Income Inequality Issues - Essay Example

Institute Affiliation

Introduction

Economically speaking, income equality explains a situation where there is a significant difference in income level because of other factors like where they live, what social class they belong to, the country of origin, etc. Income inequality is such a major aspect of differentiation between people that it is a key aspect of determining the different types of social classes which exist in the world. It isn't the only factor determining the social place an individual holds in the world, and there are many other things like the political influence someone has, the wealth they have, etc. ("Income inequality - Reducing inequality", 2020)

Since a person’s income decides the kind of life they live and the kind of living standard they set for themselves, thus it is a major factor in the lives of people, and probably why income disparity is a major issue today, as the stark contrast in income levels also means a stark difference in the standards of living of people. And since in today’s world, everything requires money, even the necessities like healthcare, food, and utilities, thus having a substantial income isn’t an option anymore, it’s a requirement for people, and everyone out there is trying to improve their level of income so they could improve their standard of living.

Types of income inequality

The kind of job a person has only described the income level to a certain extent. Therefore this is where the other aspects come at hand, which also determines why there is the income inequality that is there. When it comes to developed countries like the United Kingdom or America, the income levels are determined by the kind of job they have and how much they earn. Since this is the many sources of income for almost all of the populations. However, there is an upper class for whom the amount of wealth they have, in terms of other monetary assets like land, property, etc., is the determining factor of their income level. So to study the type of income inequality that exists, different mediums and comparisons can be made, so it can be cross country, between two different countries, or even with a person from another country where the country average isn’t an aspect.

It all depends on the context of finding out the income level. For example, if someone was researching on the different social classes within the USA, they would only take samples of income levels from within the countries, but if the study was to see income level of 25-year-olds from the USA with 25-year-olds in a third world country like Bangladesh, the context would be different. Thus the type of income disparity differs from context to context. Many other factors can also play their part in defining the income level and disparity and why it is the way it is. These factors can be the level of discrimination, the literacy rate of the country, the gender roles, and how they are defined, etc.

How to measure inequality

There can be many different ways in which an income disparity can be measured. The most common approach which was being used by a lot of people for a long time was taking the upper percentile of the entire population at hand, whatever the context is, depending on how much of the upper population is needed and how much precision is required as well. The top 10 or 20% of people are taken as the upper high, and then their income levels are compared with the average income level of the entire population to determine how much inequality exists and how much of the population is earning at the upper end of the income level. This method was preferred by often researchers because all the data was readily available for public use, making it easier for researchers. (Yglesias, 2020)

However, as mentioned, the top 10 or 20% of the people are taken as the upper high, which would upset the study precision as well. There is no doubt in the fact that there is always the 1% who are richer than the other 19% of the top 20%. Thus their income levels will disturb the entire result, and the income level of the 1%, showing the true disparity, will be ignored at the same time. Thus it is better to base studies off the precise top percentage, and g as precise as possible, so even as high as 0.0001% of the population who earn the highest, to get a more precise picture of the income inequality. (Corak, 2013)

How is it a bad thing?

Inequality in the income levels is seen as a bad thing to some extent, but at the same time, inequality is what defines how much the lower end of the income bracket earns as well. Since the lower-income bracket earning their money does depend on how much of the income the higher ones are willing to pay, thus the more the upper hand has, the more they will be willing to spare and pay to the lower end as well. This concept can be explained by taking the example of farmers. If the farmers want to commercialize their business and earn more, they would have to create an upper class of industrialists who are willing to invest and bring life to the business since the farmers won’t have the resources to do so. Thus they NEED the upper-income level class to improve their living standards as well.

The other side of this is that money means different things to different people. So for instance, if someone was to lose some amount of money, it would be different for different income levels. It could be the pocket money for the higher ones, but it could be the entire necessity budget for the lower limit. Thus lowered inequality would mean less loss for people if they don’t have the money, thus in a way, a positive step up, despite losing the money, since it will now affect everyone on different levels.

Global Perspective

However, globally speaking the income inequality becomes much bigger of an issue as many different countries come into comparison. This is because when the entire population of the world is put together, a large number of people fall below the poverty line. Some of the world bank statistics show that about 13% of the world’s population is only living off less than $2 a day, and about 35% of the world’s population is living off less than 3.5$ a day. With such low-income levels, a lot of other things start suffering as well, thus reducing the quality of life for the people. People with such low-income levels can’t afford necessities like education, like clean water, or even clean healthcare for that matter. They have to compromise on a lot of things that they shouldn’t have to like privacy and sanitation. This gets worse and worse with more details as the deeper one gets, the more its seen that other sufferings like an overall higher infant mortality rate lead to about 30,000 children dying daily because people don’t have the provision of basic medical care and sanitation or even food. At the same time, if the other end of the income level is looked at, literally a 1% of the world owns assets and money more than the rest of the world put collectively. This shows HOW much the upper end earns, and how down low are the people on the lower end of the disparity bracket. (Milanovic, 2012)

Reducing Inequality

The first step to trying to reduce the inequality between people is to properly confront the ideology that if the lower end gets less poor, the upper end will suffer. This means that if the upper end starts distributing their income to the lowest one, an average would be reached eventually, and the income that used to set people apart, wouldn’t be there anymore. However, some economic analysts believe that even if the higher 10-20% income group of the distribute some of their money to the lowest level, so they don’t have to live as poorly as they do and they can afford the necessities with ease, this won’t make a large difference on the income levels of the higher 10-20% group of people, as they are THAT up high that bringing the lower level up won’t bring them down with the same rate, not even close. Thus reducing inequality to this extent will improve life for the lower, and the upper will still have much more and will remain in the higher 10-20% if the income level. (Jaumotte et al., 2013)

Conclusion

Income inequality is just another global issue that has been addressed many times but has never been properly solved because both sides of the argument to whether it should be reduced, have equal weightage and justification. Either economic analysts need to find a new justification to dismissing the justification of income inequality or the poor will keep getting poorer with time, with nobody to make their standards of living even a little better. The struggle continues, and as usual, the lower end suffers to the point where it becomes a situation of life and death, but since the people deciding what side carries more morality and weightage, are from the upper end of the income cycle as well, they too can’t imagine what the life of the lower end must be like, resulting in even more discrimination against them as they don’t have that much representation to getting their basic needs fulfilled.