There are many challenges that various countries face that can sometimes have large-scale implications on the economy, because they, directly and indirectly, affect the proper working of the economy. These challenges can be societal, economic, climatic, geographical, etc., but they all hamper the overall growth of a country’s economy. One such challenge is the issue of income inequality. The continuous widening gap between rich and poor in countries like the USA and India often leads to clashes in the social structure. Income inequalities occur due to the uneven distribution of income in an economy. 

Economic Inequality

This term is used to describe the divide between the rich and poor in an economy. It mainly consists of two main components- wealth inequality and income inequality. 

  1. Wealth Inequality: Wealth is an equation of accumulated assets minus the liabilities, including savings, real estate, stocks, pensions etc. Thus, it can be inferred from the definition that wealth inequality is the situation of uneven income or distribution between the accumulated assets minus liabilities of an individual or any group. 
  1. Income Inequality: As we all know, income is the money equivalent to the work invested during service, thereby encompassing even and uneven income. Income inequality refers to income distribution in an uneven manner in an economy, which is widely seen in countries like India and China, where a handful of people control the majority of the country’s wealth. More than half of the population shares only 1-2% of the wealth of the whole economy. This data shows the extent of uneven income in these countries. 

Causes of Income Inequality

Income inequality is influenced and generated due to human activities. Hence several reasons exist for the growth of inequalities in income distribution in many countries:

  1. Industrialisation and Globalisation: The process of industrialisation helped countries like Britain to boost their economy when most of the world was struggling due to imperialism. This feature gave them an edge over others, established their control over the international market, and developed infrastructure early. Moreover, globalisation, which was meant to benefit the poor, benefited the rich more, due to cross border trade and the setting up of Multinational Corporations. This industrialisation led to uneven income and wealth inequality in countries like the USA, China, and India. 
  1. Skill biassed technological change: It is evident that the current job market requires skilled people for carrying out work, leaving out the unskilled workers. A skilled person is more likely to get a job and earn, while the other gets a low paying job and lives in poverty, resulting in an ever-widening gap between the rich and the poor. This divide between the wages of skilled and unskilled workers contributes to income inequalities, as income distribution becomes uneven.
  1. Tax favouring policies: Many countries tend to focus on capital maximisation and ignore providing social benefits to the citizens. This bias results in taxes that help the rich earn more, and forces the poor to live a stingy life. Policies like regressive taxes are imposed in certain countries, which impose less tax on the rich and high tax on the poor, which widens the gap and facilitates wealth inequality and uneven income among citizens.

Ways to Tackle Income Inequality:

There have been many discussions among economists on ways to solve income inequality, or reduce it so that it doesn’t harm the poor. Some of these ways are listed below:

  1. Education: This measure is regarded as the key to solving the problem. By educating the masses, we tend to transfer knowledge and skills to be able to represent themselves and work towards leading a healthy and wealthy life. However, this measure is often disregarded, because the number of educated unemployed is increasing in many countries.
  1. Increase in the minimum wage of unskilled workers: Some economists argue that an increase in the minimum wage would reduce the gap as the poor can increase their income. 
  1. High-quality child care: This measure is still debatable, that access to high-quality child care can, to some extent, reduce income inequality, as better child care would improve health, and they would have more energy and will to perform services, and thereby earn more, reducing the uneven income.
  1. Income tax: Some economists propose to increase taxes on the rich and use these taxes to improve the condition of the poor by giving them subsidies and social benefits. 

Conclusion

From the points mentioned above, it can be concluded that income inequality and uneven income are growing in many countries. But there is also a growing misconception that the poor aren’t getting anything due to wealth inequality; this is not completely true. Data shows that the rate at which the rich acquire money is greater than the poor, and this rate difference is the major reason behind income inequality. The reasons mentioned above are important, but there could be many other reasons too. It should also be noted that the solutions do not guarantee 100% efficacy, but if implemented perfectly, they can prove to be beneficial for society.