Answer to Question #256140 in Macroeconomics for Nini

Question

You have just been employed as an economic advisor to the Department of Social Welfare. They inform you that they feel there are injustices in relation to the distribution of the initial endowment, as such despite improvements in economic growth, the inequality in the wealth of households in the society remains high.

What economic advice would you give to the Department of Social Welfare? Try to put your argument clearly and discuss its advantage and disadvantage.

Answer 1

Solution:

The Department of Social Welfare should invest in human capital to tackle the inequality in the wealth of households.

Investing in human capital by increasing access to high-quality, low-cost childcare and early education; developing pathways to good jobs such as apprenticeships, national service opportunities, and a national subsidized jobs program; and implementing College for All to ensure that no student attending a public college or university has to pay any tuition or fees while enrolled. It will ensure that households are more skilled and have better opportunities to improve their livelihoods. Households will be able to earn more money, thus allowing them to save more money, thus increasing their wealth. Human capital investments provide returns to individuals as well as to the economy as a whole. Individuals benefit from higher earnings, and the entire economy benefits from higher productivity.

The disadvantage of investing in human capital is the heavy funding it requires, which may be difficult to come by, including increased resources. This may limit development in other areas of the economy.