Economic and Social impact of income inequality

Globalisation has revolutionised the entire world in many great ways. Heshmati (2003) defined globalisation as the free motions of goods, services, and capital across countries, thus, enabling individuals and organisations to connect with the entire world in a faster and less expensive way as compared to before. However, the immediate development of globalisation can also be viewed from another perspective; as the saying goes there are two factors of the same coin. Although globalisation has widened opportunities for organisations to use internationally and improve economic growth, it can create stresses which would lead to the increase of inequality and poverty in some countries (Duncan, 2000).

Income inequality is the disparity of income syndication between the wealthy and the indegent within an market. Income inequality is also associated with relative poverty, where specific or household income comes below the common income level placed by the country which can determine the people's position. The Gini coefficient is the most frequent method used to evaluate income inequality. It is predicated on the Lorenz curve which compares the syndication of a specific variable with the type of perfect equality. According to Slack and Rodrigue (2009), the Gini coefficient varies from 0 to at least one 1; where 0 represents perfect equality while 1 means complete inequality. Most countries on earth have a Gini coefficient ranging from 0. 25 to 0. 6.

The degree of income inequality, its influence on public and economics, as well as methods to overcome the matter will be discussed further in this article.

2. 0 The Degree of Income Inequality

Sachs (2008) stated in his book that inequality is one of the devastating crises that the earth has been experiencing for days gone by two decades, although it has been around for centuries. The Man Development Report 2002 turned out that in 1820, European Europe's per capita income was approximately three times greater than the per capita income of Africa. However, by 1992, the difference has increased up to 13. 2 times. This situation displays the well-known word 'the abundant getting richer and the indegent getting poorer'. Income inequality has become a very serious issue because the increasing space between the rich and the indegent is too great to dismiss. This gap prevails either because the wealthy are getting much wealthier or the indegent are falling behind, or even both.

Now the question is why are the abundant getting richer? There are many reasons to mention, but the key drive of inequality is due to the increase inequality of labour profits. High gives are usually rewarded to skilled personnel as well as people that have tertiary education requirements, whereas unskilled workers end up being the victims of inequality. Unskilled employees are struggling to make it through with the mere low wages they earned that will not commensurate with the long hours of work performed. In the worst case scenario, their work might get bought out by immigrants who are usually more than happy to agree to such amount of income. Stilgitz (2002) quoted

The Westerns may feel working at Nike as exploitation because they acquire low pays, but for many people in growing countries, employed in a factory is preferable to being down on the farm.

Not only that, but with the progress of technology and improvements, computers nowadays can handle developing efficiency in many industries, thus, creating a high probability of unskilled labours to be substituted off. Labours who are skilled with machineries and computer systems on the other side are popular for career.

Another reason the rich are getting richer is owing to corruption. Problem as identified by the Oxford dictionary is a dishonest or fraudulent take action by those in electric power, which includes but is not limited by embezzlement, bribery, extortion, and scam. In poor countries, those positioned near the top of the hierarchy are controlling money for his or her own gain rather than distributing for the society's welfare. Exploitation of natural resources in the third world country by the rich countries also leaves the poor in poverty as the large amount of money received was not delivered to the people. Afrikhan (2011) quoted Kwame Nkrumah, the leader of Ghana, stating 'overseas capital is employed by the american capabilities for exploitation somewhat than expanding the less fortunate countries'. In other words, the increase of international investment funds in less developed countries regrettably does not reduce the gap between your rich and the indegent countries.

Therefore, yes, income inequality is an extremely serious matter that should be considered because it is straight related to the welfare of culture in a country. Although it might be argued that inequality creates a positive bring about terms of a wholesome competition so that inspiration to lead a better life, the truth remains that income inequality is nothing but a burden towards modern culture.

3. 0 Effects of Income Inequality

As mentioned earlier, income inequality is a growing concern not only within the country but is a significant global issue. In such a section, the consequences of growing income inequality on a country's market and sociable development will be reviewed.

3. 1 Economy

Through the years, economists and insurance plan manufacturers have argued on the possible effect of income inequality on economics. Regarding to Kuznets' theory, the relationship of economic progress on income inequality can be illustrated by an inverted-U graph. Whenever a country develops financially, the income inequality of that country worsens. A few generations later as a country grows wealthier with the wealthy investing more throughout the market, the amount of inequality reduces. However, the Kuznets' theory appears to only apply on developed countries because studies on the 3rd world countries have shown contrasting results (Samanta and Heyes, 2006).

Human capital is a superb asset to a country's development because experienced and skilled labours will be the drivers of market. In most poor countries, their economical development is stunted by the high percentage of unemployed and unskilled labours due to the insufficient education. Yet, in most cases, among those who find themselves unfortunate to receive proper education, there are a lot of them who've potential to lead a better life. Regrettably, they don't have the chance to pursue education in order to donate to the introduction of economy. As a result, the poor aren't capable of providing goods and services to the current economic climate that would generate high earnings.

Other than that, the vicious circle of poverty also impacts the economy. This vicious group is a self-perpetuating process which profits to its first point with no development from when it started (Gary, 2010). The vicious circle of poverty is whenever a person earns low salary, they do not can afford to savings, and therefore, they are limited to invest which in turn ends in low productivity. Once again, low productivity causes low income, and the cycle repeats itself again consistently. In addition, when income is low, use diminishes as well. Because of this, the federal government are spending a large amount of money to eradicate the problem instead of trading on the country's development, thus causing the drop in financial growth. When the pattern persists in long-term, the current economic climate of the united states would face higher risk.

In a country suffering from high income inequality, there's a possibility that politics instability will occur and would then lead to cultural unrest which could have an impact on the country's overall economy. An example is the current concern in Egypt; where the citizens were dissatisfied with the high levels of corruption, low wages, and poor living conditions. Because of this, they protested against their Leader and government, and it caused serious interpersonal unrest. This political instability could discourage home and foreign investments; hence, underdeveloped economy.

