To what extent does economic inequality in terms of income inequality still exist in the contemporary world?
When talking about income inequality in the present world it is vital to take into account the events that occurred in the past. Starting with the great recession of 2008, and then the COVID-19 pandemic further increased income inequality within and between countries as a result low-income households mostly became accustomed to help from the state during this time period and some even lost their jobs. Now during the post-COVID-19 period high inflation rates and increasing public debts have reduced the state’s ability to also provide economic assistance to these groups causing income inequality to worsen (Adarov, 2022). On the other hand, measures have been taken to reduce it as it is the 10th sustainable development goal as expressed by the United Nations (United Nations, 2018), making IMF active in this regard.
Economic inequality is a vast term and includes inequality of wealth, opportunities and income, etc. Income inequality is defined as the variations in disposable income (including salaries and wages etc) across various regions (Inequality.org, 2019). Income inequality will be seen from a social and political perspective in this research paper. Both between countries and within a country, various measures have been taken especially after industrialization to reduce income inequality which brings us to the focus of this research paper; to what extent does income inequality still exist in the contemporary world? Due to the word limit the time period this research paper will be focusing upon is 2008 onwards.
From a social point of view, income inequality is present because of reasons like certain mindsets kept by cultures, myths, prejudices, and stereotypes by the society, etc; all of the factors that are beyond an individual’s control. Social income inequality could be seen within mainly countries.
For instance, due to certain views engraved by society, women may be seen as inferior which would then be translated into the workplace as men are preferred for promotion and it leads to wage differences as well. The gender pay gap that exists to this day remains to be a global problem. As stated by the United Nations for every dollar that a man earns on average, women earn 77 cents for it. Two contrasting views have been found after research on gender's relation to income inequality. On one hand, it can be said that the gender gap is much reduced in the West for example in the UK the gender pay gap has reduced from 50% in 1970 to approximately 17% in 2016 according to Ortiz-Ospina and Roser (2018) whilst in Asian countries women participation rate in the labor force is very low; Afghanistan with the rate of 16%, Pakistan with the rate of 22% and India with the rate of 29% in 2010 according to Van Der, Rodgers and Zveglich (2012). The research of Ortiz and Roser aims to present the gender pay gap through the theory of “adjusted pay gap” which means it takes into account factors like differences in early education etc. A weakness however is the solution presented is generic as change will not only come from policies like providing early education but also through long-term strategies like aiming to change cultural attitudes. In contrast, Van Der, Rodgers, and Zveglich used Demographic and Health Services data (DHS) which simply asked women if they had a current source of employment because of which unofficial employment is unlikely to be part of the statistics which realistically speaking makes up a major portion especially for countries like Pakistan making the data of Ortiz and Roser stronger for this argument. This goes on to prove that income inequality between genders whilst still present is reducing. This is because in the workplace female employees are often seen as risky candidates for promotion due to the fear of neglecting work duties due to familial responsibilities and as they believe they would work better in an already male-dominated environment because of which females are given less economic opportunities and in turn income inequality is caused which today is countered through paid maternity leaves etc and fixed quotas for women in firms because of which in many places the gender pay gap is reducing.
Moreover, income inequality is also often caused due to racial differences because of which it is believed opportunities are being offered in an unjust manner and thus, income inequality is increased. According to research, in the United States, the median income of a black household is less than 60% of a white household (The Economist, 2020). Similarly, during the time period when COVID-19 cases were high in the United States, the unemployment rate for white men was at 12.3% while for black men was at 16% which shows the systematic oppression that still exists in the economy today (Roque, Khattar and Pathak, 2022). This report is presented by qualified economists because it is likely they are well-researched on the situation in the US economy. They manage to present a detailed report covering areas from post-COVID recovery to changes in unemployment level for black men generally. However, a weakness is that it does not look at matters from a long-term point of view as in the improvements made in the past; instead, it focuses on the devastating impacts after covid which makes the report a little subjective as it is not considered that covid had devastating impacts for all and not just one community. To counteract this, research by (Greig, Fiona and Eckerd, 2022) in the JP Morgan Journal has shown that compared to the past the racial income gap is reducing; for example, in the United States, Hispanic and Black households actually saw more acceleration in real incomes compared to white households from the time period 2019 to 2021. The credibility of this source is stronger than the previous one since it is published on a renowned site. Similarly, it acknowledges that whilst the income gap has narrowed the disparities remaining in income for the black community are still high showing a pertinent social problem adding to the argument. Also, compared to the data of economist used previously it can be noted that economist is a weekly magazine while JP Morgan is a business with global reach and publishes original research to help policymakers. This shows that the strength of the Greig's research is thus, higher supporting the view that the racial income gap is reducing.
