The Main Problem with Income Inequality

on May 20 at 09:37 AM

The problem of income inequality is one of the most critical, and solutions have been actively discussed since the beginning of 2011. However, despite the fact that the world economy was able to recover after the severe crisis in 2009, the income of the middle class and the poor around the world grows more slowly than the income of the rich. It is rather difficult to find the answer to the question of why there is such a difference in the welfare levels of the citizens in the same country and why political scientists, sociologists, and economists still have not been able to solve the problem of poverty. The essay professor paper highlights that income inequality is usually considered to be based on four levels: historical, sociological, economic, and governmental. Although it is still difficult to identify the main reason of income inequality, it is necessary to solve the problem as soon as possible.

Due to various reasons, people are not able to have the same income and afford the same level of live. That is why the income inequality of the population is quite normal in a developed market economy, as the market rewards people only on the ultimate effectiveness of their activities. Through this differentiated assessment system objectively reveals different possibilities, determining the fate of a person. Someone, for example, has to be a businessman or a lawyer, and others have to be doctors or scientists.

Speaking about the historical aspect, the distribution of wealth has been criticized and condemned as an expression of social injustice. This problem constantly gives cause to various forms of social unrest and even revolutions, which can end with overthrowing of the hated government. As one can see, the problem of income inequality requires serious attention from both scientists and governments.

The problem of income inequality is one of the oldest. It generates social tension and hostility between the poor and the rich. As one can see, this problem influences not only the economy of the country, but also the social behavior of the citizens. That is the main reason why the humanity has to try and change the existing system. A large number of economic systems tried to eliminate the inequality of income and family wealth, but most of them failed. Inequality of income and wealth can reach enormous proportions and can pose a threat to the political and economic stability of the country. Therefore, almost all developing countries are constantly implementing measures to reduce such kind of inequality.

It is difficult to determine for certain what generates income inequality. The emergence of this kind of inequality affects not only the general situation of the economy in the country, but also the position of the government and the society itself. The social factors of the problem of inequality includes differences in the ability, education, professional experience, distribution of the property, risk, success, failure, and access to valuable information. Difference in the ability means that people have different physical and mental capacities to accept information and so on. For example, some people are endowed with extraordinary physical abilities and can obtain much money for their sporting achievements. However, other persons are endowed with entrepreneurial skills and have the ability to achieve success in the business sphere. So, people who have a talent in an area of life may receive more money than the ones without such talent.

Another definition is the difference in education. People do not only vary in their abilities, but also in the level of education. These differences are largely the result of their education after high school. Some choose to work and some enter universities. However, there is no doubt that people who graduate have more opportunities for income than people without higher education.  Difference in the distribution of property is the most compelling reason for the existence of income inequality. A considerable number of people have a small part of property or no property at all and, accordingly, they receive a small income or do not get it at all. Others own more property such as equipment and stocks, and, consequently, get larger incomes.

The next group of factors is connected to risk, success, failure, and access to valuable information. These factors have a significant impact on the distribution of income. For example, a person who is inclined to take risks in business activities can earn more income than other people who are not able to take risks. Such a mystic factor as  “luck” also helps to get more revenue. Some people win lotteries and find treasures.

Generally speaking, there are numerous reasons for income inequality discussed in the sociological theories. The most popular ones are listed next.  As Emile Durkheim believes, the cause of inequality is the need to encourage the best social agents. In all societies, some professions are considered more important than others. In primitive societies warriors and healers were the most respected. In communities of the Puritans the most important profession was that of a priest. In modern societies the most popular professions are banker, entrepreneur, engineer and doctor. The person who performs a major function in society has the maximum of prestige and wealth. The second cause of inequality is different levels of people’s talents, as the most skilled have to be rewarded for their service. They perform the most important functions. At all times, the most important features were the roles of the priest and the control of the equipment.

From the point of view of the theory of the conflict, inequality is caused by the protection of the privilege of power. Those, who control the society have the opportunity to benefit themselves, and inequality is the result of the tricks of influential groups seeking to preserve their status. This theory leads to class conflicts, which is the main theory of Marx and Weber.

John Macionis asks the question of whether the payment actually reflects a person's contribution to society and justified such a high degree of social inequality. The leading television broadcaster Oprah Winfrey earns the revenue of $100 million in two days, which is more than the US President George W. Bush got for a full year as the president. Based on that, anyone can argue that talk shows are more important than leading an entire country. In market economies, wages depends on the ratio of the supply and demand on the labor market. Stars of cinema and show business, famous athletes, writers of popular songs, successful managers and other professionals who have rare talents, for which demand exceeds supply, earn considerably more.

