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    GMBA6008 Microeconomics Assignment Help

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    GMBA6008 Microeconomics Assignment Help


    GMBA6008 Microeconomics Assignment Help

    Introduction

    This essay explores the question of- what are the factors causing the income inequality in Australia and how to achieve economic growth and macroeconomic stability?

    The economy of a nation forms the backbone that sustains its international position. Every country has a different style of economy that is characterized by the manner in which the country chooses to sustain its financial objectives and goals. There are majorly three types of economies namely- Mixed- India, Social- like China, Japan, Vietnam and Capitalistic- Singapore. The government of the country decides the type of economy it wants to set into motion. Income inequality is one persistent problem that every nation suffers from (Dritsakis & Stamatiou, 2016). Most of the time and effort of the economic policy makers go into the aspect of bridging the ever widening gap between the rich and the poor. In the easiest terms, income inequality refers to the concentration of income in the hands of a very small segment of the population.

    Economic growth refers to the phenomenon of increase the goods and services per head of the population over a period of time. Economic growth is negatively affected by the enlarging iota of the income inequality (Van den Berg, 2016). This is because income inequality imposes a lower transitional GDP per capita growth. In terms of economy, macroeconomic stability refers to the portion of the economy that has minimized the risk of shocks from external stock and promotes a sustainable growth within the country.

    Income inequality has a major role to play in determining the economic growth and macroeconomic stability of a nation. In this essay the economy of Australia has been studied. Australia follows the concept of a mixed economy where poverty rate is relatively low and the GDP is high (Stanford, 2018). The four main components of the Australian economy are trade, services, manufacturing, and financing. It is one among the top 5 developed countries in the world. Australia is the 23rd member of the Organisation for Economic Co-operation and Development (OECD). Being a member of the OECD, Australia engages in knowledge transfer with other countries to find solutions to its economic problems. Australia is also one of the first members to sign the United Nations’ memoranda to adopt the United Nations’ sustainable goals that included Income Inequality as the Tenth Goals of the charter (Mayekiso et al., 2019). Unequal growth in wages and investment incomes are the main factors that contribute to the growth of the economic inequality. In between the period of 2003 to 2016 the wealth of the top 20% percent grew by 53% whereas the wealth of the middle class rose to 32% only. the people who are among the top 20% of the richest people control 2/3rd of the total wealth in Australia (Agiomirgianaki, 2019). The graph here shows the average wealth of the wealth groups from 2003 to 2016 as surveyed by the Australian Council of Social Service (ACOSS) and the University of New South Wales (UNSW).

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    The Australian average wage growth is quite slow and this is the major reason for the country to have the income inequality. The main reasons for the sluggish wage growth of Australia are-

         1.     Reduction in the overall consumer price inflation

         2.     Lesser productivity of the labor or human capital

         3.     Low demand of labor related work

         4.     The end of the mining industry’s high vertical market, affecting the output prices

    The graph below shows the decline of the mining industry which was a major sector that provided income to a lot of people-

    The table below shows the annual growth of the wage rate, labor productivity and CPI which is needed to understand the relation between wage growth, CPI and labor productivity-

     

    Enlarged terms of wage growth tend to exhibit maturity in customer costs and laborers' work potency. Operators demand to be remunerated for value increase to manage the buying authority of their earnings. As well as to parallelly, strive for their services guarantees that operators receive a portion of developments in their work potency (Markham & Biddle, 2017).

    Therefore, a point of origin for surmising about the reasons that are responsible for a moderate pace of earnings growth in Australia is to measure whether it might be solved by more economical customer price expansion and extension of the laborer's work potency (Panagiotelis et al., 2019).

    Comparing across the same time periods, it can be seen that the annual rate of growth in CPI decreased by 0.85% and in labour productivity by 1.35%. Hence, slowing price inflation and labour productivity may have explained a substantial proportion of the decreasing rate of growth in nominal wages (Ploszas et al., 2019).