Coming towards the political perspective. Governments could be discriminating by favoring larger enterprises or not doing enough to stop the impact of globalization on income inequality.
An example can be taken from Pakistan where the richest 1% held 9% of the national income between 2018-19 whereas the poorest 1% held only 0.15% of the national income which shows the divide that exists in the income groups of Pakistan (www.thenews.com.pk, n.d.). Adding on to this, the research (Conerly, 2018) shows this is because the government discriminates by favoring large scale enterprises as they overall benefit the economy more, favoring the land-owning classes and skewing access to credit, etc. This article is presented in Forbes, a highly accomplished business forum by a senior contributor who blames income inequality on corruption done by the government to favor the rich but it does not present any solutions as to how this could be stopped making the argument less convincing. A similar example can be taken from Turkey which had a Gini coefficient of 0.40 in 2017 which shows a very high rate of income inequality; however, it is also persistent to note that this rate fell greatly when compared to the past as in 1968 the Gini coefficient was at 0.56 (Kayıkçı, 2019). This research shows a very broad time frame i.e. from 1968 to 2017 showing that the author has done extensive research and did not just pick up a special case to strengthen their stance. Comparing Conerly's research to that of Kayıkçı, it can be noted that the former appears to be more credible since it has used an array of research methods ranging from decile 90/10 to the Gini coefficient, thus a more scientific approach with quantitative data to prove that income inequality has been improving if not completely solved yet.
In the same way, globalization is blamed for income inequality which can be seen through the research of (Pavcnik, 2011). The author uses the method of the changes in the share of the top 1% of individuals in an economy to determine a generalized impact on income inequality. She also identifies a shortcoming of this method i.e. it is uses tax records which are often based on insufficient data. However, since this method is used over a long period of time to reach conclusions and makes comparisons between and within countries easy the author opted for this method. Her research shows that on one hand the share of the top 1% decreased in a developing country like India whilst it increased in a developed country like the USA. The increase in income inequality is because as the world becomes more globalized and connected, the market for top executive talent increases giving them a larger demand for their skills and expertise (earned through factors like access to better education, and training opportunities, etc); thus, helping them to earn higher wages increasing the income gap in the developed countries. This is also shown in the Stolper-Samuelson model which portrays the competition between the educated vs uneducated classes present. It explains that within developing countries income inequality would reduce as low-skilled jobs are shifted from the developed countries thus giving opportunities to earn higher wages and the income gap to narrow down. The credibility of this research is fairly high as it has been published by ILO and the WTO with a specific focus on income inequality preventing generalizability as well as helping to maintain a focused argument becoming an objective piece of research.
In the future, an area of further research is that income inequality needs to be seen from an environmental perspective as well. This is because due to global warming lower income households like farmers would lose their jobs first and so policy to prevent and to deal with this in case such an issue actually occurs needs to be underway which I was unable to develop upon in this research paper due to the word limit and lack of data.
Now after looking at both social and political causes of income inequality, it can be deduced that on the political front, there is pressure on governments to follow SDG goal 10 i.e. to reduce inequalities which would also include income inequality. As a result of this governments today are seen to be following a combination of policies and strategies such as progressive direct taxation, social protection programs, and investment in education and health care, etc. This will also help to reduce social income inequality when the benefits and opportunities are provided in an unbiased way to the citizens becoming a key to solving income inequality. Having researched on both the causes, it can be concluded that to a small extent income inequality is still present in the developed countries and to a greater extent in developing countries whilst work is being done in both the economies to tackle this problem. So in the future, it will is expected to further reduce if the governments continue to prioritize this issue.
