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The best stats you've ever seen | Hans Rosling

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1.7.1 The distribution of income and wealth

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Micro 6.3 The Laffer Curve- Economic Theories

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Mr. Clifford's explanation of the Laffer Curve. Watch the bonus round to see how this relates to trick-or-treating. Please keep in mind that these clips are not designed to teach you the key concepts. These videos are a review tool to help you better understand what you learned in class.

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Lorenz Curve and Gini Coefficient - Measures of Income Inequality

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The national rollout of universal credit began almost exactly year ago, with first-time claimants being offered the new benefit instead of jobseeker's allowance. But unrolling the system nationwide is moving glacially slow and will take a number of years.

The concept of universal credit, first announced in 2010 by Iain Duncan Smith, the Work and Pensions Secretary, enjoyed cross-party support but its implementation has come under fire and cuts to payments have sparked new controversy.

The new single monthly payment is said to mark the biggest overhaul of the benefits system in 60 years. So what difference will it make and when will it come into force?

What is universal credit?

It is a new type of financial support for people on a low income or looking for work. The single monthly payment will eventually replace six other benefits and tax credits, including: income-based jobseeker's allowance; income-related employment and support allowance; income support; child tax credit; working tax credit; and housing benefit.

Why is it being introduced?

According to the government, universal credit will bring greater fairness to the welfare system by "ensuring that people are better off in work than on benefits". Duncan Smith says that the old system reduces the financial incentives of taking a job as it is difficult for claimants to take on short-term or part-time work without losing all their benefits at once. Universal credit gradually reduces as claimants earn more, with no limits to the number of hours people can work in a week.

In encouraging more people to move into work, it is also intended to reduce the benefits bill - savings which will only be increased by cuts to the payments under the system that were announced last year.

How will it work?

The new system is supposed to be simpler and encourages claimants to take more responsibility for their own money. It will generally be managed online rather than at a job centre and in most cases, a single amount, made up of all the various elements, will be be paid directly into the claimants' bank account each month, rather than weekly or fortnightly. Tenants who need help with rent will be paid directly, rather than the money going straight to their landlord as before. Those applying for universal credit will also have to sign up to a "claimant commitment" which sets out their responsibilities, such as doing everything they reasonably can to find work. Anyone who fails to stick to the contract without good reason may face sanctions.

When will it be introduced?

Universal credit is being introduced gradually across different geographical areas and claimant groups, such as single people, couples and families. It was first introduced in selected trial areas in April 2013 and is now being introduced across the country for new unemployment benefit claimants. The roll-out was due to be complete by 2017, but ongoing delays to the programme mean it is now unlikely to be complete before 2021.

Who are the winners and losers?

A report from the Institute of Fiscal Studies (IFS) - that scourge of government fiscal policy after its research was used to corral opposition against cuts to working tax credits last year - has said it's a mixed bag. "An estimated 2.1 million families will face an average loss of £1,600 a year, while 1.8 million will gain an average of £1,500," says the BBC [1].

In terms of specifics, the institute's figures show 1.1 million homes with no one in paid work will lose out by about £2,300 a year, while 500,000 will gain £1,000. Working single parents are said to face an annual loss of £1,000, while The Guardian [2] notes one-earner couples with children would gain more than £500 a year.

How does that compare to its stated aims?

The IFS told the Daily Telegraph [3] that "while there will be winners and losers, if you look at the overall structure there are improvements on what we have at the moment". It added that the overall aim of the change was "mostly intact" and that incentives to move people into work remained strong, with most - though not all - keeping more of their earnings once they find employment.

That hasn't satisfied critics, who point to losers among the lowest paid compared to the current system, especially among working families. But the government has always said no individuals will lose money as a result of the changes, the BBC says, with new claimants to be helped by transitional support.

What other criticism has it faced?