    The financial slump triggered by the slowdown in the output prices

    Over a smaller duration of course wage increase changes with the changes in the business cycle. At the moment, the Australian marketplace is running into an economic slump, furthermore, it would be assumed that this should reduce the pace of wages increase (Kaplan et al., 2018).

    when we talk about things like an economic slump, there are fewer divisions of the marketplace where businesses suffer confinements on the abundance of laborers that they are allowed to hire. Hence some of the institutions that are looking forward to employing are expected to be forced into offering the more expensive payments to obtain additional laborers or to make their workers operate for additional man-hours (Li et al., 2020). Consequently, the ordinary pace of increase in wages will decline due to the overall level of the labor demand in the market.

    This also seems to be an element of the account for a contemporary low wage increase that has been witnessed in the past couple of years. The graph given reveals the relationship among the pace of increase in that WPI as well as in the level of the demand raised for the workers in the market by applying the flow of unemployment as a substitute for the overall worker demand of the market. The graph clearly demonstrates that the average rate of unemployment was somewhere around 6% in 2015 if the same trend was to be followed there should have been a growth in WPI by 3.3 % (Ivanovski et al., 2020).

    The aforementioned is unquestionably a more moderate pace of increase than at the various other circumstances, which implies that the modern financial slump is swaying earnings increase. Nonetheless, the contemporary increase in the WPI is likewise pretty more profound than would be prophesied from preceding exposure.

    The slow rate of the growth in output prices has been a major factor that determines the rate of growth in the earnings of the labor sector. The mining industry of Australia is going down with every passing quarter and this has posed a high pressure on the business sector of Australia and is thus causing an increase in the output prices for Australian businesses (Biddle, & Montaigne, 2017).

    A downward trend of the Cash Rate and the Inflation rate

    The Reserve Bank of Australia is the federal authority vested with the power of maintaining the macroeconomic activities of the nation. The function of the RBA is to keep the inflation rate checked by maintaining the balance of forced to keep the rate of inflation within the range of 2-3% in every cycle of business that is conducted and cosequenlty impose interest rates on the movements that fall outside this given range (Whiteford, 2018).

    The cash rate target of Australia witnessed an all time low percentage of 1.5 % in September 2016 and yet again in March of 2019. The inflation rate during these times have been in between the 1.3 to 2.1 percent which is not what RBA had had in mind while trying to maintain the macroeconomic stability of the nation (Saunders, 2017).

    Prompt Growth in less safe work sector

    In the recent years Australia has witnessed a lot of migrants who have come to the country in search of livelihood and better life quality. This has increased the availability of the labor as the numbers of people who are unskilled to take up professional jobs have significantly increased. There are more people for less number of jobs available. The bargaining power of the labourers has decreased substantially (Singh et al., 2018). Many of the people who work as laborers lack the proper paperwork and hence are employed in unsafe employment sector where employees take almost no responsibility for their well-being and they simply function on the basis of hire and fire. The insecurity of the work imposes a threat on the people to not push their employers for substantial wage increment or any other benefits. It is simply because people are aware that it is very easy for the employer to find a substitute for the people who are in employment (Kennedy et al., 2017). Many such employers do not provide any workplace safety or insurance to the workers who are working under them. This helps these businesses to cut back on the tax returns as they do not reflect the total labor base to evade the clutched of taxation.

    The data from ABS reveals that the number of independent contractors has increased from 2015 to 2018 however the number of employees share has decreased from 5.4% in 2015 to 5.2% in 2018. This is a cause of concern as it lays emphasis on the fact that the employment has reduced which means it will further dampen the wage rate (Darvas, 2017). The data also sheds light on the fact that there has been a rise in casual employment as the percentage of casual employment has risen from 23.5 percent to 24.6%. Most of these employments are unregulated by the government norms and thus pose a threat to the moderation of wages (Van Der Berg, 2016).

    The average age of Australia at the moment is 37 years. This implies that most of the people in Australia are potential workers. There needs to be constant demand of laborers in the market to saturate the labor availability that is there in the Australian market. To do so certain policy changes need to be defined to focus on the macroeconomic stability and economic growth by lessening the gap created by the income inequality.

