Poverty is one of the most serious issues confronting the world today. The high rates of poverty are partly due to widespread income disparities among populations around the world. When the ideas of poverty and income inequality are presented together, the relationship between the two problems is shown. Understanding the relationship between poverty and income inequality assists in comprehending how factors impacting income inequality influence poverty levels regardless of one’s geographical position. The aim of this paper is to identify the causes of income inequality, as well as the issues that come with it, as well as a measure that can help reduce income inequality. Measures that help in reducing the level of income inequality will assist in the mitigation of poverty.
Poverty is the relative economic status of individuals in society compared to others. Determining the population poor requires a consideration of the percentage of individuals living below the poverty line against the number of individuals that are rich (Barros et al., 2015). Therefore, it can be deduced that the distribution of income is a problem of poverty. On the other hand, income inequality denotes disparities in earnings, and it shows how equal or unequal income is distributed (Barros et al., 2015). As such, income inequality and poverty go hand in hand. The individuals that live below the poverty line have low income while individuals that have income are above the poverty line. As such, part of measures that should be taken in the alleviation is addressing income inequality.
Causes of Income Inequality
Income inequality is caused by several factors such as policy measures, redistribution measures, technology changes and globalization. Since there is a direct relationship between income inequality and poverty, the factors that cause income inequality may also contribute to the level of poverty across the world. Today, globalization has taken over the way trade is conducted. Globalization supports high-income inequality as it allows countries that are rich to trade extensively and compete at higher levels compared to the developing countries. Globalization also affects the labor market as the developed countries make use of highly skilled labor as opposed to the developing countries. Also, the increasing growth in technology also contributes to the widening of the gap between the rich and the poor. The developed countries do enjoy high technology, which arguably renders the unskilled individuals jobless. The manufacturing firms and machinery firms that contribute to the creation of revenue require such skills. Thus, countries are faced with high unemployment as well as decreased wages and salaries, yet it has high supply and low demand for labor. Such a scenario precipitates a variation in the incomes of the citizens in a country.
The advent of the free market has also contributed to the problem of income inequality. In a country, those with the capital can take the opportunities of the available markets while those without capital are left behind. Another perspective on the same issue is to look at the demand for skills in such a market setting. The market price of skills will be low whenever the supply is higher than the demand and the vice versa is also true. Another factor that contributes to high-income inequality is the effect of education. The developed countries have access to high-quality education while the individuals in the lowly developed countries have access to low-quality education and some regions do not even have its access (Cingano, 2014). The education level has a direct effect on wages as the more educated an individual is, the higher income they get for having high skills.
Problems Associated with Income Inequality
Income inequality results in numerous problems with some of the challenges characterizing poverty within communities. First, income inequality retards economic growth as well as sustainability of a nation. The current income inequality shows that a higher percentage of individuals are poor while a few are rich (Dabla-Norris, Kochhar, Suphaphiphat, Ricka & Tsounta, 2015). An overall tax that contributes to growth and sustainability is less. There are high social costs that are associated with high-income inequality. For instance, it entrenches occupational choices and education of individuals. Income inequality is a breeding ground for nepotism, corruption, and misallocation of resources all of which have adverse consequences on the social and economic factors.
High-income inequality negatively affects the drivers of economic growth (Kawachi & Subramanian, 2014). For instance, it denies individuals who live below the poverty line to accumulate human and physical capital as well as an opportunity to stay healthy. Poorer individuals would not be able to invest in their education appropriately leading to poor skills development, which is most undesirable in the current job market. Inequality of income leads to financial instability, which ultimately reduces the long-term growth of nations. With variation in incomes, the larger population will not be able to save and thus cannot invest. Overall, income inequality hampers the ability to reduce poverty (Dabla-Norris et al., 2015). The measures that are set to reduce poverty are less efficient in regions with high-income inequality. As such, there is a need to put the favorable measure to reduce income inequality, which will in turn help in reducing the level of poverty in the country.
Measure to Reduce Income Inequality
Measures that are taken to reduce income inequality are geared towards growth enhancement, whose effectiveness can be evaluated by measuring the reduction in poverty levels. The first step to the attainment of income inequality is having an improved quality education accessible to each child in a country. When all regions across nations and the across the world at large have access to quality education, there will be an increase in human capital, which is paramount to improving the living standards of the individuals. Equity in education should be promoted as it leads to an equitable distribution of labor. Favorable educational policies will enhance entrepreneurial skills, productivity as well as per capita GDP (Cingano, 2014). Policies that reduce the gap between temporary and permanent workers should be initiated to help address the issues of inequality in incomes. Through this, companies will be tasked with objectives of providing skills to enable the current employees to improve their skills.
Also, there is a need to have an active labor market that limits the effects of high social benefits to reduce the incentive for workers. As such, it will be possible for counties to increase labor income equality as well as increase the GDP per capita. The promotion of integration and immigration increases labor participation, which in turn leads to a higher GDP per capita. Taxation should be done in a way that allows equitable growth. Finally, there is a need to deal with discrimination factors such as those based on gender, race, and ethnicity as they also contribute to the levels of inequality. Overall, the success of income inequality reduction measures leads to a reduction in the level of poverty.
In conclusion, it is apparent that poverty and income inequality are linked. In countries that have high rates of income inequality, many people are bound to be poor while others amass excessive amounts of wealth. Income inequality is undesirable to a country and should be addressed amicably. Such is particularly because through taking care of income inequalities, countries can limit the widespread poverty that is a major contributing factor for poor living standards and retarded economic growth.
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Dabla-Norris, M. E., Kochhar, M. K., Suphaphiphat, M. N., Ricka, M. F., & Tsounta, E. (2015). Causes and consequences of income inequality: a global perspective. International Monetary Fund.
Cingano, F. (2014). Trends in income inequality and its impact on economic growth. PennState University. Retrieved 25 October 2017 from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.667.7859&rep=rep1&type=pdf
Kawachi, I., & Subramanian, S. V. (2014). Income inequality. Social epidemiology, 126