Speaking about the governmental aspect, if the society only promotes additional factors, which divide the population into categories depending on their income, only the government can reduce the problem of inequality. For example, governments of well-developed countries use their tax system to regulate the problem of income inequality. The main principle is to demand higher taxes from the wealthiest part of the population of the country.  Besides, the received state tax revenue can be used to the benefit of the poor population. In addition, almost all the countries have various social programs to protect the population, namely assistance for the elderly, survivors, the disabled, etc. In order to protect the interests of poor people and to prevent lowering of welfare below the allowable maximum, the state sets a minimum threshold of tax-free income. At the same time, high incomes are set to progressively higher tax rates.

Speaking about the economic aspect, it is necessary to consider that financing of social programs plays an important role in the politics of income. Maintenance of the system-level income, as a rule, consists of two types of programs. The first type refers to the social insurance programs that partially offset the loss of earnings associated with retirement and temporary unemployment. These programs are funded through payroll taxes, reserved for this purpose.

The second type includes state assistance programs, under which different kinds of benefits are provided to those who cannot handle financial issues by themselves, because they are unable to work or have an outside help. These programs are funded from general tax revenues. Financial support for the reproduction process is carried out through the distribution of national income. Material carriers of financial distribution relations are the financial resources, which are the funds accumulated by the state and economic actors. A substantial proportion of the national income shifts from the sectors of the population with the highest income to those with low incomes. Nowadays, all the developed countries of the world have created a system of social support for the poor.

However, it is not as simple as it may seem. For example, on the one hand, America is known around the world as a country with a high level of stability of the economy. On the other hand, America has a leading position as the country with the largest gap between rich and poor citizens. Middle class practically ceases to exist, because their investments are no longer controlled by the government. Moreover, the richest 1% of the nationals manipulates all existing market relations in the country.

The last economic crisis of 2009 is not the main cause of the economic injustice in the United States. The culprit is the Congress that keeps accepting new tax laws and constantly helping the 1%. The problem lies in the US tax code. Presidents Ronald Reagan and George W. Bush cut more taxes for the top 1% than for all other Americans. At the same time, people should not forget the fundamental difference between labor income received in the workplace and the income from capital derived from investments, shares, interest, and rent. Reducing taxes and expansion of financial privilege for a small elite of the society negatively affects not only the distribution of income, but also the entire economy.

The level of inequality is measured using the Gini coefficient, which characterizes the degree of the actual distribution deviation of the absolute equality or perfect inequality proceeds. The higher is the index, the greater is the inequality. In 2011, the Gini coefficient in the United States amounted to 0.477, which is 1.5% higher than in 2010, which was a very high figure already. Only Turkey, Chile and Mexico have higher inequality factor of household income.

While the middle class of the United States is being destroyed, the 1% of the population gets richer with each passing year. They benefit from tax cuts for the population with the highest income, inequality in setting wages and compensation, CEO salaries, capital gains and inheritance, and the ratio of labor income to capital income. It is necessary to analyze the percentage of those who are working to earn a living, to those who do nothing, but have a high income. The researchers found that the 1% is dominant among those who live on income from capital and among those who earn in the workplace. In other words, the top 1% of society consists of top managers, CEOs, and managers of hedge funds, who pay themselves a certain salary and receive revenue from capital.

Social inequality remains a significant problem, even in the most advanced countries of the world. Whole segments of the population are being steadily reduced and have no access to the "knowledge industry", opening the way to the modern skilled labor. Some of them fall on the "social bottom", are converted into a layer dependency, reject work and live on benefits.

In order to ensure the real increase in revenues a number of specific measures should be carried out. The real wages of the employed population should be raised. Pensions and the financial base should be strengthened by increasing the nominal wage. A mechanism for regulating incomes of the population should be established, taking into account the territorial peculiarities of the country. A more equitable distribution of the income by the government on the basis of improving the tax system and the individual property of the citizens should be achieved. A more effective control of the real incomes and laws for damages in cases of non-payment of wages should be introduced. These measures will be able to smooth out unevenness in the distribution of material and spiritual wealth among members of society and improve living standards of the population.

In conclusion, changes in the population and income stratification of society lead to negative consequences. They create layers of people below the poverty line, which is unacceptable in a developed society. There is a moral stratification of the society into "us" and "them", which leads to loss of common goals, interests, and the sense of healthy patriotism. There is an outflow of qualified workers in areas that do not require relevant knowledge. As a result of deteriorating educational and professional potential of the society, knowledge-intensive industries are degrading. Additionally, low standard of living reduced labor activity of the population, and caused deteriorating health and fertility, which can be connected to demographic crisis. Inequality of income and wealth can reach enormous proportions, and then it creates a threat to the political and economic stability of countries. Therefore, almost all developed countries are constantly implementing measures to reduce such inequality. The main reason for the existence of the problem of income inequality is not society or history, and not the economy of a country, but the government’s failure to properly distribute human resources. It is impossible to create a level playing field for everyone. It is necessary to eliminate the causes of problems, rather than their consequences. After all, everyone was born unique and endowed with different abilities, some of which are less frequent than others.

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