Question

Describe the relationship, if any, between a country's distribution of income and social stability (see Table 1-5). See “Economics of Social Issues,” 21st edition, by Sharp, Register, and Grimes, 2008.

Answer 1

In the Western world, the focus on disparities in income and opportunity comes as the United States and Europe continue to struggle with a prolonged economic downturn that appears to be widening the gap between rich and poor. It has spurred street protests in Europe and become a lightning rod in the American presidential election.

At the same time, inequality is getting more attention in some developing nations such as China and India that seem to have sailed through the Great Recession relatively unscathed. A growing body of research indicates that growth and decreasing poverty rates in regions such as East Asia are coinciding with rising inequality which, in turn, leads to social tensions.

Globally, inequality may be shrinking as economic power shifts and new markets emerge

Some studies show that high inequality [encourages] poor people to choose very high tax rates on the rich, which reduces investments and growth rates. That’s one [reason we should care.]

Another thing we see very much nowadays is that the social stability and the social fabric of a society are torn apart if there are very large income differences. It reduces investments and discourages economic activity.

We see that in Europe with the large cuts in social programs there. On one hand, there are very high rates of unemployment, particularly among the young. On the other hand, you still see huge incomes, for instance, in the financial services sector.

Clearly, some of these high incomes are no longer seen as legitimate. That’s true even in the United States, where only five years ago there would have been no questions raised about it.

The social stability and the social fabric of a society are torn apart if there are very large income differences.

As far as inequality between nations is concerned, there isn’t much people or nations can do because we don’t have a global government that can address this.

If people in rich countries really want to make a difference they could, for example, look at their country’s policies on migration. If you believe that there is a certain injustice in large global income gaps, you might want to work to promote freer migration.

Studies have shown that if the foreign-born labor force in developed countries rose to represent 3 percent of the domestic labor force, this would reduce global poverty by more than all the aid and development programs do. The doors to prosperity would be opened for many poor migrants, and the world as a whole would be better off.

That doesn’t mean that individual countries would all benefit, or that individual groups of people would. It could even make some countries worse off if there’s a brain drain.That’s why migration is a political issue, an issue with tradeoffs.