Development Economics, Concept of Inequality - Essay Example

Development Economics Table of Contents Introduction 3 Concept of Inequality 4 Why Inequality Matters and it’s Causes 5 Relationship of Inequality with Development 6 Influence on Demand and Consumption 8 Affect over Production and Supply 8 Affect over Money Supply and Savings 8 Impact over the Socioeconomic Dynamics and Sustainable Development 8 Recommendation and remedial measure to combat with Inequality 9 Conclusion 10 References 11 Introduction Economics is a social phenomenon related to the study of individuals, firms, government and nation among each other to fulfil their needs, wants and demands. Economics deals with studying human interactions about the procedure based on which different entities i.e. individuals, governments and firms make their choices to satisfy incomprehensible demand. Micro and macroeconomics are the two different dimensions of economics. Microeconomics concentrates on the action and the behaviour of individual units that includes individuals, households and firms. It focuses on change in the demand and supply of individual markets due to changes in the price level. Conversely, macroeconomics is a broader view of economy and its effect is identified in the entire nation and in the international market as a whole. Besides, it is the analysis of a country’s economic performance and structure along with the government policies affecting the economic condition (McConnell & et al., 2009). In many developing nations, economic issues faced by the inhabitants of a society and a business are in terms of distribution of scared resources. Inequity and development is the key issues in any economy in which inequity refers to differences in income or wealth, consumption and other variable that are related to the social welfare. In this context, inequity has emerged as the central problem for every economy that threatens the upward mobility of a nation (Chilosi, 2010). Correspondingly, the essay highlights the development issue in relation to the high level of inequity problem in an economy. The most possible effect of inequality in the development along with the possible remedial measure to eradicate the inequality will also be discussed. Furthermore, the analysis helps to have a better understanding about the economic issue of inequality and its possible impact on the economic development of the nations. Concept of Inequality The concept of inequality is based on a multidimensional approach that refers to the comparability of elements. This comparability is done between specific characteristics, which are measure with adequate indices and indexes. Difficulty arises when the concept are been framed in the societal context, which ultimately creates economic problem. As stated above, the concept of inequality is related to the differences in income, consumption and other components of social welfares. In some of the nations, top earners enjoy larger part of overall distribution of wealth and gains, whereas the others are having little shares. Growing level of inequity in a society has been becoming a vital point of concern for the developed and developing nations. In this regard, many economists reveal that inequality is directly related to the growth of a nation. Besides, one standard deviation increase in inequality will decrease the growth in the annual per capital income from 0.4 to 0.8 per cent. Correspondingly, in this regard, various nations have significantly noticed wider spectrum differences in income inequality in the economy especially in various developed countries. Moreover, this noteworthy rise in income inequality has been not only noticed in developed nations, but also in the other developing countries. Thus, wider rise in global inequality has been one of the greatest issues in an economy that is leading towards serious consequences. According to Aldrick (2011), in the World Economic Forum in Davos, it has been argued that income inequality as well as corruption is among the key challenges that are been faced by various nations. In this regard, Zhu Min stated, “the increase in inequality is the most serious challenge for the world” and “I don’t think the world is paying enough attention” (Aldrick, 2011). In most of developing nations, income inequality is sharply faced for the last few decades (Van der Hoeven, 2008). Likewise, vast increase in income disparity in the developing countries makes it significantly difficult to reduces other economic issues including unemployment and poverty, which ultimately slowdown the overall growth of an economy (Birdsall, 2005). Moreover, higher level of inequality is also having undesirable consequences over the social as well as the political environment of a nation (Báez & et. al., 2014). The weaker level of government framework in relation to reducing disparities in inequality problem are also accountable factors for the growth of this problem, which ultimately reluctant the growth and development of an economy. In addition, the issue of inequalities discourages and hamper the social life to a large extent (Birdsall, 2005). Besides, the increase in the level of inequality also raised other economic issues including higher rebates of criminal activities and conflicts. Thus, in this regard, the government official and regulatory bodies should give this economic issue a prior focus for effective mitigation