Causes and Solutions of Income Inequality
Income inequality refers to the absence of equality in the amount of earnings by the people. It has detrimental effects, one of them being the fact that it slows down the rate of economic growth of a nation (Cheng, F. ,2017)). This is because when people have less money, they cannot make sufficient purchases that would raise the Gross Domestic Product of a country, thus affecting the development of a nation. There are several causes of income inequality. For instance, lack of employment opportunities. This paper focuses on the causes and the effects of income inequality.
To begin with, differences in earnings are the primary causes of income inequality in the majority of the nations around the globe. For instance, the people who work as cashiers or food workers earn approximately $10. It is an amount of money that is below federal poverty rates in the US. This amount of income is lower as compared to the amount of wages earned by top professionals such as the doctors or the nurses. Recent studies have demonstrated that the differences in the earnings are the cause of the income inequalities that are witnessed in the modern world. For instance, data for the year 2012 has pointed out that approximately fifty percent of all the income in the United States ended up in the pockets of the top earners who made only ten percent of those employed in the nation. A fifth of the income was taken by the top one percent of earners. This situation has led to the rise in poverty levels in several countries around the globe. For example, in the US, it was observed that in the period between the year 2000 and the year 2006, the rates of poverty in the nation went high by fifteen percent. Besides, it is attributed to the reality that the rich continued being rich accumulating more wealth as time went by while the poor continued to stay in poverty. There are numerous ways why people differ in the amount of money that they are paid as salary. For instance, one of the factors that contribute to this is the level of education of the people. Highly learned individuals are paid more than school dropouts or people who are illiterate (Cheng, F. ,2017).
Equally, another cause of income inequality is economic neoliberalism. It is an economic system that is characterized by the absence of obstacles to the entry of goods and services into the market of a particular nation. Those people who advocate for economic neoliberalism argue that it is an approach that can be utilized in overcoming income inequality. They subscribe to the idea that the practice leads to economic prosperity through the promotion of the free systems. However, it is the practices of neoliberalism that lead to income inequality. Several of the renowned scholars around the world have argued that neoliberalism results in relative inequality which is detrimental to the economic growth and development of a nation. For instance, according to Howell, economic neoliberalism in the US resulted in income inequality through the reduction of the wages by approximately 30 percent. Furthermore, the practice led to the creation of few job opportunities, and the result of this was the widening of the gap between the rich and the poor.
Similarly, another factor that has resulted in the income inequality that is observable in the entire world is globalization. An increase in the trading activities between various nations around the globe has exposed different employees in the developed countries to competition from the workers in the less developed nations. Such competition is not healthy because it has formed a platform through which low skilled jobs are poorly paid. As a result, the salaries received by the individuals who do jobs that require less expertise is low, and this has led to income inequality because the people who work in the jobs that need highly skilled labor earn more.
To overcome income inequality, several steps should be observed. One of the approaches to be employed is the redistribution of wealth. In this case, the rich should be required to pay higher taxes than the poor. The government should collect such amount of money as revenue and apply it to the development of public goods such as roads and hospitals. Equally, restrictions should be used to avoid the free entry of products and services in the market.
To overcome income inequality, Unions have fought for the rights of workers for the longest time (Kochan, T. and Riordan, C., 2015). They have fought for proper working conditions for members, better salaries, and fundamental human rights. They are the voice that gives workers hope that change can be achieved. When unions become weal due to corruption or via other reasons, then they expose workers to being misused by the employers. Weak unions do not have the bargaining power and as such tend to cater for the needs of only a few people from across the world. When the needs of only a fraction of the entire population are taken are off then the majority suffers, and this leads to an increase in income inequality.
In periods of strong unions, income distribution was less unequal. Workers are presented better, and their salaries got improved (Cheng, F., 2017). Strong unions had a strong impact on how much workers could take home at the end of the month as salaries and wages. They ensured that workers received every cent of their labor. As such, the workers tended to earn high salaries to commensurate with the kind of jobs that they were doing. However, weakening of unions leads to an unequal income distribution due to loss of bargaining power. Why are union members decreasing with time? My best bet is that the faith in unions is dwindling and the fights towards better pay are getting personal. A united union results in income increase for its members, showing just how much force they can be as a result of unified interests and ambition. Stronger unions lead to a better distribution of wealth through better pay. Due to better pay, employees even at the lowest levels can take home a good amount of cash. This, in the long run, has the effect of reducing income inequality since both those at the top as well as those at the bottom of the organization take home a fair share of salaries and wages. Unions can influence the political scene of any era. They can affect the voting pattern and thus make politicians pass bills which are workers friendly. Rising politicians take it up as a challenge to make a difference and to influence the workforce in favoring them at the poll. A striking union is bound to be listened to especially when they down their tools and evade work till conditions are improved. Negotiations are often important in return to work formula and change is made. Thus by downing tools, the union ensures that the needs of its members are met.
Additionally, excellent income inequality is the undoing of unions as they are influenced by corruption. Weak unions do not make enough stir to be taken seriously resulting in the further suffering of an already challenged workforce. Causation may seem like a giant but a passionate fight for rights and improve livelihoods through proper incomes. Poverty is a problem world over, and homelessness and hunger are becoming a daily routine. Strong unions have the power to change the focus of the nation towards better economic times.
To solve the problem of income inequality caused by weak unions, there is need to make the unions stronger and more proactive in the economy. When strong unions are formed, then they will effectively fight for the welfare of their members. When the unions take a stand, then the employers will be obliged to comply with their demands. Normally, unions fight for better working conditions as well as for improvement of workers’ salaries and wages. When they fight for the wage increase, then the workers can get better salaries which will ultimately reduce the gap in income inequality. Moreover, with strong unions then workers will be able to plan for their income and will not have to use it for unplanned activities. This is because the workers will know what exactly they will be earning and if the money they fell will not be enough then they can protest through their unions. For any union to be a force to reckon with, the individual union will need to come up with a plan to increase its membership. The higher the number of workers that the union represents the stronger the bargaining power of the union.
Amandeo, K. (2017). The True Cause of Income Inequality in America. [online] The Balance. Available at: https://www.thebalance.com/income-inequality-in-america-3306190 [Accessed 10 Nov. 2017].
Cheng, F. (2017).Income Disparity in China and Its Policy Implications. [online] Cip.cornell.edu. Available at: https://cip.cornell.edu/DPubS?service=UI&version=1.0&verb=Display&handle=dns.gfs/1200428169 [Accessed 10 Nov. 2017].
Kochan, T. and Riordan, C. (2015). Employment Relations and Growing Income Inequality: Causes and Potential Options for its Reversal.