentina the highest 0.46.
c) Political Situation
i) Decline of Trade Unions
Trade unions are organisations that are made up of members who are all workers in a particular industry. The main job of trade unions is to protect the rights of the workers and fight for their interests through collective bargaining. It gives workers a much stronger place in the market and they are less likely to lose their job unfairly and will have better pay and better hours. As a result, trade unions have been praised as having a large impact inequality because they increase workers’ power as they are a group rather than an individual. This means that can strike against changes or unanswered difficulties they face in the workplace such as anti-social hours or poor pay.
However, like Margaret Thatcher and her Conservative Government, some people see Trade Unions as a barrier to growth because they can damage industries during strikes, like Margaret Thatcher experienced during her time as Prime minister as she tried to prevent their continuous strikes which severely damaged industries forcing some to move overseas for production or in some cases they are replaced by machines, like the dock workers in the UK. Furthermore, people argue that they also drain the economy in areas such as education and healthcare because the government has to spend more money in abiding by the negotiations with trade unions that may include certain things such as pensions or working less hours. Therefore, it is argued that it has contributed to large budget deficits seen in many countries today.
As a result, successive governments over the last 30 years, the period in which inequality in many OECD countries has slowly begun to increase, have continued to introduce anti-Trade Union laws and in the UK in 2015, came another bout of restrictions, including allowing the government to fine trade unions and unlawful picketing could become a criminal offence.
Another reason for the decline of the trade unions is the movement from a more manufacturing based economy as many OECD countries used to be, to a more service based economy. Many manufacturing workers are exactly the type of workers who would have joined a Trade Union. As the manufacturing sector decreases, the necessity of it to the marketplace also decreases meaning that the Trade Union power is also diminished. Along with drops in workers in this sector, it seriously reduces the power and size of Trade Unions.
This decline of Trade Unions has an impact on inequality as the majority of people in trade unions are low or middle class earners and therefore are more likely to have poorer job security. A decrease in job security will reduce an individual’s consumer confidence so they are less likely to spend their disposable income as well. Therefore, trade unions do not just reduce income inequality as they limit low pay, but also, they allow for low income earners to have higher consumer confidence and therefore reduce the stresses of living on a lower income.
As seen in the graph below, since the late 1950s, union membership in the USA has been falling. From a peak of 33.4% in 1945, to the 2012 rate of 11.2%, the union membership has been decreasing. This shows a clear correlation between the share of income going to the top 10% and union membership. As union membership has decreased inequality has also begun to increase. It suggests that trade unions could help to resolve income inequality as the percent of income going to the top 10% was the lowest in the 20th century while the union membership was at its highest. It may also suggest that even union membership of only 33.4% could have spill over benefits for those not in unions, hence the fall in inequality.
There is a selection of reasons as to why trade union membership has declined and as to why their strength has also done so.
Overall, the demise of trade unions has seen a dramatic effect on the increase in inequality that we have seen over the last half century.
ii) Immigration
The effect of immigration on income inequality depends on which country being observed. For example, in the US, immigration would have a larger effect on income inequality because a smaller percentage of the immigrants have a degree (only 27%). On the other hand, 35% of UK immigrants have a degree, this is compared with only 26% of the UK born population.
Having immigrants that have lower qualifications can lead to inequality for two reasons. Firstly, it creates a larger pool of lower skilled workers. This means that the labour supply for these jobs has increased, allowing companies to maybe even lower the wages and still have applicants for the job. Overall, these depressed wages lead to a rise in income inequality.
Another reason that income inequality increases with immigration is that immigrants have less access to government welfare funded schemes. Therefore, they have an even more reduced income in comparison to US or UK born citizens who may also be low income earners. This creates even more disparity between incomes in these countries leading to increases in income inequality figures. This has been even more pronounced lately because of the rises of immigration seen by many Western nations that also correlates with rising income inequality. This is shown in the graph below in which the Gini Coefficient is higher with immigrants than without immigrants showing that they increase income inequality.
Figure 10 Effect of Immigration
This is why immigration increases inequality less in the UK compared with the US because it experiences higher level of qualified immigrants. These immigrants will have access to higher paid jobs because of their qualifications and will therefore have little effect on income inequality.