Question

8) Answer all three parts: (a) Why has inequality increased over the last 50 years and why does it continue to increase? Is there a logical end point to this or are we headed back towards a period when the world had a handful of aristocrats and their workers/peasants/servants? (b) Do you consider income and wealth inequality to be a problem in the world today? If so, what do you think can be done about it? If you don't think growing inequality is a problem, explain why. (c) Can unions play a role in reducing inequality? How?

Answer 1

Part 1 & 2)

Inequality is described as the wage differences among the rich and the poor in a country. Over the years, even though countries have tried their best to reduce income inequality it is still a pressing issue for developing, underdeveloped and developed countries to a certain extent. For example, countries such as India see over 70% of their total income being in the hands of a fraction of the total population which are the rich and elite sections.

The reasons for this are as follows: -

1) The salaries which are collected by the top management across the globe, has been higher and has continued to increase much more than those that earn low level wages. The reason for this is that companies over time believe in the fact that the top management can bring in great benefits in terms of additional profit, whereas those with low skill do not add significant value and are ready to work for lower salaries and should not be paid extra to save costs.

2) The effective tax rates on the rich section is relatively lower and has gone down over the years. Rich people save a lot of taxes from their investment capability whereas the average salaried person loses each month to taxation. This has been the pretext in almost all countries. The reason for this is that governments want to retain rich people as they contribute more to any economy.

3) Increasing access to debt is also an issue for the poor. With increase in debt, people lose more than they used to earlier. Poor people do not have sound investment decisions which are often taken based on emotions than economic sanity.

4) Poverty takes the shape of cycles in most underdeveloped or developing countries. This refers to a phase wherein low income leads to lower access to education, nutrition and development and in turn this continues for generations as lower education leads to low skill jobs.

Income inequality is a pressing issue across the globe, and even though significant measures have been taken by governments, yet a collective effort is required to ensure that the labour force can gain from the same. For example, placing international standards on minimum wages is extremely important to ensuring that those that are vulnerable can gain from the same.

Further, it is also important for countries to invest in creating educational infrastructure and ensuring that it can be freely provided to the world. Even though inequality is a pressing issue as indicated above, governments are continuously evolving themselves and are taking positive steps to ensure it can be reduced as much as possible. In my belief over the years, it will reduce substantially and we will not lean back to where we started from initially.

Role of Unions: -

Unions play an important role towards helping a nation with income inequality. They have the collective ability to demand better wages and working conditions for low skill employees. The lack of unionization is also an important point which creates inequality in countries which are underdeveloped or developing. Companies do not like the presence of unions, primarily because they begin to demand more money over a period of time.

Countries which allow and promote for healthy unions see people with income inequalities gain from the same better working conditions prevail and a lot of inequality can be removed.

Please feel free to ask your doubts in the comments section.