The possible policies governments may use to reduce inequality:
- A higher national minimum age – This would be an effective way to increase the incomes of low paid workers and incentivise the unemployed to seek work, in turn this would reduce wage inequality. However it could potentially lead to greater unemployment has firms may not be able to afford the workers at this wage level. ( this could cause poverty to worsen.)
- Progressive taxation – e.g the higher rate of income tax from 40% to 50% will take more income from those on higher income levels. This increase revenue and therefore enables cuts in regressive taxes and increased benefits which will help to increase the income of the poor.
- Investment in training – For instance subsidies for work place training and internships. This will increase productivity and the MRPL of low paid workers enabling them to reach higher wage levels.
- Subsidies for child care – This will increase the incentive for mums to return to work once they’ve had children. In turn this will reduce the gender pay gap between men and women by giving them the opportunity to work. For instance in 2014 there was a maximum government contribution of £2000 a year for each child.
- Free access to healthcare and education – This would ensure that even if there is a natural inequality gap within the economy, those on lower incomes will still receive the same opportunities to progress and the same healthcare treatment as those oh higher incomes. The UK currently adopts this already with the NHS and state education.