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Understanding economic inequality
Understanding economic inequality

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6.3 The structure of original incomes

In Section 4.2.1 you looked at how the share of total income going to labour in the economy had fallen. Many economists support policies of redressing the falling share of total income in the economy going to labour. Such policies would affect the structure of original income by increasing the share of wages going to labour pre-taxes and benefits (which corresponds to the original income in Figure 9 in Activity 5). For this reason they have been referred to as ‘predistribution’ policies by some economists (in contrast to the redistribution of income through the tax and benefits system), as they would contribute to a more equal distribution of income in the first place.

Activity 15 Workers’ bargaining power and inequality

Timing: Allow about 10 minutes

How do you think policy makers can improve workers’ bargaining power?

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Answer

Changing labour market policy to increase the bargaining power of labour, for example by increasing wages or providing more stable and secure working conditions. In effect, such predistribution policy would include a reversal of many of the government policy changes that have been seen over the last 30 years.