Causes Of Income Inequality Essay

1988 words - 8 pages

1. Introduction
In the last few decades, many countries have achieved high rate of economic growth in their development process, which could be explained by the development of industrialization and globalization processes (Jaumotte, Lall & Papageorgiou 2013). However, beside the economic achievement, it is witnessed that the issue of income inequality has persisted, or even increased (IMF 2014). If looking through the World Bank’s statistical table of GINI coefficient index, one of the indicators used in measuring income inequality, income inequality can be seen not only in developing countries, but also in developed countries in recent decades (IMF 2014; World Bank 2014). The increase of ...view middle of the document...

The other causes such as aging, household structure as well as the individual-specific causes such as physical health, personality or innate abilities (Charles-Coll 2011) will not be discussed in this essay. Then, it will discuss further in to details how government, by using fiscal policies, can address the issue of income inequality.
2. Causes of rising income inequality in recent decades
2.1. Effect of globalization process
The relation between globalization and income inequality can be seen through its effects on the wage level of high skilled and low skilled workers, which result from three processes of globalization: trade liberalization, financial openness under the form of FDI and changes of technology (Jaumotte, Lall & Papageorgiou 2013). Charles-Coll (2011) argues that trade liberalization could have potential effect on reducing wages inequality in developing countries, whereas it contributes to the increase in income inequality of the developed countries. In one hand, by opening the market through reducing import tariffs, developing countries could reduce income inequality because they benefit from the reduction in the price of imported technology intensive products while they could gain more foreign capital by exporting low skilled intensive product (for example the agricultural products), which relatively results in the decline of wages and compensation for the skilled workers and the increase of that for low skilled workers (Charles-Coll 2011). However, in the developed countries where high-skill factors are surplus, the imported low-skilled intensive products, with low price competitive advantage, could force them to reduce the prices of their domestic products, then relatively reduce the wages of low-skilled workers (Jaumotte, Lall & Papageorgiou 2013). Therefore, open market can cause income inequality increased in advanced economy (Blanchflower & Slaughter 1999; Jaumotte, Lall & Papageorgiou 2013).
However, in turn, the advanced countries tend to increase their financial investment and transferring technology to the underdeveloped countries because of the cheap labor cost at these countries (Jaumotte, Lall & Papageorgiou 2013). FDI and technological changes are considered the major causes of both economic growing and of rising income inequality, especially in the countries with labor-intensive economy (Ragayah 2008). The effect of modern technologies on income disparity can be investigated under the perspective of labor demand (Charles-Coll 2011). Firstly, although modern technologies could support for economic growth by increasing the productivities of the manufacturing industries because of the automatic production process, it also means that less labor forces will be used to produce the same volume of products (Slamecka 1985). Consequently, a number of workers becomes redundant and unemployed (Slamecka 1985). Under unemployed condition, the income of those people has considerably decreased even if they may receive...

Find Another Essay On Causes of income inequality

The effect of income inequality on economic growth

1479 words - 6 pages become the secret to growth. However, education is hardly accessible to everyone unless a society has a relatively even income distribution 2.Literature The issue I chose to deal with is quite controversial heaving in mind the different opinions of the economist in terms of the effect of the inequality on the economic growth. There have been plentiful arguments on all sides; that inequality does weaken economic growth, that inequality actually

An Overview of Income Inequality in the United States

2267 words - 9 pages A Brief OverviewOf Income InequalityIn the United StatesI. IntroductionIncome distribution has been critical issue in American society; more and more reports show that the inequality of income has dramatically increased in the last few decades, while the United States' Western European Counterparts are reportedly equal in terms of income distribution.1 When comparing the United States to European countries, America lags behind in terms of income

the causes of poverty and inequality

1984 words - 8 pages Iraq's new government in their favour and mainly America's transnational corporate were won the competitive of reconstruction Iraq after the war.Globalisation has increasing income inequality in some extend. In economically the impact of international trade of goods and services on the domestic labor market in terms of labor demand and wages. The international trade cannot affect domestic wages directly but it does by indirectly through the domestic

The causes of poverty and inequality

1866 words - 7 pages up Iraq's new government in their favour and mainly America's transnational corporate were won the competitive of reconstruction Iraq after the war.Globalisation has increasing income inequality in some extend. In economically the impact of international trade of goods and services on the domestic labor market in terms of labor demand and wages. The international trade cannot affect domestic wages directly but it does by indirectly through the

