Inequality has been present in all societies throughout history, in the earliest forms of societies inequality came about as a result of job specialization and it has remained a dominant feature in all societies to the present date. Inequality forms the basis of the capitalist market and has a significant effect on the economy (Jones 90), the theme of this paper will be to establish the causes of inequality and how inequality affects a country’s economy.
Inequality refers to differences in wealth distribution between social entities such as individuals groups and countries. Inequality is important because it hinders the process of economic growth; high levels of inequalities also make it impossible for the government of the day to put in place working policies that ensure poverty reduction (“Real World Macro” 56). Economic growth results in inequality because of the widening gap between the level of investment in the rural and urban areas as well as between the educated and the uneducated (Foley 132).
Karl Marx asserted that the capitalist society has brought about economic inequality because capitalism broadens the gap between the have’s and the have not’s. The capitalist owns the majority of the economic resources and employs the proletariat to work for petty wages to increase their profit margin this results in unequal wealth distribution. Much of the gain from economic activities ends up in the hands of a few elites while the workers suffer low family incomes and job displacement.
Meritocracy is based on the assumption that a person’s success is achieved on merit, the harder a person works the more he will receive in form of wealth. This ideology has greatly influenced inequality by justifying the wealth accumulation among the wealthy and has helped reduce inequality because people work hard to accumulate wealth.
The modern labor market has greatly contributed to the unequal distribution of wealth. the supply and demand of different jobs vary in that highly skilled workers are paid more than semi-skilled and unskilled workers because the highly skilled workers are scarce and in high demand among the employers. The wage market works just like the price market in the supply and demand of goods and services, highly skilled workers are few because professional training requires a lot of money and is time-consuming this further discourages many people from pursuing such training hence there results in scarcity in supply (Hardy 85).
The scarcity in supply causes the employers to outbid each other in an attempt to snatch up the highly skilled by offering high wages (Frank and Bernanke 109) The surplus in semi-skilled and unskilled workers leads to competition in securing the few employment opportunities left and this further leads to low wage rates. Individuals in some industries are paid more than their equally qualified counterparts for example actors, marketers, salesmen, etc this difference in wages can be attributed to innate abilities that these individuals possess. Charisma, aggressiveness, intelligence, and hard work are examples of these abilities. People who are hardworking and intelligent are in higher demand in the job market as these characteristics are hard to find as a result they are paid more.
Access to education has led to inequality in that person who has no access to education are not equipped with skills that will make them valuable members of the workforce. The educational courses that will equip people with skills required in high-paying jobs are also very expensive to pursue. Technological advancement has made the job market favorable to people who have adequate training those who cannot access such training are left out (“Real World Macro” 63).
Culture and religion have created inequality by justifying wealth differences. Examples of such cultures are the Indian caste system and the estate system although these systems have been eroded by globalization; vestiges of them remain today. These systems are built on the foundation that people are born into different statuses (ascribed statuses) and these statuses cannot and should not be changed so when one is poor he should not acquire wealth.
Inequality has greatly affected Economic growth. Countries that are not wealthy will experience subdued economic growth and unemployment is high whereas wealthy countries have increased economic growth and high levels of employment (Hardy et al. 23). When the spending in the demand side of the economy is high the economy’s resources are fully utilized and this results in increased employment and economic growth(Frank and Bernanke 97).
Economic inequality has brought social cohesion whereby people in the same economic status develop mutual bonds because they share the same culture. Social cohesion increases social exclusion in that the poor can hardly ever penetrate the upper class resulting in a negative impact on access to opportunities (Anand 78). Inequality declines during a financial crisis, this is because more people including the rich are do not have money (Frank and Bernanke 187).
The rich face huge losses while the spending power of the working class increases and this further narrows down the gap between the haves and the have not’s. Recessions may also induce people to pursue higher education to secure the few employment opportunities left, this, in turn, leads to competition among the job seekers and consequently a drop in the wage rate.
Inequality in Asia is still growing despite globalization. Modern Asia is dogged by cultural ideologies and the communist system which have greatly influenced the distribution of income. China’s economy seems to be growing exponentially, however, the rich are getting richer faster than the poor and this increases the level of inequality. (Anand 54) Asia has a large labor market with china’s population consisting of a third of the total world population.
The wage rate is low due to the excessive supply of labor and hence an increase in the level of inequality. Cultures such as the Indian caste system have contributed to inequality because they favor complacency based on religious ideologies in that person who is born poor can not become rich and the rich cannot become poor.
The United States is dominated by inequalities despite the government policies implemented to mitigate the wealth difference between the rich and the poor. For example, the increased credit facilities that were put in place to help the poor acquire finance caused the recent financial crisis in America which saw the collapse of large multinational companies such as the Lehman brothers. The crisis had adverse effects on both the poor and the rich but the poor seemed to bear the most pain.
The recession led to a slight decrease in inequality; however, the US economy is now improving and has witnessed an increase in economic growth and labor productivity. Labor productivity has increased due to technological improvements and increased investments; the resulting real wage increase has led to economic growth and a further increase in inequality (Jones 86). An influx of immigrant workers with little or no professional qualifications has contributed to inequality because the influx has led to an increased supply of laborers and further low wage rates.
The Gini index is used to measure economic inequality by measuring the dispersion of economic statistics. The Gini index ranges from zero to one, one represents absolute inequality, zero represents equal distribution while a higher index represents the uneven distribution of wealth and a lower index represents an even distribution of wealth (“Real World Macro” 87).
Inequality can be reduced by implementing policies that will help the poor generate income (Beckenbach, E.F., Bellman 65). These policies should emphasize equal opportunities to all members of the society, examples of these opportunities are equal access to finance, educational and healthcare facilities among others. It is also important to implement policies that will reduce fluctuations in the business cycle (Jones 89).
Works Cited
Anand, Sudhir. Inequality and Poverty in Malaysia. New York. Oxford University Press,1983. Print.
Beckenbach, E.F.,Bellman, R. An introduction to inequalities. New York. Random house, INC, 1975. Print.
Foley, Duncan K. Growth and Distribution. Cambridge. Harvard University Press, Massachusets, 1999. Print.
Frank, Robert, and Ben Bernanke. Macroeconomics Brief Edition. New York. McGraw Hill, 2007. Print.
Hardy, G., littlewood J.E., Polya, G. Inequalities. Cambridge. Cambridge University Press, 1999. Print.
Jones, Charles I. Introduction to Economic Growth. New York. Norton & Company. 2002. Print.
Real World Macro. Massachusetts. Dollars and Sense, 2010. Print.