My own perspective has also changed considerably because I had a one-dimensional approach initially believing that only social income inequality exists majorly. This is because before doing research I was under the impression that the phrase “rich get richer, while poor get poorer” applied greatly to those belonging to different social groups and that larger stakeholders like governments have been discriminating against them. However, after research not only did I see another perspective i.e. political but also found that progress has been made and policies are still underway to ensure there is income equality for all. Research has also made me understand that implementation of the policies by the government is a long-term solution and expecting to see results in a short period of time would be illogical.
Reference list
Adarov, A. (2022). Global income inequality and the COVID-19 pandemic in three charts. [online] blogs.worldbank.org. Available at: https://blogs.worldbank.org/developmenttalk/global-income-inequality-and-covid-19-pandemic-three-charts.
Conerly, B. (2018). Business Is One Reason For Economic Inequality--And Also For Equality. [online] Forbes. Available at: https://www.forbes.com/sites/billconerly/2018/09/23/business-is-one-reason-for-economic-inequality-and-also-for-equality/?sh=5bd83723654f [Accessed 22 Mar. 2023].
Greig, Fiona and Eckerd, G. (2022). Racial Income Inequality Dynamics. [online] www.jpmorganchase.com. Available at: https://www.jpmorganchase.com/institute/research/household-income-spending/racial-income-inequality-dynamics [Accessed 19 Feb. 2023].
Inequality.org (2019). Income Inequality. [online] Inequality.org. Available at: https://inequality.org/facts/income-inequality/.
Kayıkçı, F. (2019). Course of Income Inequality in Turkey. Theoretical Economics Letters, [online] 09(06), pp.2085–2092. doi:https://doi.org/10.4236/tel.2019.96131.
Ortiz-Ospina, E. and Roser, M. (2018). Economic inequality by gender. Our World in Data. [online] Available at: https://ourworldindata.org/economic-inequality-by-gender#the-gender-pay-gap-across-countries-and-over-time.
Pavcnik, N. (2011). Globalization and within-country Income Inequality. [online] Available at: https://www.wto.org/english/res_e/booksp_e/glob_soc_sus_e_chap7_e.pdf [Accessed 24 Mar. 2023].
Roque, L., Khattar, R. and Pathak, A. (2022). Black Men and the U.S. Economy: How the Economic Recovery Is Perpetuating Systemic Racism. [online] Center for American Progress. Available at: https://www.americanprogress.org/article/black-men-and-the-u-s-economy-how-the-economic-recovery-is-perpetuating-systemic-racism/.
The Economist. (2020). Economic research documents black Americans’ struggle for equality. [online] Available at: https://www.economist.com/finance-and-economics/2020/06/11/economic-research-documents-black-americans-struggle-for-equality?utm_medium=cpc.adword.pd&utm_source=google&ppccampaignID=17210591673&ppcadID=&utm_campaign=a.22brand_pmax&utm_content=conversion.direct-response.anonymous&gclid=CjwKCAiAleOeBhBdEiwAfgmXf2ytKCS8KZiFUvkwZmFcpr6v4zSqi6pe0cCYMFv9FwLo5mxSkbxODxoCRHEQAvD_BwE&gclsrc=aw.ds.
United Nations (2018). Goal 10: Reduce inequality within and among countries. [online] United Nations Sustainable Development. Available at: https://www.un.org/sustainabledevelopment/inequality/.
United Nations (2022). Closing Gender Pay Gaps Is More Important than Ever. [online] UN News. Available at: https://news.un.org/en/story/2022/09/1126901#:~:text=For%20every%20dollar%20men%20earn.
Van Der, Y., Rodgers, M. and Zveglich, J. (2012). Inclusive Growth and Gender Inequality in Asia’s Labor Markets. [online] Available at: https://www.adb.org/sites/default/files/publication/30137/economics-wp321-inclusive-growth-gender-inequality.pdf.
www.thenews.com.pk. (2020). Human Development Report 2020: Massive income inequality among rich and poor. [online] Available at: https://www.thenews.com.pk/print/816040-human-development-report-2020-massive-income-inequality-among-rich-and-poor.