Developed economies suffer from severe shortage of demand. High unemployment rates and large output gaps show suggest that developed economies suffer from severe shortage of aggregate demand. Explain the mechanism through which inequalities may contribute to a weak demand and hence to a slow recovery (hint: think of the effect on consumption of the vanishing middle class, referring to different propensities of consumption of different income classes). (References: Stiglitz chapter 4 (page 85/89), Lansley (2012 chapter 8) , Lucchino Morelli (2012, pages 13/19)
2part) A new proposal to fight income inequalities? A global minimum wage
A new proposal on minimum wage is expressed by T. Palley in the Chapter 12, The Challenge of Globalization of his book From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economic Ideas. A discussion of the chapter is on the FT July 18th 2011, A global minimum wage system by Thomas I. Palley, and on : http://blogs.ft.com/economistsforum/2011/07/a-global-minimum-wage-system/#ixzz1TTSlyliq
1.Discuss what the term global minimum wage means and how and why a global minimum wage can reduce inequalities.
2.Describe and show with a graph how minimum wage systems have operated traditionally and why Palley thinks that this approach is flawed.
3.Discuss Palleys proposal and the five effects of this design
List of references for the essay which might be useful:
- Lansley S. , The Cost of Inequality (selected chapters), Gibson Square, 2012
- Lucchino P., S. Morelli, Inequality, Debt and Growth, Resolution Foundation, May 2012
- Stiglitz J., The Price of Inequality (selected chapters), Allen Lane, 2012
http://www2.lse.ac.uk/publicEvents/pdf/20101011%20Adair%20Turner%20transcript.pdf, http://www2.lse.ac.uk/assets/richmedia/channels/publicLecturesAndEvents/slides/20101011_1830_economicGrowthHumanWelfareAndInequality_sl.pdf
UNU-WIDER, United Nations World Income Inequality Database: User Guide and Data sources, World Bank Human Development Report; (1998) http://62.237.131.23/wiid/WIID2c.pdf
Wilkinson R. ,and K. Pickett , The Spirit Level, (selected chapters) Penguin Books,
http://www.equalitytrust.org.uk/why
http://www.equalitytrust.org.uk/why/evidence
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