The theory of universal credit won cross-party support, but its rollout has drawn much criticism. Last year, the Commons Public Accounts Committee published a damning report on the programme, describing its implementation as "extraordinarily poor". Margaret Hodge, chairman of the committee, said a "shocking absence" of financial and other internal controls meant that at least £140m worth of IT assets for the programme will have to be written off and the 2017 target was unlikely to be met. Ministers have since said that new leadership is in place and controls have been strengthened.

This week, the committee issued another report saying the programme was unlikely to complete before 2021 and accused the Department of Work and Pensions of being "evasive" over why it was moving so slowly.

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Universal credit: who will win and lose from the new system?

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The national rollout of universal credit began almost exactly year ago, with first-time claimants being offered the new benefit instead of jobseeker's allowance. But unrolling the system nationwide is moving glacially slow and will take a number of years.

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For some time now, the radical left has been dipping its toes in the waters of universal basic income (or unconditional basic income, depending on who you talk to). The idea is exactly as it sounds: the government would give every citizen - working or not - a fixed sum of money every week or month, with no strings attached. As time goes on, universal basic income (UBI) has gradually been transitioning from the radical left into the mainstream: it's Green party policy, is picking up steam among SNP and Labour MPs and has been advocated by commentators including this newspaper's very own John Harris.

Supporters of the idea got a boost this week with the news that the Finnish government has piloted the idea with 2,000 of its citizens with very positive results. Under the scheme, the first of its kind in Europe, participants receive €560 (£473) every month for two years without any requirements to fill in forms or actively seek work. If anyone who receives the payment finds work, their UBI continues. Many participants have reported " decreased stress, greater incentives to find work and more time to pursue business ideas." In March, Ontario in Canada started trialling a similar scheme.

Given that UBI necessarily promotes universalism and is being pursued by liberal governments rather than overtly rightwing ones, it's tempting to view it as an inherently leftwing conceit. In January, MEPs voted to consider UBI as a solution to the mass unemployment that might result from robots taking over manual jobs.

But UBI also has some unlikely supporters, most prominent among them the neoliberal Adam Smith Institute - Sam Bowman, the thinktank's executive director, wrote in 2013: "The ideal welfare system is a basic income, replacing the existing anti-poverty programmes the government carries out." He added that UBI would result in a less "paternalistic" government.

From this perspective, UBI could be rolled out as a distinctly rightwing initiative. In fact it does bear some similarity to the government's shambolic universal credit scheme, which replaces a number of benefits with a one-off, lower, monthly payment (though it goes only to people already on certain benefits, of course). In the hands of the right, UBI could easily be seen as a kind of universal credit for all, undermining the entire benefits system and providing justification for paying the poorest a poverty income.

In fact, can you imagine what UBI would be like if it were rolled out by this government, which only yesterday promised to fight a ruling describing the benefits cap as inflicting "real misery to no good purpose"?

Despite the fact that the families who brought a case against the government had children too young to qualify for free childcare, the Department for Work and Pensions still perversely insisted that "the benefit cap incentivises work". It's not hard to imagine UBI being administered by the likes of A4e ( now sold and renamed PeoplePlus), which carried out back-to-work training for the government, and saw six of its employees receive jail sentences for defrauding the government of £300,000. UBI cannot be a progressive initiative as long as the people with the power to implement it are hostile to the welfare state as a whole.

What's needed is not the arbitrary adoption of UBI, but a conversation about what a welfare state is for

In their incendiary book Inventing the Future, the authors Alex Williams and Nick Srnicek argue for UBI but link it to three other demands: collectively controlled automation, a reduction in the working week, and a diminution of the work ethic. Williams and Srnicek believe that without these other provisions, UBI could essentially act as an excuse to get rid of the welfare state.

What's needed is not the arbitrary adoption of UBI, but an entirely different conversation about what a welfare state is for. As David Lammy MP said, after the Grenfell Tower disaster: "This is about whether the welfare state is just about schools and hospitals or whether it is about a safety net." The conversation, in light of UBI, could go even further: it's possible for the welfare state not just to act as a safety net, but as a tool for all of us to do less work and spend more time with our loved ones, pursuing personal interests or engaging in our communities.

