6 What can be done about income inequality?

In Section 5 you looked at some of the explanations for the rise in income inequality. These included differences between individuals, due to different education and skills, parental wealth and working patterns. Other explanations concern the distribution and level of wages in the economy as a whole, including issues such as technology, globalisation and the changing share of wages in total income. You also learned that inequality can have a damaging impact on societal wellbeing. This section will look at is what can be done to address income inequality.

American economist James Galbraith (2016) identifies three main areas of policy measures that governments can use to tackle inequality (see Figure 19).

Figure 19 The three main areas of policy measures that government can use to tackle inequality.

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This has three circles. In the first are the words ‘Changing the structure of original incomes’. In the second are the words ‘Influencing the cost of living through the provision of good such as education and healthcare. In the third are the words ‘Redistribution of incomes through the taxation and benefit system’.

Figure 19 The three main areas of policy measures that government can use to tackle inequality.