Analysis Of Anthony Atkinson’s Book On Economic Inequality

Inequality has been a noticeable public issue; however distributional problems are still avoided by majority of economists. Anthony Atkinson is a well-known economist that channelled his studies on the issues of social justice and public policies. In Atkinson’s book Inequality, he puts those issues in the limelight as it looks at what economic inequality is and the importance of it, as well as suggesting some strong proposals as to correct those issues. Most of the context and the proposals are specific to the United Kingdom but some of his discussions are general. The book is quite easy to understand, with a method that avoids almost all technical details. It can also be said that the book also deals with issues sensibly and realistically, in a sense that it is based on practical rather than theoretical considerations. Atkinson comes across as disinterested in the optimal policy settings in each situation, but attempting to find practical methods which would correct society to move in the right direction.

Inequality has fallen since the post-war decades due to equality laws especially in the recent times, inequality can be reduced significantly compared to previous years. It can be argued that rising inequality is because of the demand for educated labourers is rising a lot faster than the supply. A Dutch Economist Jan Tinbergen (1975) has portrayed a contest between education increasing the supply and technological difference influenced towards demanding more skilled labourers. This results in demand rising faster and the difference in wages has widened. Another factor that affected the inequality in society nowadays is due to a rise in globalisation, which caused a lot of jobs for the least educated in society to vanish. This issue is accompanied by the policy that is used by most of the policy makers in today’s world. To invest more in training and education. However, investment to improve the labour market would only partly solve the issues of inequality. The push for technological change and globalisation are not changes that comes from forces outside of our control. Majority of the technological advances, such as Smart TV’s, all portray decisions made by the government, researchers, capital ventures, scientists and customers. On top of that, the results are swayed by economic factors.

One of the fifteen proposals that Atkins suggested in his Book is that “We should return to a more progressive rate structure for the personal income tax, with marginal rates of tax increasing by ranges of taxable income, up to a top rate of 65 per cent, accompanied by a broadening of the tax base. ” A factor that helped the earlier reduction in inequality in post-war Europe was the presence of a progressive income tax scheme and the widening of post-war welfare state. However, since the 80’s there has been a loosening of redistributive policies in OECD countries, with unfavourable distributional results. In 2011 the OECD Secretary-General’s report stated “from the mid-1990s … the reduced redistributive capacity of tax-benefit systems was sometimes the main source of widening household-income gaps”. An approach to use to reduce inequality is to undo the post 1980 scaling back of the redistributive state. This essentially results in the increase in taxes. This can be done by proposing a set of tax measures which is focused on the reduction of inequality. One tax measure that can be used is to go back to progressive income taxation as suggested by Atkinson so that marginal rates can follow the rise in income, with a suggested top marginal rate of 60 percent on incomes that reach beyond £100,000, compared with the current 45% in the UK. However, this could lead to a lot of tax avoidance and evasion schemes as majority of people want to retain most of their income.

Furthermore, following on, it can be expected to be a reform on the taxation on the transfer of wealth. In other words, taxing people on the value they received in one’s lifetime in the form inheritances and donations. This is not a new ideology as it has been proposed by John Stuart Mill in the 19th Century but has a lot of relevance to today’s problems. Martin Wolf, the chief economics commentator at the Financial Times stated, “a tax on lifetime receipt of gifts and bequests, plus wider spreading of educational opportunities, seems to be the only way to limit the cascade of unearned advantages across generations”.

The proposals set by Atkinson are not all focused on just taxes and spending as almost half of the proposals are about dealing with the market distribution of income. One of the prime information in the book is that it is not realistic to attain a ten percentage reduction in overall inequality just through taxes and spending. The policies on taxes and spending will help to a certain extent but the rest is gained through the actions on earnings and capital incomes. Therefore, first we focus on reducing the number of unemployment. If we look at data dating back to the post war era, unemployment was around 1 percent. The proposal Atkinson suggested is that “The government should adopt an explicit target for preventing and reducing unemployment and underpin this ambition by offering guaranteed public employment at the minimum wage to those who seek it. ” In recent times Simon Wren-Lewis has given the Bank of England a proposal with dual mandate as he states “where the objective of achieving the maximum level of employment consistent with long-term inflation stability is given as much weight as achieving the inflation target”. The methods that have been used in the past 2 decades have failed to take us back to the low levels of unemployment that existed in the post war decades. As previously advised by the OECD and others, labour market reform has not been the solution for this issue. As coverage and the benefits given to the unemployed are drastically reduced in the recent years, the UK have failed to keep unemployment below 5 percent. There are several factors that could be used to explain this issue, although, in my opinion I think it is due to a lot of focus has been towards the supply side of the labour market as improvements in the demand for labourers would increase the level of those employed. However, employment only plays a role in the reduction of inequality as the level of pay is just as important. In the European Union as a whole, 50 percent of those unemployed that are attempting to find a job earn just enough to ensure that their household are above the poverty region.

Overall, the first problem regarding the proposals methods of reduction in inequality arises from the fact that the acknowledgeable issue of a globalised economy, a country cannot follow such a way to reduce inequality. However, nations are not going to watch the world develop without an active response. Furthermore, a foundation ideology in the book is that it is incorrect to assume today’s high levels of inequality is due to the powers over which we have now control and the same applies to globalisation. The influence on the distribution of income all depends on how the regulators react to a developing globe. Another problem regarding the methods to improve inequality is the equity and efficiency trade-off suggests that the national income will be reduced. However, Atkinson suggests this mainly is dependent on how one acknowledges how the modern economy works. As he states “The standard textbook model is in my view a misleading point of departure, since by construction it excludes the ways in which equity and efficiency can be complementary, and ignores the safeguards introduced in the institutional design of redistributive policies. ” In Atkinson’s book he covers a variety of improvements, such as monopolistic competition, technological change and efficiency wages as they are all an aspect of research in economics that are still being actively studied in economics. However, according to Atkinson, when all these studies are combined it becomes evident that there are circumstances where we can improve on both equity and efficiency. </p>