UBI has this revolutionary potential - but not if it is simply parachuted into a political economy that has been pursuing punitive welfare policies for the last 30 years.

On everything from climate change and overpopulation to yawning inequality and mass automation, modern western economies face unprecedented challenges. These conditions are frightening but they also open up the possibility of the kind of radical policies we haven't seen since the postwar period. UBI could be the start of this debate, but it must not be the end.

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Love the idea of a universal basic income? Be careful what you wish for | Ellie Mae O'Hagan

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For some time now, the radical left has been dipping its toes in the waters of universal basic income (or unconditional basic income, depending on who you talk to). The idea is exactly as it sounds: the government would give every citizen - working or not - a fixed sum of money every week or month, with no strings attached.

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Finland Is Giving Citizens $660 A Month For Free As An Experiment (HBO)

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Yanis Varoufakis  Basic Income is a Necessity

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Technical change turns Basic Income into a necessity Future of Work - 04.05.2016, Gottlieb Duttweiler Institute. Keynote Yanis Varoufakis (GRE), former Greek Minister of Finance https://goo.gl/UoLZTp

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How economic inequality harms societies | Richard Wilkinson

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http://www.ted.com We feel instinctively that societies with huge income gaps are somehow going wrong. Richard Wilkinson charts the hard data on economic inequality, and shows what gets worse when rich and poor are too far apart: real effects on health, lifespan, even such basic values as trust.

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This research draws on stakeholders in city regions to identify good practice and what more could be done through housing and planning policy to reduce or mitigate poverty. It finds that:

Combined authorities are well placed to lead on poverty reduction, given their central role in the devolution process, growing focus on poverty and inequality, constituent authorities' housing and planning expertise, and the ability to co-ordinate across multiple policy areas.

Further action could be taken in two key areas: linking housing development to poverty reduction, and improving conditions in the private rented sector.

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Tackling poverty through housing and planning policy in city regions

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This research draws on stakeholders in city regions to identify good practice and what more could be done through housing and planning policy to reduce or mitigate poverty. It finds that: Combined authorities are well placed to lead on poverty reduction, given their central role in the devolution process, growing focus on poverty and inequality, constituent authorities' housing and planning expertise, and the ability to co-ordinate across multiple policy areas.

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Basic income and other ways to fix capitalism | Federico Pistono | TEDxHaarlem

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A few years ago, those who warned us about the risks of technological unemployment were labelled as luddites, crazy, or techno-pessimists. Now some of the greatest economists agree that automation poses a serious threat to the economy, with jobs disappearing and inequality on the rise.

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At the 2015 Budget, the former Chancellor George Osborne froze most working-age benefits for four years, including benefits to top up low wages and out of work benefits, from 2016/17 to 2019/20.

A new briefing by JRF published today highlights how the freeze will hit families in the pocket - the majority of which are in work. The freeze is the single biggest policy driver behind the expected rise in poverty by the end of the Parliament.

JRF is calling for the Government to target its resources better at struggling families. Rather than increase the personal tax allowance to £12,500, which would overwhelmingly benefit better off families, JRF is urging the Government to remove the benefits freeze. Only £1 in every £6 spent on raising the personal tax allowance goes to the bottom half of the income distribution.

Campbell Robb, chief executive of JRF, said:

"People who are just managing at best are being hit in the pocket by the freeze on benefits and tax credits. It means millions of families are finding life even harder to make ends meet - whether paying for the weekly food shop, covering energy bills or finding enough money to pay the rent.

"While the Treasury gains from this policy in the short-term, more children living in poverty has costs the Exchequer an estimated £6.4bn per year in lost tax revenue and additional benefit spending.

"The focus should be on making sure low-income family budgets keep pace with the cost of essentials, while reducing the benefit bill through increasing employment and enabling people on low pay to increase their earnings.

