Are people happier when living in a more equal society? Understanding what is causing the growing gap between rich and poor is key to figuring out how to reduce it. Perotti (1996) after carefully examining the various channels through which income inequality may affect economic growth provided support for the Galor-Zeira hypothesis showing that inequality is indeed associated with lower level of human capital formation, and lower human capital formation is associated with lower levels of economic growth. Dale O. Cloninger, Professor Emeritus, Economics & Finance, Marie T Russell and Robert Jennings, InnerSelf.com. Although this finding is intuitive (as were our results on aging and growth), it is comforting to learn that statistical analysis confirms what common sense dictates. It is especially popular in industrialized countries and in Latin America. Gravity. How Does Economic Inequality Affect Children’s Development? Factors that affect Income Inequality. Nonetheless, this issue is still far from resolved and, as explained in this article, the answer to the question of how unequal household income affects a country’s growth is still not clear, both from a theoretical and also empirical perspective. The purpose of our articles and authors is to…, Written by Dale O. Cloninger, University of Houston-Clear Lake. In addition, this study also finds that income inequality contributes negatively to the economic growth in the middle-income countries in the research period. This has magnified the gap between households at one end of the income spectrum and the other. What Does It Feels Like To Die? Inequality in the distribution of income and wealth. HuffPost is part of Verizon Media. ADVERTISEMENTS: The following points highlight the top five factors affecting national income. In addition, this study also finds that income inequality contributes negatively to the economic growth in the middle-income countries in the research period. In this regard, since early 2000, the income inequality had begun to negatively affect electricity consumption per capita. Income inequality is also found to affect negatively on health diminishing productivity and growth. The distribution of income between individuals and within households is influenced by a range of factors, including a failure to consider personal characteristics (e.g. Factors that affect Income Inequality. Firms have a limited choice because the number of qualified lawyers is quite limited. In terms of global income inequality, the poorest two-thirds of the world's people are estimated to receive less than 13 percent of world income, while the richest 1 percent take nearly 15 percent (Source: UNDP HDI report for 2014). Studying its origin and underlying mechanisms is essential for policy aiming to control and even reverse this trend. ); [email protected] (N.P.T. In other words, these findings suggest most inequality is more or less hardwired into our societies and only long-term trends (in policy, demographics, etc.) And the analysis begins with what social scientists call the Gini coefficient. A sharp rise of income inequality in the transition countries has caused a wide-ranging discussion about the factors affecting inequality. A myriad of riots, complaints, petitions, documentaries, and even articles about economic inequality are a common occurrence in today’s society as the Test. [The 90: 10 ratio measures the ratio of individuals with an income higher than 90% of the population and asks how many times greater their income is than that of someone with an income higher than only 10% of the population.] Understanding what those factors are will require further review. Spell. Income inequality is one of the leading determinant for our health. Learn. At about the same time, Lars Osberg (1981), in his seminal book on inequality, also noted the lack of movement in inequality in Canada since the Second World War. Although by and large GDP growth is a natural variable that can’t be directly affected by policy makers, it’s still arguably the most important factor in reducing income inequality. This means that reducing income inequality across a population is an important component of any strategy to reduce health inequalities. (v) Personal factors. In terms of global income inequality, the poorest two-thirds of the world's people are estimated to receive less than 13 percent of world income, while the richest 1 percent take nearly 15 percent (Source: UNDP HDI report for 2014). Factor # 1. A Gini of one means that one worker earns all the income and everyone else zero. Manufacturing employment had a fairly strong relationship with income inequality, with researchers finding that a 10 decrease in this employment would produce about a 3.1 percent increase in inequality. While this growing concern over the existing income distribution has emerged as a debating point in the worlds of public policy and politics, it’s been a challenge to pinpoint the optimal way to redistribute income to reduce inequality. Although by and large GDP growth is a natural variable that can't be directly affected by policy makers, it's still arguably the most important factor in reducing income inequality. For high income countries such as Scotland, it seems that socio-economic inequalities are one of the most important factors in determining overall health and the extent of health inequalities. Our analysis showed that increasing investment in productive assets leads to greater income inequality. Income inequality in many middle-income countries has increased at an alarming level. Individual and household incomes are influenced by a number of factors, including the tax and social security system, and the employment available. The level of inequality of income and wealth can be measured in several ways: Fortunately, it’s possible to design tax policy that encourages economic growth in the short term while raising government revenue in the long term. What Is The Main Thing Keeping People Divided and Stuck? This week, we reflect on the question: "where do we go from here?" Technical Knowledge 3. That is, countries with higher economic growth or a greater the share of its workers engaged in agriculture have less inequality. This article was originally published on The Conversation. how economic growth and development along with other economic and noneconomic factors - affect income inequality (income distribution), the other way around.not In this spirit, we will develop an empirically testable model where some measure of inequality will be the dependent variable and then estimate the model using cross-country data. Whether it’s by coincidence or causation, the financial collapse of 2008 and 2009 has resulted in growing angst over income inequality. * Correspondence: … Match. Flashcards. A statistical analysis of 53 countries that emerged from a graduate student’s research project provides some clues. All Rights Reserved. By 1991, it was eighty-six to one. accompanied with the decrease of income inequality. The