The uneven distribution of income throughout a population refers to income inequality. The more the distribution is unequal in society or in a particular group, the more income inequality exists. However, inequality in income leads to unequal financial distribution, which further leads to unequal wealth distribution in society, which is called wealth inequality.
The article consists of a brief explanation of income inequality with some general details about it. We shall also discuss some of the major causes of income inequality in society, plus a brief idea of how such inequalities affect business as well. Finally, we will share some of the ways in which income inequality can be reduced in society at large.
Income Inequality Definition
According to Inequality.org,
“Income includes the revenue streams from wages, salaries, interest on a savings account, dividends from shares of stock, rent, and profits from selling something for more than you paid for it. Unlike wealth statistics, income figures do not include the value of homes, stock, or other possessions. Income inequality refers to the extent to which income is distributed in an uneven manner among a population.”
One can find income inequality once the population is divided into different groups. Then each group shows different levels and forms of income inequality, including inequality related to race, gender, ethnicity, etc. However, you can also measure income inequality in a particular population with the help of the Gini Index.
Such types of inequalities result due to a limited number of opportunities related to better living standards and stable financial futures. Furthermore, income inequality can also result due to various social and political upheavals.
What Are The Major Causes Of Income Inequality?
Income inequality is an imbalance of income, and this imbalance exists in all parts of the world. In the United States itself, the inequalities in income are quite pronounced, and the Government is trying continuously to balance it, but eventually falling short.
You have to understand here that wealth inequality is not the same as income inequality. Here, wealth inequality involves a net worth of an individual, while income inequality involves the salaries and wages of individuals within a group.
The following are the major causes of income inequality in the society:
As trade increased among nations, many manufacturers and corporations based in the United States moved to countries where the cost of labor was cheaper. This led to income inequality through the disappearance of secure and generational jobs.
2. Advancement In Technology
Advancement in technology is a great thing and, in many cases, is considered a boon for society. However, technological advancements led to the automation of jobs, which resulted in many blue-collar workers losing their jobs. Furthermore, many less educated workers earn lower wages.
3. Biases Related To Race And Gender
There is always an income disparity visible among people of different ethnicities and women. It is found almost everywhere that men, in general, earn more than female employees.
4. Worse Economic Conditions
Income also gets affected when there is a weakening of economic conditions. Furthermore, income inequalities also happen due to unemployment, financial turmoil, a slowdown in business investment, and many more factors.
5. Problems In Taxation Policies
Although people with high incomes pay a larger percentage of their income than the ones with a low income, there is still an increase in income inequality in society, and it is increasing. This is due to poor taxation policies by the government, which mostly benefit the people with higher incomes.
How Does Income Inequality Affect Business?
According to KPMG.com,
“For businesses, systemic inequality is a great source of risk. It limits productivity and has the potential to constrain consumer spending and growth, destabilize supply chains, trigger political instability, and jeopardize their social license to operate. At the same time, addressing inequity is a business opportunity.”
However, as many businesses are getting stronger economically, the private sector seems to have the capability to play a vital role in reducing income inequality in society. The UN SDGs also recommend better cooperation between the private sector, civil society, and the government.
Nowadays, corporate leaders are recognizing the negative impacts of income inequality and how it continuously affects business processes and development at large. It also harms organizational culture and productivity while putting companies at risk associated with economic, moral, and legal factors.
What Are The Best Ways To Reduce Income Inequality?
Reducing all forms of inequalities is the 10th United Nations Sustainable Development Goal. The UN SDG Goal Number 10.3 states –
“Ensure equal opportunity and reduce inequalities of outcome, including by eliminating discriminatory laws, policies, and practices and promoting appropriate legislation, policies, and action in this regard.”
On the other hand, UN SDG Goal 10.4 states – “Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality”
The following are the ways through which income inequalities in society can be reduced:
- When the free market becomes ineffective in increasing the income of low-earners, then the government must step in.
- The government must always strive to reduce income inequality with new policies and update them with time and needs.
- The income disparities in society can be reduced with the help of strong fiscal actions.
- The government can limit income inequality in society by offering Universal Health Care.
- Increasing the stability of useful programs like Social Security and Medicaid also helps to relieve the cost concerns for a lot of people.
- It has been seen in many cases that better access to education reduces income inequalities among groups.
Hope this article was helpful for you in getting a better idea of income inequality definition, as well as the causes and ways to reduce it. You can see from this article that if you study income inequality in society, you will learn the various disparities in income present among different segments of the population.
Correct policies, fiscal actions, proper healthcare, educational opportunities, and various other social programs can reduce income inequalities in society. Do you have any recommendations regarding ways of reducing income inequality? Share your ideas with us in the comments section below.
A passionate writer and an avid reader, Soumava is academically inclined and loves writing on topics requiring deep research. Having 3+ years of experience, Soumava also loves writing blogs in other domains, including digital marketing, business, technology, travel, and sports.