of the same (Berg & Ostry, 2011). Why Inequality Matters and it’s Causes The concept of inequality has been central around the field of development of an economy, which aim to reduce disparities in such a way that gap between the developed and developing nations can be narrowed down. However, in many economies, inequality has been noticed due to high amount of disparities in the income and opportunities within a nation. These factors are having significant influence over sustainability and development of a society as well as an environment (United Nations Development Programme, n.d.). In the last few decades, in the nations especially, Western European and North American countries have extensively observed high amount of breach between rich and poor class inhabitants. Thus, for more sustainable development of a nation, it is important for a nation to eradicate this issue of disparity or inequity mainly with respect to income (Genevey & et. al., 2014). Income inequality refers to the concept of disparities in the income based on the geographic area differences in the distribution of wealth, which reveals that weak group become weaker, whereas rich people become richer. Moreover, income inequality arises due to fact that small number of people is distributed with most of the wealth of a nation and on the other hand, larger part of an economy has little shares of income. Additionally, higher the amount of differences in income creates large increase over income disparities. The main reason behind the disparities includes demography, education and technology. Demography is one of the key reasons behind the disparity in a nation, as in an economy, individuals from high-income group will have similar characteristics and preferences to be with its own group. Moreover, higher or lower income group readily follow the path in in accordance with their heredity for which income inequality prevails in a society. In some of the nations, gender inequality is a major issue that promote inequality. Correspondingly, education is also identified as a key cause of inequality, as the people having higher education level have better wages over the uneducated ones. In this context, ‘vicious circle of poverty’ continues and inequity prevails in an economy. Likewise, advancement in technology is also a major factor between poor and rich, which raises inequality between the peoples. Based on the aforementioned fact, it can be affirmed that advancement in technology replaces the need of workers in factories. In addition, technological advancement is identified to raise the requirement of skilled worker. However, as the demand in the skilled labour increase, which led the non-skilled workers to become unemployed and accordingly, affected an economy (Krugman, 2013). Relationship of Inequality with Development Inequality issue has a negative affect over an economy in terms of economic as well as social development of any nation. With respect to the inequality effect over social developments, high level of inequality will significantly increases the levels of criminal activities in a country. Lower or weaker group of a society highly feels unsatisfied and unfair, which tempted them to undertake crime in order to reduce and diminish unsatisfied feeling to earn high level of wealth. Moreover, the problem of inequality will affect nation at large, as low-income people become incapable to meet their basic necessities of life and medical support. Additional, the circle will follow heredity to heredity and disparity will remain in an economy. Besides, inequality will also increase and promote racial instability in an economy (OECD, 2012; Frazer, 2006). Correspondingly, excessively amount of equality in income distribution adversely affects the efficiency of an economy. Apparently, income inequality significantly tends to increase the amount of unskilled people, which consequently degraded productivity and raise high changes of poverty. Likewise, it threatens the political stability of a nation, as higher number of people demands for equality, which will significantly hampers the development potentiality of a nation. Furthermore, higher level of inequality in an economy decreases the level of foreign investment in a nation, as investors are identified to be reluctant to invest money in a slow growth economy. Inequalities have several critical consequences over the process of development in the field of education and level of population, technological development, value chains operations, production networks, environment, and social cohesion among other factors. The aforementioned consequences arise due to high level of inequity, which are key variables in the development of a country in the national and local level (Chilosi, 2010; Gelaw, 2009). Thus, it can be acknowledged that reduction on the level of inequality would help to ensure sustainable development and reduce the prospect of disparity, crisis and other adverse consequences. Moreover, other relevant effects of inequality are discussed hereunder. Influence on Demand and Consumption One of the adverse impacts of inequality is that it affects the aggregate demand and consumption pattern of the inhabitants. Lower level of income directly influences the demand for goods and services that drastically lowers the standard of living of the people (Mizrahi, 2010). Affect over Production and Supply As mentioned