Data Selection and Perliminary Analysis of a Study on Income Inequality

1342 words - 6 pages Chapter 3: Data Selection & Preliminary Analysis This section outlines the data used in the study and the affiliation between the independent variables and the dependent variable in the model. To analyse the determinants of income inequality, data was collected for 15 developed countries and 15 developing countries covering a time range of 1996-2010. The World databank has been predominately used to obtain the data for the variables, however

IMPACT OF POOR GOVERNANCE AND INCOME INEQUALITY ON POVERTY IN PAKISTAN

2341 words - 9 pages There is widespread poverty in Pakistan and the two main reasons are poor governance and income inequality. Few studies have focused on the theoretical substantiation of impact of bad governance and income inequality on poverty, but we do not find any study carrying empirical work on the impact of bad governance on poverty in Pakistan. This study is an empirical research that attempts to find out the long run and short run impact of poor

Impact of Poor Governance and Income Inequality on Poverty in Pakistan

1657 words - 7 pages that those policies that decrease corruption will also be helpful in reducing income inequality as well as poverty. Hoeven (2002) is of the view that decline in income inequality coupled with stellar economic growth is desirable for poverty alleviation. Ali and Tahir (1998) tried to find out if the long run change in poverty was due to economic growth or income distribution. Their results showed that “one percent increase in income while

Analysis of Income Inequality and Policy Representation in the American States by Patrick Flavin

729 words - 3 pages In his article “Income Inequality and Policy Representation in the American States,” Patrick Flavin examined differential policy representation based on citizens’ household incomes. Political Scientists and other scholars have compiled strong empirical evidence over the past 50 years proving that government policies tend to correspond to the aggregated political opinions of the public at both the national and state levels. Flavin hypothesized

What were the causes of the french revolution? inequality of the state, taxation, Louis XVI weak ruler

1095 words - 4 pages France had been ruling under a system where social inequality was prominent and the out-dated absolutism approach of regime in France was becoming less successful; resulting in a radical revolution began by the lower class population. Weary of the manner they were being treated by the upper class citizens and the unfair laws imposed upon them, the third estate began to take a stand and rebel against the system they were under. There were many

Income Inequality in the United States

1043 words - 5 pages lower class. The main causes of rising income inequality are variations in life expectancy, rapid increases in the incomes of the top 10%, social trends, and changes in the global distribution of wealth (Desilver). Many ideas have been proposed on how to control income inequality, but currently the most promising solutions include investing in the young and changing the tax system to eliminate the exemptions, loopholes, and other distortions that

The Income Inequality Gap

1383 words - 6 pages worker which raises the demand and wages while unskilled workers demand and wages goes down. This is what causes the income inequality because of the skilled workers compared to unskilled works. Unskilled workers are expected to have a decrease on their demand and wages because skilled workers have the knowledge to overpower the unskilled. Besides, the national research has shown that there is a trade inequality linkage. Quoted by Silva and

Similar Essays

Wilkinson’s Theory Of Income Inequality Essay

2513 words - 10 pages , 1991). Looking further in-depth about the social factors of health through income inequality, Wilkinson and Pickett (2009) argued that income inequality causes health and social problems due to ‘status anxiety’. The argument is that income inequality is dangerous because it places people in a hierarchy which increases status competition and therefore poor health and other negative outcomes. According to this the context within people live will

The Problems Of Income Inequality Essay

1358 words - 6 pages generally regarded as less valuable or even disposable. They are the subject of much ridicule and prosecution due to their financial status. This sort of classification is attempted to be stabilized by welfare and other government money programs, but the taxpayers fund that, so the money is taken back away from them. Income inequality is one of the main causes of social segregation of class. How then do we find the value of work in our society

The Consequences Of Income Inequality Essay

633 words - 3 pages reversed who is deviant (Conrad & Schneider 1980). Unlike the evenly distributed increase in real earnings that marked the period between World War II and the 1970s, the trend in income inequality in the U.S. over the last 30 years has been one of increasing inequality. The share of total income of the top 1% rose from 8% in 1974 to 18% in 2007, and from 9% to 23.5% if capital gains and income from investments are included. For the richest .1

Empirical Analysis Of Factors Affecting Income Inequality

1489 words - 6 pages This paper empirically analyses the factors affecting income inequality in 15 developed and developing economies over the period of 1996 to 2010. Evidence from a panel dataset using an OLS regression confirms the presence of the Kuznets’ inverted-U hypothesis for developed economies, indicating that there is a negative relationship between income per capita and income inequality. The relationship between the growth rate and income inequality, is