"No government wants to fight an election on a record of rising poverty and falling living standards. Circumstances have changed, so policy needs to change too. As prices rise, the priority should be to protect the budgets of the lowest income families. It's time to lift the freeze."

The analysis found:

Higher than forecast inflation means the hit to low income families - and savings for the Treasury - will be almost £0.9bn more than the £4bn originally expected from this cut in 2020/21.

In 2019/20, when the freeze is due to end, a couple with two children in receipt of Universal Credit will be £16 per week (£832 per year) worse off than they would've been had benefits kept up with prices since 2010. A lone parent with two children is £13 per week (£676 per year) is worse off. Both figures are the same whether out-of-work or working full time for the National Living Wage.

The freeze will result in 470,000 more people living in poverty in 2020/21. It is the single biggest policy driver behind the expected rise in poverty between now and 2020/21.

JRF is calling on the Government to use its Autumn Budget to ensure the incomes of the least well-off keep pace with the cost of essentials, by unfreezing benefits and uprating them in line with rising costs.

It recommends unfreezing targeted income related benefits such as tax credits, Universal Credit, the Local Housing Allowance and Job Seekers Allowance, over more widespread benefits such as child benefit.

Uprating income related benefits (not including child benefit) with CPI inflation from 2018/19 would result in 380,000 fewer people in poverty in 2020/21. Nine in 10 would be in families with children and 17 in 20 would be working families. It would cost an estimated £2.8bn in 2020/21.

The Government could make progress on helping families with children and private renters who are struggling by:

Uprating just the child related elements of Universal Credit would cost around £1bn in 2020/21 and result in 100,000 fewer people in poverty.

Uprating just the Local Housing Allowance with rents would help the 4.7million people living in the private rented sector who experience poverty after paying housing costs.

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Half a million more people in poverty if Government maintains benefits freeze

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At the 2015 Budget, the former Chancellor George Osborne froze most working-age benefits for four years, including benefits to top up low wages and out of work benefits, from 2016/17 to 2019/20. A new briefing by JRF published today highlights how the freeze will hit families in the pocket - the majority of which are in work.

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In summary, to reduce poverty, government policies could include:

1. Means-tested welfare benefits to the poorest in society; for example, unemployment benefit, food stamps, income support and housing benefit.

2. Minimum wages. Regulation of labour markets, for example, statutory minimum wages

3. Free market policies to promote economic growth - hoping rising living standards will filter to the poorest in society.

4. Direct provision of goods/services - subsidised housing, free education and healthcare.

There are two major types of poverty:

Absolute poverty - when people have insufficient income to afford the necessities of life, such as food, rent and clothing.

Relative poverty - when people have income significantly less than the average income for society.

Some policies, such as promoting economic growth may be successful in reducing absolute poverty but less successful in relative poverty.

Economic policies in more detail
1. Sustained economic growth
The argument is that promoting economic growth increases total income in society, creating more jobs and income which could be redistributed. In the past 100 years, economic growth has been a major factor in reducing the levels of poverty which were seen in pre-war Britain and the US. However, it is not necessarily the case that income and wealth will trickle down to the poorest. There is a concern that economic growth could widen relative poverty because it benefits the highly skilled and wealthy classes more than those at the bottom. See: Inequality and economic growth
2. Reduce Unemployment
Unemployment is a major cause of poverty because the unemployed have little income, relying on state benefits. Unemployment can be reduced through both supply-side policies, such as free training schemes for those who are structurally unemployed.

Poverty and unemployment are often geographical problems, with depressed areas seeing higher levels of poverty. Policies to overcome geographical poverty could include government subsidies for firms to set up in depressed areas. Also building better infrastructure (transport and communication) in depressed areas can provide an economic stimulus to create new jobs.

See also Policies for reducing unemployment
3. Progressive Taxes
Increasing progressive taxes, such as the higher rate of income tax from 40% to 50%, will take more income from those on high-income levels. This enables cuts in regressive taxes (e.g. VAT/Sales tax) and increased welfare benefits which help increase the income of the poor. This can be an effective way for reducing relative poverty.