    Recommendations for the policy makers

    Macroeconomic stability is a big concern for any nation. It determines the fiscal policies of the government and the international position of strength that it has got to maintain at the podium of the world economies. Here are some policy changes that may yield positive results for an accelerated wage growth that will automatically bridge the income inequality quotient.

    The government needs to revise the tax payment slabs of Australia. There needs to be a bifurcation of tax slabs on the nature of employment for some time. The government should offer some tax rebate to the companies who are working in unsafe work zone based on the number of employees that they have. This will increase the bargaining power of the laborers and will give the incentive to the companies to hire and retain more people.

    The government needs to relax the taxes and tariffs on the items that are needed in the growth of the rising industries in Australia such as the Healthcare, Construction and EdTech. The government needs to come up with policies that ease the working of the business components of these industries. This will create a job sector where people can seek employment and thus come near to the mark of a better wage rate.

    The government should provide special funds to the immigrant workers to begin self-help groups that can inculcate skills in the individuals that can help them to take up skilled employment that need higher education and vocational training. This will ease the labor inflation rates and will control the situation to a great extent.

    There needs to be incentives to stimulate the private sector investment which will increase the cash rate of the market and thus the output prices can be controlled by the government to stabilize the economic growth of the sectors.

    Conclusion

    So far we have realized what income inequality is. We tried to understand the economy of Australia by observing its goals and objectives. We also studied the factors that are responsible for unequal income among the people of Australia. We studied the trends of income inequality of the market of Australia. We studied how a sluggish wage growth rate is the principle factor responsible for the income inequality of Australia. We then tried to understand the factors behind the stagnant wage growth rate. We saw how inflation in consumer prices impose wage rate slow down. We studied the effects of the decline of mining industry. We also studied the impact of unsafe work sector employment.

    All this has given us a broader perspective and understanding of the economic growth and its relation to the income inequality of Australian market. We also reviewed a few recommendations that may help the policy makers to head towards a macroeconomic stability in Australia. It is true that the globalization and internationalization of world trade has made the constituents of the world market interdependent on each other, there are still a lot of things that a country can manage to do on its own. Australia is a mixed economy and thus it has got a lot of scope to improve and grow towards a positive economic growth that narrows the income inequality gap by providing more for its citizens.

    References

    Stanford, J. (2018). The declining labour share in Australia: Definition, measurement, and international comparisons. Journal of Australian Political Economy, The, (81), 11.

    Dritsakis, N., & Stamatiou, P. (2016). Trade openness and economic growth: A panel cointegration and causality analysis for the Newest EU Countries. Romanian Economic Journal18(59), 45-60.

    Mayekiso, S., Bom, S. A., Wilson, C., & Ndlovu, N. (2019). Macroeconomics: ECO 123L/F, Degree Examinations November 2019. [Online] Available at http://libdspace.ufh.ac.za/bitstream/handle/20.500.11837/1844/ECO123.pdf?sequence=1 Accessed on 13.07.2020

    Harris, M. I. C. H. A. E. L., Marshall, G. R., & Pannell, D. J. (2019). Integrating economics and Resilience Thinking: The context of natural resource management in Australia. Agricultural Resilience: Perspectives from Ecology and Economics, 295-314.

    Panagiotelis, A., Athanasopoulos, G., Hyndman, R. J., Jiang, B., & Vahid, F. (2019). Macroeconomic forecasting for Australia using a large number of predictors. International Journal of Forecasting35(2), 616-633.

    Ploszaj, A., Singh, T., & Su, J. J. (2019). Income Inequality and Foreign Direct Investment in Australia. World Economics20(2), 115-148.

    Kaplan, G., La Cava, G., & Stone, T. (2018). Household economic inequality in Australia. Economic Record94(305), 117-134.

    Li, J., La, H. A., & Sologon, D. M. (2020). Policy, Demography, and Market Income Volatility: What Shaped Income Distribution and Inequality in Australia Between 2002 and 2016?. Review of Income and Wealth.

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