What is income inequality?
We all strive in life for us to have a better life but some people in the community earn significantly more than others,this creates inequality. Therefore we can describe Inequality as how unevenly income is distributed throughout the community or people in a certain area or country. From income inequality we can find terms like wealth inequality which refers to how unevenly wealth is distributed among individuals. This includes the possession of acres of land, value of assets or amount of money that one has or stock that individuals have.
How to measure income inequality
Income inequality is estimated by general factors like occupation,gender, ethnicity, location and historical income. For instance when we want to determine a country’s income inequality we use measurements like the Gini Index. The Gini Index is used to measure the degree to which the distribution of income or expenses among individuals or a certain household in an economy from a certain distribution. For instance when a score 0 is witnessed it means that the income index is perfectly equal but when the index records 100 it means that the income is not equally distributed. The World Inequality Database exempts the index. On its own, the Gini index may not be mainly useful on its own, but it can give us quick information that encourages more investigations.
Causes and consequences of income inequality.
What are the causes of income inequality? We are going to look at three main causes.
Unequal land distribution
On3 of the chief causes of income inequality is Unequal land distribution. Unequal land distribution is where land is distributed among individuals. Normally a large piece of land may be distributed to some while other individuals will get a small share, by doing this land inequality is witnessed. Therefore this unequal distribution leads to income inequality that leads to a bridge between the rich and the poor. We will take a look between farmers. For instance, a farmer with a bigger share will tend to generate a lot more income than the farmer who got a small share of land resulting in an uneven distribution of income. Therefore, farmers with bigger shares will sell their farm product at a slightly higher price since the quality of their goods are better than the farmer with a small piece of land, thus leading to income inequality.
Unequal distribution of land comes with its consequences, due to unequal distribution a number of individuals are left landless. This will leave them with nowhere to do their cultivation and therefore leading to unemployment among a number of them. Unemployment may lead to crime and theft since at the end of the day we all need income.
Therefore we can conclude that unequal distribution of land leads to income inequality since certain people will earn more than others in terms of income.
Inflation Can be referred to as a point at which commodities prices increase over a certain period of time. Sadly, Individuals whose income might be higher can stabilize inflation with their higher income. Unfortunately the poor individuals tend to suffer due to high inflation resulting in income inequality. Additionally, conducted research has surfaced that due to a phenomenon called inflation inequality, the prices will tend to rise quickly for individuals with lower income than those earning large income.
People assume that Inflation affects everyone in the same way. But no, different households have different spending patterns and different commodities and services have different price increases which leads to uneven levels of inflation. Inflation comes with its consequences, for instance individuals with lower income will have a change in spending and a minimum purchasing power compared to the ones that have a higher income.
Income inequality is affected by inflation whereby the “relative weight” of skill and wealth is affected by diversity, reigned over the ratio labour income to interest income. Impact of inflation is definitely seen when higher inflation rates decrease the economic growth rate and the interest rate thus decreasing wealth return rate. Inflation also lowers the creative destruction rate while increasing monopolistic firms market value.
Gender plays a vital role in income inequality. Income gap between genders is usually seen in some countries. Let’s take a look at the United States, the female gender earns almost 78% in their full time job more than what men actually earn. Moreover, in a part-time job women still earn more than average of what men in the part-time job . Additionally, statistics have shown that among individuals with no children and have not married yet, women still earn more than men. Therefore gender does contribute to income inequality among individuals and differences in terms of salary.
This gender gap of wages has not yet been distinguished by the United States although being a major factor as to why we see income inequality in the U.S as per reports.
Different measures of inequality.
Gini Index and Lorenz Curve are types of measurements that are normally used to ascertain the income inequality between individuals in different countries.
The Gini index which is widely known Co-efficient is used to measure individual income across a certain region or country.
The co-efficient ranges 0_1 (0% to 100%). If measurements are conducted and 0% occurs in the measurements then that country income is distributed equally, but if measurements are conducted and 100% is seen then that specific country’s income is unevenly distributed showing an inequality in income.
A Lorenz curve can be defined as an illustration representing the supply of income or wealth within a certain country or population.
Basically, the Lorenz Curve works when the curve is far away from the bisector line. If the curve is further from the bisector line then the income inequality in that specific place, population or region is greater, but if the curve is close from the bisector line then the region is perfectly equal in terms of income.
Lorenz curves are used together with their derivative statistics to measure inequality in wealth also.