Income inequality: causes and consequences

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:44

Income inequality is predetermined by the uneven distribution of we alth. In a market economy, the distribution of income occurs in the markets of various production factors: capital, natural resources, labor. Depending on the degree of possession of these types of resources, a redistribution of benefits occurs, as a result of which income inequality arises. Among the main reasons for this phenomenon are the following:

Different distribution of ownership. This is the most fundamental reason for this inequality. It is a consequence of the fact that in order to create material goods of any kind (and hence incomes), means of production are necessary: on a large scale, these can be factories and factories, on a small scale, up to working tools. One way or another, the original private ownership of the means of production and their uneven distribution among the population are the cause that generates income inequality. The most banal example can be the initial differences in the starting opportunities for the offspring of oligarchs, who receive large funds for the reproduction of capital as an inheritance, and the heirs of average citizens. And if this is a negative feature of thecapitalist system, most of the following reasons stem from individual qualities.
Various abilities. It is no secret that people have excellent intellectual and physical abilities. Someone, having exceptional physical data, implements them in the sports industry, someone is good in the financial sector, and so on. These features lead people to different areas of social activity, each with its own average level and earnings ceiling.

Different levels of education. In addition to individual abilities, people also have differences in education. The fundamental difference between this reason and the previous one is that the educational level is often the result of a conscious choice of each person (not always, but usually it is). Of course, those who have a larger stock of professional and general knowledge are also more likely to realize their own labor more profitably, which will be followed by income inequality.
Various professional experience. In the conditions of the modern domestic labor market, professional experience is highly valued. As a rule, in practice, this means lower wages among young workers and their increase with professional growth and experience.
Income inequality may be caused by some additional factors. Such as good luck or bad luck, access to valuable resources, and so on.

Income inequality. Lorenz curve

To graphically depict the degree of inequality in society, economists usethe Otto Lorenz curve. She is a picture of the distribution function

income, in which all numerical shares and incomes of the population are accumulated. That is, it displays the income of a particular category of the population relative to its size.

Income inequality and its consequences

Among the consequences of this phenomenon are economic and social. The first, for example, is the growing stratification of categories of the population: that is, a small number of the population concentrates in their hands an increasing amount of resources, taking them away from the poor. The consequence of this is discontent in society, social tension, unrest, and so on.