However, critics argue higher income taxes create a disincentive to work., leading to less output. This is because higher tax makes work less attractive and reduces the opportunity cost of leisure. Therefore people work less and enjoy more leisure. This is known as the substitution effect. Similarly higher corporation tax may discourage investment in the UK

However, this is disputed by other economists, who point out that higher tax reduces incomes and this may encourage people to work more, to maintain their income. (This is known as the income effect)

Evidence suggests that higher income tax has little incentive on the supply of labour, suggesting labour supply is relatively inelastic. However, it also depends at what level income tax is set. There is certainly a level where higher income tax will reduce incentives to work.

Other problems with increasing income tax, include tax evasion and the fact firms may adjust wages to compensate for the higher taxes.

4. Increasing benefits to the poor
Means tested benefits involve increasing welfare benefits to those on low incomes. For example, universal tax credit, food stamps or child benefit.

Advantages of means tested benefits:

1. They allow money to be targeted to those who need it most. e.g family tax credit or pension credit.

2. It is cheaper than universal benefits and reduces the burden on the taxpayer.

However, the problem with using benefits to reduce poverty include:

Means tested benefits are often unpopular because people are stigmatised as being poor.

Also, it may create a disincentive to earn a higher wage because if you do get a higher paid job you will lose at least some of your benefits and pay more tax. This is known as "the benefit trap" or the "poverty trap". The poverty trap occurs where people on low incomes are discouraged from working extra hours or getting a higher paid job because any extra income they earn will be taken away in lost benefits and higher taxes. To avoid the poverty trap the government can grade benefits so that there isn't an immediate cut off point.

Some relatively poor may fall just outside the qualifying limit.

Also, not everyone entitled to means-tested benefit will collect them because of ignorance or difficulties in applying.

The government used to prefer universal benefits because it avoided the above problem, and people feel if they contribute towards taxes they deserve their benefits regardless of their wealth.

However, in recent years, the welfare state has faced increased demands due to demographic factors leading to more calls for means-tested benefits.

Cash benefits by income decile. Show the poorest don't receive the most benefits.

5. National Minimum Wage The government could increase the national minimum wage. This is an effective way of increasing the incomes of the low paid and therefore reducing wage inequality. A related concept is the Voluntary Living Wage - an attempt to encourage firms to pay higher wages.

However, the problem is that it may cause unemployment because firms may not be able to afford the workers. If it does cause unemployment, poverty could worsen. However, if firms have monopsony power, then they will be able to afford higher wages.

6. Benefits in kind. These are important public services which are provided free at the point of use (or subsidised). They mainly involve education and health care. Free education enables those from low-income families to gain skills and qualifications which can help lead to better jobs and higher incomes in the future.

7. Universal basic income (UBI) A universal basic income or citizen's income involves giving every citizen a weekly benefit - regardless of circumstances and income. The idea is to ensure everyone has a minimum income guarantee, but without any disincentives of losing means tested benefits from working more. See more at: Universal basic income (UBI)

Policies to reduce poverty in developing economies

To reduce poverty in developing economies, the focus may be on different policies.

1. Education - greater spending on education and training can enable higher skilled workforce.

2. Foreign Aid - aid from developed countries can be used to invest in better health care and education. However, some argue aid can encourage dependency.

3. Diversification of economy away from agriculture to manufacturing. This enables greater economic development but may be difficult to do without the right skills and infrastructure.

Poverty levels in UK
Related

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Policies to reduce poverty - Economics Help

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In summary, to reduce poverty, government policies could include: Means-tested welfare benefits to the poorest in society; for example, unemployment benefit, food stamps, income support and housing benefit. Minimum wages. Regulation of labour markets, for example, statutory minimum wages Free market policies to promote economic growth - hoping rising living standards will filter to the poorest in society.