above, inequity significantly lowers the level of demand and consumption, which is directly related to the production as well as supply of goods and services. With huge gap over the demand and supply of goods, there is a reduction in the level of production as well as distribution of goods in an economy (Mizrahi, 2010). Affect over Money Supply and Savings The situation of inequality leads to unstable distribution of wealth amid people with lower level of money in the larger part of a society. In this regard, money supply, savings and investment activities are recognised to be hindered, which ultimately slow down the progress of a nation and industrialisation (Mizrahi, 2010). Impact over the Socioeconomic Dynamics and Sustainable Development With the consequences of significant decrease in the demand and consumption pattern in an economy due to the consequences of inequity, suppliers face the difficulty to deliver and produce the demanded amount of products and/or services. In order to make an attempt towards reducing disparity in the demand and supply gap, a proper financing measure would facilitate in increasing the need for higher level of borrowing and on the other hand, lower the level of recovery of borrowing. In this respect, it may raise serious social and economic disruptions, which may hinder the overall growth and development of a nation (Mizrahi, 2010). Recommendation and remedial measure to combat with Inequality Inequality and development are two interrelated factors, as inequalities are identified to adversely affect the development of an economy. In this respect, proper remedial measures should help to eradicate this problem. In a way to combat disparity or inequality, proper wages and other determinant policies would be important considerations. In this regard, government and policy makers should have to make proper regime to provide minimum wages and income distribution rather that increasing tax rate or lowing the income of high income group individuals. Additionally, policy should also include proper benefits over removing disparity in terms of gender inequity by providing equal rights. Moreover, proper control over the market wage rates needs to provide basic income to the people. Contextually, people are needed to be provided with better employment opportunities, so that the rate of unemployment can be reduced for stable growth of an economy. Besides, labour forces and its related policies should also be strengthened in order to have sound technical knowhow of changing trend of the market. Meanwhile, education is identified as a major key factor that will assist in removing disparity. Thus, proper educational benefit for the lower income group people will assist to boost the economic growth. Proper educational to the people of low income group peoples and their children would help to provide the people with significant knowledge of technology and market. Likewise, higher education and skill would assist them to be employed with better job and earning prospect. Hence, in order to combat the problem of inequality in the various societal aspects, it is important that the inhabitants as well as the government should take significant measure to ensure reduction in inequalities for better development of an entire nation (Cowell, 2009). Conclusion From the above discussion, it can be ascertained that inequality and development is directly related with each other. Correspondingly, high level of dependence of the two variables with the increase in the level of inequality has multiplier affect over the development of a nation. It can be ascertained that major reasons of increase is the level of inequality are disparity in income distribution and gender biasness, which provokes and lead to social issues that include unemployment, poverty, political issues and criminal activities among other societal issues. In this context, it can be apparently observed that with the increase in the level of inequality there is an imbalance between demand and supply variable. Besides, the trading activities are also identified to be affected due to lower level of development in an economy, which highly influence external funding in a nation. In certain scenarios, it has been noticed that despite of having high significant provisions and norms prevailing in a nation, the issues of inequality remain in an economy. Moreover, in this regard, it is important for a nation and higher authorities and policy makers to undertake significant measures in order to strengthen polices relating to wages and income distribution for better development of an economy. Moreover, the business units were influenced in terms of its profitability and overall operational activity because inequalities are accountable for underdevelopment of an economy, which may hinder demand and supply management. Thus, it is quite important that the inhabitants as well as regulatory bodies adopt certain key measures with the aim of mitigating inequality successfully to promote overall growth of a nation. References Aldrick, P., 2011. Davos WEF 2011: Wealth Inequality Is the “Most Serious Challenge for the World.” Finance. [Online] Available at: http://www.telegraph.co.uk/finance/financetopics/davos/8283310/Davos-WEF-2011-Wealth-inequality-is-the-most-serious-challenge-for-the-world.html [Accessed November 30, 2014]. Berg, A. 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