Other Policies to Reduce Inequality & Poverty (DP IB Economics)

Policy

Explanation

Impact on Poverty Cycle

Investing in human capital e.g. education

• Investing in this supply-side policy increases the potential output of the country (shifts the production possibility frontier outwards)

Higher education/skill levels → higher human capital → increased productivity → higher output → higher income

More generous transfer payments

• Transfer payments are usually given to the poorest and most vulnerable people in society

• Transfer payments include unemployment and disability payments, pension payments, heating discounts, public transport subsidies etc.

More benefits → higher wages → better education/healthcare → better human capital → better productivity → higher wages

Establishment/increase of national minimum wage

• Minimum wages are set above the free market rate

• Firms are not allowed to pay anyone less than the legal rate

Higher wages → better education/healthcare → better human capital → better productivity → higher wages

Establishing a universal basic income

• A universal basic income (UBI) is a guaranteed minimum income level - and when necessary,  paid by the government to each individual in society

Minimum income for all → better education/healthcare → better human capital → improved labour offer → decreasing unemployment

Targeted government spending on goods/services

• This can be aimed at the greatest needs in society

• E.g. Providing more schools, teachers or hospitals

Higher education/skill levels → higher human capital → increased productivity → higher output → higher income

Policies to reduce discrimination

• Discrimination occurs in many different forms (age, ethnicity, gender, disability etc) and in each case results in social exclusion leading to inequalities of opportunity and income

• Reducing discrimination reduces inequality

Less discrimination → better productivity → higher wages