Introduction
Growing income inequality in advanced countries has drawn more attention to and concern due to the widening gap between the wealthy and the poor. This essay will examine the various reasons for income disparity to argue that these causes have come together to create a system that has enabled the wealthiest people to amass growing wealth while leaving the poor struggling with stagnant wages and few employment opportunities.
By examining the historical context of income inequality and the purpose of governmental policies, this article will examine how the current wealth disparity system has been created and maintained. This essay will contend that the primary causes of income disparity are structural, political, and economic problems.
Structural
The main factor causing economic inequality is the structural makeup of communities. This concerns how money is distributed among various economic sectors and how it gives some people and organizations an advantage. For instance, the wealthiest 10% of people control over 80% of the total wealth, while the poorest 50% control only 1%; in industrialized countries, the top 1% of earners own a disproportionate amount of wealth compared to the rest of the population (Patel et al., 2018). Because of the unequal distribution of economic resources, some individuals and groups may accumulate wealth while struggling to live.
Economic globalization has been strongly associated with increased wealth inequality. As nations’ integration into the global economy progresses, there is an increase in the flow of capital, commodities, and services, which results in a concentration of wealth among the affluent. According to the World Bank, globalization can lessen poverty and inequality, but only if investments are made to safeguard vulnerable populations, have a flexible labor market, and take other preventative measures (van der Weide & Milanovic, 2018). This is especially true in countries with lax labor market regulations, which allow business owners to take advantage of employees and keep wages cheap.
The makeup of the job market also plays a role in income inequality. Higher skill and experience levels are frequently reimbursed with higher salaries, whereas lower skill and experience are paid less. As a consequence, skilled and unskilled workers earn different salaries. Women’s median annual earnings in 2018 were 82.5% lower than men’s (Diamond, 2016). This demonstrates that women still earn significantly less for the same job as males in many labor sectors.
The structure of the housing market affects wage inequality as well. Many people depend heavily on their homes as a source of wealth, but families with low incomes may struggle to afford a home (Lundberg et al., 2016). This disparity may lead to intergenerational inequality because wealthy families can pass their fortune to their children. 2020 (Hoffmann et al.) The concentration of housing wealth in some areas may also widen the gap between the wealthy and the poor because higher-income people can access better homes and services.
Political
Political factors can have a big effect on income inequality. For instance, taxes and public spending policies can affect how much of a country’s income goes to the rich and how much goes to the poor. For instance, the United States’ top 1% of earners receive an excessive amount of the nation’s income due to the nation’s tax laws, which favor the affluent (Patel et al., 2018). The wealthiest 1% would experience an average tax cut of $51,000, while the bottom 80% of earners would see a tax reduction of just $60 (Patel et al., 2018). This tax system greatly widens the gap between incomes. As a result, there is an unfair playing field where wealthier people have access to more government benefits.
Additionally, wealthier individuals and businesses frequently use their resources to sway governmental judgments. This could lead to policies that benefit the wealthy and exclude those with lower incomes (Hoffmann et al., 2020). For instance, in the US, people with higher incomes do not have the same access to the political system as those wealthy and can battle for tax breaks and other advantages.
The outcome is that the wealthiest individuals have an advantage when influencing political decisions, and income inequality is maintained. Over the past few decades, inequality has increased partly due to the wealthier people’s increased governmental influence (Lundberg et al., 2016). Due to their greater power, they have implemented laws and policies that serve their needs at the expense of those less fortunate.
The distribution of public resources is another way politics can aggravate wealth disparity. Governments may, for instance, spend more money on public services that benefit the affluent, such as excellent infrastructure and roads, while spending less on services that benefit the poor, such as public transit or access to healthcare (Lundberg et al., 2016). Due to better access to chances and social mobility for those with more resources, this unequal distribution of public resources may result in greater income inequality.
Economic
The widening of the wage gap that has been seen in recent years is largely due to economic factors. The economic structure of a country can significantly affect wealth inequality. For instance, a study by the Organization for Economic Co-operation and Development (OECD) found that countries with higher levels of market concentration—where a small number of companies dominate the market—have significantly higher levels of income inequality than countries with lower levels of market concentration (Inequality and poverty). Therefore, a nation’s income inequality level is significantly influenced by the market system.
Economic policies like minimum wage rates and labor laws can significantly affect the gap between the rich and the poor. Regions with higher minimum wages, for example, generally have lower rates of income inequality because the minimum wage plays an important role in preventing those with lower incomes from falling behind. Additionally, labor regulations like the right to unionize can protect workers from being taken advantage of by their employers (Lundberg et al., 2016). Unfortunately, wealthy people and businesses frequently criticize these regulations, hoping to weaken or abolish them using their influence in politics and the economy.
Another important economic determinant is the pay gap between high- and low-income employees. According to the Economic Policy Institute, the highest 10% of wage earners in 2019 received an average hourly wage over twice as high as the bottom 10% (Patel et al., 2018). Over the past ten years, this wage gap has widened, which has had a detrimental effect on income equality (Patel et al., 2018). The income growth of the top 1% of earners was much faster than that of the lowest 90% (Patel et al., 2018). In recent years, the pay disparity has grown even wider as salaries for the top 1% increased by 18.9% while those for the lowest 90% only increased by 4.5%. (Patel et al., 2018). The main cause of income disparity in the US has been unequal wage growth.
The rising cost of living is ultimately to blame for the widening wealth disparity between individuals. According to the National Low-Income Housing Coalition, since the 1970s, housing costs have grown more quickly than wage growth (Hoffmann et al., 2020). The stress on low-income households has increased due to their frequent inability to keep up with increasing rent costs. The same data also shows that over the previous ten years, childcare, healthcare, and food costs have grown more quickly than income (Lundberg et al., 2016). This means that while higher-income households are growing able to afford life’s luxuries, low-income households struggle to pay for necessities.
Conclusion
The gap between the rich and the poor has grown because of structural, political, and economic factors that have exacerbated income disparity. These factors have contributed to the development of a society in which the richest people have accumulated ever-increasing wealth. While this happens, the poor struggle with limited economic prospects and declining incomes. People must address the structural, political, and economic factors that contribute to income inequality if we are to narrow the gap. It will require a concerted effort on the part of governments, businesses, and individuals to ensure that economic growth benefits are distributed more fairly across all income levels.
References
Diamond. (2016). Addressing the forces driving inequality in the United States. Contemporary Economic Policy, 34(3), 403-411. Web.
Hoffmann, F., Lee, D. S., & Lemieux, T. (2020). Growing income inequality in the United States and other advanced economies. The Journal of Economic Perspectives, 34(4), 52-78. Web.
Inequality and poverty. OECD. (n.d.). Web.
Lundberg, Pollak, R. A., & Stearns, J. (2016). Family inequality: Diverging patterns in marriage, cohabitation, and childbearing. The Journal of Economic Perspectives, 30(2), 79-102. Web.
Patel, Burns, J. K., Dhingra, M., Tarver, L., Kohrt, B. A., & Lund, C. (2018). Income inequality and depression: a systematic review and meta‐analysis of the association and a scoping review of mechanisms. World Psychiatry, 17(1), 76–89. Web.
van der Weide, & Milanovic, B. (2018). Inequality is bad for the growth of the poor (but not for that of the rich). The World Bank Economic Review, 32(3), 507-530. Web.