What this lesson teaches
I can explain the causes of weak growth, unemployment, inflation or deflation and a large trade imbalance.
Syllabus 9570, 3.2.2(a). Macroeconomic Issues: Macroeconomic issues and their causes; Undesirable economic growth - persistently low or negative, unsustainable, non-inclusive due to factors such as changes in AD or AS, environmental degradation, inequitable income distribution; Unemployment - demand-deficient, structural, frictional due to factors such as lack of AD, technological changes, mismatch of skills, transition between jobs; Price instability - demand-pull inflation, cost-push inflation, deflation due to factors such as changes in AD, costs of production, productive capacity; Persistently large balance of trade deficit or surplus due to factors such as changes in global conditions, international competitiveness, exchange rates
Make a guess
Average income rises 5%, but the real earnings of the lowest-paid fifth fall. Was this growth inclusive?
- Yes, because the economy grew.
- Yes. A 5% rise in average income lifts everyone.
- No. The gains did not reach the lowest-paid.
Show the answer
No. The gains did not reach the lowest-paid.
Inclusive growth means the gains are widely shared. An average can rise while some groups fall behind.
Growth is inclusive when its benefits reach most people, not just some groups.
Inclusive growth means the gains from growth are widely shared, including by lower-income and vulnerable groups.
Growth can be non-inclusive. If it is concentrated in high-skill industries such as finance and technology, skilled workers gain a lot while low-wage workers gain little, and inequality widens.
Workers whose jobs are replaced by automation may lose out entirely unless they can retrain.
Singapore uses Workfare, the Progressive Wage Model and SkillsFuture to help lower-wage workers share in growth.
- Inclusive
- Gains widely shared.
- Singapore tools
- Workfare, Progressive Wage Model, SkillsFuture.
Worked example: An average gain that one group misses
Real output per person rises 5%. Workers with scarce technical skills get large pay rises, but a lower-income group's real earnings fall 3% as their usual jobs disappear.
- The average rose, so growth looks healthy.
- But the lower-income group is worse off.
- Growth was not inclusive: the gains went to the already skilled.
- Training and transport support could help the group reach new jobs.
Watch out for this
If average income rises, growth is inclusive.
Averages can rise while some groups fall behind. Check how gains are shared.
Check your understanding
Which evidence best shows growth was inclusive?
- Real GDP per capita rose 5%, the fastest growth the country has had in a decade.
- Top earners' incomes rose sharply, lifting the national average.
- Real incomes of the lowest-income households rose along with the average.
Show the answer
Real incomes of the lowest-income households rose along with the average.
Right. The gains reached lower-income groups.