3. 2 Social

The inequality influences people's standard of living greatly when there's a gap between people that have high and low income. However, the wealthier folks of a country aren't affected by the problem by any means; instead they are enjoying their riches in ways we can't even think about. Take China for example; there are hundreds of men and women with low living expectations in mainland China employed in factories with low pay, but people in locations like Shanghai on the other hands you live their lives luxuriously. This example demonstrates the income inequality of China is relatively high with a Gini coefficient of 0. 42 in 12 months 2007, as explained by the Central Cleverness Agency (CIA). In other words, income inequality affects a country's public development negatively in conditions of living requirements, health, education and criminal offenses rates.

Living criteria is a way of measuring material welfare of the people in a certain geographic area. For those who have low income, they face difficulties as the living standard would be relatively high for these people in order to support their daily essentials as well as their own families. Appetite and malnutrition is an extremely universal problem among those unemployed as money is a limited factor. Based on the meals and Agriculture Company of the US (FAO) 2010 survey, the majority of the world's hungry are from producing countries which consist of 16% of the population.

The second impact of income inequality is on the society's health. When there may be inequality, it is clear that the less lucky are influenced greatly as they lack access to safe drinking water, exposed to unhygienic environment, and gets inadequate medical services. Some of the common diseases that affect the indegent in under-developed countries are malaria, tuberculosis, kwashiorkor, pneumonia, and Products. The unavailability of clinics and medication materials using geographic areas worsens this problem. Not just that, but ignorance in contraceptive and contraption escalates the rate of these experiencing HIV/AIDS. Due to this reasons, the mortality rate in those areas could keep increasing terrifyingly unless safety precautions are taken into action.

Thirdly, the cultural effect of income inequality is on education. With limited money to get, most people with low income do not have the opportunity to enrol their children into university to acquire proper education. Even if they do have the opportunity, they couldn't afford to keep to the tertiary level without any monetary support. Because of that, almost all of the poor are stuck in the vicious group as mentioned previously. For instance, if a guy is a minimal income worker, his boy who lacks proper education would need to take up low income works as well; and the routine of unskilled personnel in the man's family will tell you the next era continuously if there is no government intervention.

The final interpersonal influence on a country's development is the increase of crime rates. When money is scarce and a person is desperate for survival, you might do absolutely anything in order to continue living. Fraud and robbery is a major problem generally in most countries as crime is the only way for them to obtain material goods instead of using proper methods. This is because the income inequality that influences the indegent has forced a higher level of stress upon them, that leads them to committing offences.

Therefore, it is visible that the crisis of income inequality affects adversely in a country's development either in conditions of economic development or interpersonal welfare.

4. 0 Ways to Battle Income Inequality

Countries worldwide have already taken action to lessen the wide space between the wealthy and the poor by adopting new policies. The federal government of an country performs an important role to be able to overcome the situation of income inequality. The first method to battle inequality is the government should manage their budget system relevantly. The government's main income source comes from the duty paid by the people of a country as well as foreign investments into the country. Aside from trading on the country's current economic climate development and welfare expenses, the federal government should allocate and contribute money to the less lucky too. One way of contribution is through unemployment benefits that have been imposed in some countries such as Australia, Ireland, UK and Japan. Unemployment benefits are obligations to the unemployed by the federal government or an authorised body of your country. Even though pay is very little, it is enough to allow them to fulfil their basic requirements. Using this benefit, the pace of unemployment and poverty decreases, thus, reduces the distance of inequality.

My second advice is to provide training to unskilled labours that has great potential to work in high income jobs. By providing proper education and skills to the poor community, chances of them to break free from the poverty trap are higher. As stated earlier, there are actually quite a amount of men and women with potential who aren't given the chance to screen their true potential because they lack education. Therefore, by building an application where potential folks from the poor community receive training to work in areas other than agriculture and industrial, will allow those to live their lives a little wealthier than before.

The next step to overcoming income inequality is by giving education to the less lucky with the government's support. Such as for example building classes in less developed areas, allocate licensed instructors to these areas to educate them, and providing scholarships so that they can move on to tertiary level education. It appears that obtaining a certified education is the only path to demolish the inequality between them and the wealthy. With proper education, it is not impossible for the indegent to join the workforce alongside those individuals whose parents are prosperous enough to support them to study. In other words, education is able to reduce income inequality because they will then be generating the same salary and also automatically improves their living specifications.

The previous possible approach in combating income inequality is through standardising minimum amount wage per hour for unskilled workers. By standardising minimum amount wage, living requirements of the indegent can be recovered and also encourage consumptions. However, there are quarrels indicating this plan would be a disadvantage to a country because foreign investors would opt to spend money on other countries which do not apply such insurance plan. Though there may be fact behind these words, if countries worldwide practice this coverage together, it would provide positive results to the less fortunate.

5. 0 Conclusion

Throughout this report, I have mentioned that the increasing of income inequality is definitely a serious subject where its impact is seen to affect both economy and interpersonal development of countries internationally. The disparity of income between the rich and poor should be low in order to achieve an equal and better living standard among world. Although I know that income inequality can't be solved immediately, I think that steps should be taken to overcome the condition. Therefore, in conclusion, special plans and global initiatives must battle income inequality to be able to accelerate monetary and social development.

Also We Can Offer!

Other services that we offer

If you don’t see the necessary subject, paper type, or topic in our list of available services and examples, don’t worry! We have a number of other academic disciplines to suit the needs of anyone who visits this website looking for help.

How to ...

We made your life easier with putting together a big number of articles and guidelines on how to plan and write different types of assignments (Essay, Research Paper, Dissertation etc)