Causes of Income Inequality

Economic inequality refers to the unequal distribution of household or personal income by certain members of a country's economy. Income inequality refers to the disparities in income between those who earn the most and those who earn the least in a given country. Since there is a substantial disparity between the rich and the poor in society, income inequality is linked to the concept of unfairness. As the wage disparity between the rich and the poor becomes more apparent, the divide widens. The disparity persists as a result of a variety of variables, including demographic, technical, and political pressures. Economic inequality is calculated by dividing one's income by the population's income. Several factors contribute to income inequality in a country.
Differences in levels of education are one of the primary causes of income inequality in society. There are specific groups of people in society who do not have access to a quality education, especially those who did not go beyond the high school level. As a result of this, income disparity is more as those with higher education earns more due to access to more-paying jobs compared to those who have lower educational qualifications. In countries that provide education of higher quality at the secondary level, income inequality is less hence different individual enjoy near income equality. Also, educated people have access to many job opportunities. Thus, the disparity of income between different groups exists (Rosnick). Workers with a high level of education get high wages compared to workers who have a low level of education.
Globalization and trade is another cause of income inequality. Globalization provides an opportunity for the wealthy people to be increase their wealth, as the poor tend to maintain the status quo. Such is a prerequisite to income inequality as the two groups move in different directions as far as income generation is concerned. Globalization creates inequality in markets, as economic gains are associated with the more proficient global market in the developing world. Also, global market leads to inequality due to trade and migration at the global level reflecting the greater market share of the rich (Forum). Increase in trade results to income inequality, the growing trade between different countries has increased the number of imports in a given country. It has resulted in loss of a job in industries producing goods in a particular country. Furthermore, offshoring is another cause of income inequality, which affects jobs, and wages of employees. Trade and offshoring have led to unemployment, weak inflation, and low workforce involvement by the employees.
Technology is also a cause of income inequality in different countries. Technology affects both the high and middle-income earners in society. Technology has replaced several jobs with laborsaving machines leading to unemployment. It leads to increase in efficiency and wealth creation among the rich in the society. Concurrently, the poor who provide labor in the organizations operated by the rich is laid out, and their positions are taken up by the machines. Technology has led to shifting from educational to technical changes (Gordon). Also, the increased use of technology has caused income inequality, as there is demand for skilled workers rather than the unskilled workers. The skill workers will be earning and becoming wealthy while the unskilled remain poor, leading to income disparity.
Changes labor market institutions such as labor unions is also a predisposing factor to income inequality. Changes in labor market create a challenge for workers, usually those with low skills. Therefore, such changes play a critical role in defining income disparity. Labor market policies such as employment protection regulation result on inequality as it affects both the earnings and employment in conflicting ways. Labor unions are diminishing slowly, and this has led to a reduction of wages among workers. Labor unions are diminishing slowly, and this has led to a reduction of wages among workers. Also, a decline in labor union membership can reduce the bargaining power of labor leading to wage inequality.
Government policies are a significant contributor to income inequality. Some governments form policies that can lead to an increase in income disparity. For instance, the U.S. government formed a policy of an institutional framework that led to inequality in America. Furthermore, deregulation, changes in tax and monetary policies reduces the rate of employment and wages. These policies led to the division of employees at the expense of the company. Government policies are being politicized. Politics are a major cause of income inequality because governments are taxing both rich and poor.
Stagnant wages plays a considerable role in income inequality among citizens in any country. Workers earning low salaries are not promoted n order for them to earn higher wages which is highly increasing inequality in income. Stagnation of wages among the poor is still going on among companies, as they do not want to increase the wages for them. This results in income disparity, as there is a gap between the rich and poor. Additionally, family structure is another cause of income disparity. The changes in the labor force in the family structure as it changed from two parents. For example, a single parent is earning low income and two parents earning a higher income. Because of this, there is income disparity as the single parent is not able to earn higher and two parents are earning more. Such causes income inequality among people.
Competition for talents and skills creates salary division. Competition for high-quality talent by companies leads to higher executive salaries among employees, which lead to high level of productivity. Employees with talents can get bonuses and incentives than those who do not have talent. This causes disparity in income, as those with talents can get higher salaries compared to those with no talents.
In conclusion, income inequality causes a major disparity in society as the rich and poor can be distinguished. Income inequality is caused by different factors that eventually hinder the growth of a particular country. Such factors include globalization, education, and technology. Changes in labor markets contribute to income inequality. Such factors result in unemployment and low wages among workers. Government policies also add to income inequality. They do this by taxing the poor people in the country.
Works Cited
Forum, James. "Globalization Will Increase Inequality." Globalpolicy.Org, 2006, https://www.globalpolicy.org/component/content/article/218/46552.html.
Gordon, Colin. “The Computer Did It? Technology and Inequality” Dissent Magazine, 2014, https://www.dissentmagazine.org/article/the-computer-did-it-technology-and-inequality.
Rosnick, David. “Breaking down the causes of income inequality” US News, 2012, https://www.usnews.com/opinion/blogs/economic-intelligence/2012/07/16/breaking-down-the-causes-of-income-inequality.