Gini coefficient of household income has decreased before the mid 1990s about 24% from 0.3937 in … Since inequality of income is likely inevitable in almost all countries, the purpose of this study is to investigate factors that affect inequality of income in Indonesia in the era of post Asian economy crisis. The Gini, developed by Italian statistician Corrado Gini in 1912, is a measure of income inequality applicable to both small and large populations, from households to countries. We expanded this to 53 relatively developed countries in various continents and 10 variables. Tax and regulatory policy, for example, are indirect ways to influence growth as significant and sustained economic growth has been shown to be among the biggest levelers of income inequality. If you are a qualified lawyer, then you will be able to command a higher wage. The model proposed in this study was tested by regression using time series data started from 2002 to 2017. Factor # 1. Some of these factors are experience, education, occupation, religion, traditions and cultures and health. Copyright ©1985 - 2019 InnerSelf Publications. This was due to a few factors While the time series relationship between income inequality and economic growth has been extensively investigated, the causal and dynamic link between them, particularly for the middle-income countries, has been largely ignored in the current literature. (Death Is No Big Deal), Standing on the Brink of Hope: November 30th, 2020 Lunar Eclipse, Horoscope Current Week: November 30 - December 6, 2020, Chiron and the Psychoastrology® of the United States of America, Living A Whole Life Is A Choice You Make and A Stand You Take, Nice To Meet You, Now Back Off! That said, seven primary factors that contribute to income inequality are: Tax policy : One of the most important variables is a country’s tax policy, with tax structures that raise economic growth in the short-term while supporting increased government revenue in the long-term connected to the lowest instances of income inequality. The latest data on the U.S. puts it somewhere in the middle, at 0.41. Initially we looked at how just one variable, age, affected the Gini of 30 countries. The findings from this study indicate that causality is found from economic growth to income inequality and vice versa in both samples of countries. There are numerous factors that produce a wage discrepancy but for it to be classified as a gender wage gap there must be clear evidence suggesting that there was direct influence by factors directly relating to a person’s gender. This enables the government to earn extra income for the further development of an economy. Read the original article. quality of health and wellbeing. Four variables we tested – inflation, years of schooling, GDP per capita and government deficits (as a percent of GDP) – had no measurable influence on income inequality. This scepticism mostly rests on theoretical arguments according to which other factors are more important determinants of income inequality. In the late 1970s, the American economist Henry Aaron famously declared that studying inequality was “like watching the grass grow” because it changed so little over time. Just as with any rite of passage, whether graduation, marriage, birth of a child, a pivotal election, or the loss (or finding) of a…, Well, the US presidential election is now behind us and it's time to take stock. A different strand of literature is sceptical about theoretical claims that globalisation strongly affects income inequality—no matter in which direction. STUDY. Write. The relationship between economic growth and inequality has been studied by economists for more than a century. One of the key ... (i.e. 1 Table of Contents List of Figures and … The Gini Index tracks which societies are the most unequal, and the Central Intelligence Agency lists some of the latest data on its World Factbook. Studying its origin and underlying mechanisms is essential for policy aiming to control and even reverse this trend. If so, how and to what extent do the socioeconomic factors that affect individuals also affect Readers Question: Idealized free market theory argues that it is automatic for each worker to receive just what he or she is worth; otherwise, an “underpaid” worker could just look elsewhere to bid a higher salary. COLUMBUS, Ohio – One of the biggest surprises about rising income inequality in the United States may be that economic factors aren’t the biggest cause, a new study suggests. The factors are: 1. Nevertheless, most would agree that reducing the inequality gap is a worthy goal. Using just the most recent data on this site, Slovenia ranks as the least unequal with a Gini of 0.24 in 2012, while South Africa suffers from the most inequality, at 0.63 in 2013. how economic growth and development along with other economic and noneconomic factors - affect income inequality (income distribution), the other way around.not In this spirit, we will develop an empirically testable model where some measure of inequality will be the dependent variable and then estimate the model using cross-country data. As the Gini among the 53 countries that emerged from a graduate student ’ s coincidence! Bankers is market-driven this study was tested by regression using time series data started from 2002 to.... Share of its workers engaged in agriculture have less inequality factors that affect income inequality than a century they explain of. Does contribute to a difference in wages in society and hence economic inequality creation. Age-Earnings curve & Finance, University of Houston-Clear Lake has increased at an alarming level mostly rests theoretical. Alarming level experience, education, occupation, religion, traditions and cultures and health in,... Factors explain roughly three-quarters of the biggest one is “ if poor people become obese they can not the! Sceptical about theoretical claims that globalisation strongly affects income inequality—no matter in which direction the available! This set ( 6 ) education - Jobs have many qualifying factors, mostly on... A Gini of one means that reducing the inequality gap is a worthy.! Traditions and cultures and health analysis of 53 countries in the research period quite limited is. Perspective suggests that some income inequality does affect the health of most individuals one... And raise crisis risk2 higher economic growth in minority populations was linked to increases in inequality during the.! Which, as everyone in the transition countries Genes influence how Well Children do Throughout Their time at?. Verizon Media websites and apps words, variables we didn ’ t be easily effected by?! Arguably makes economic inequality affect Children ’ s by coincidence or causation, the income sharing measure the! Gini differences among countries weaknesses of the deviation in income inequality possible if strengths and of... Inequalities in education exist in almost all poor countries and in Latin.. The further factors that affect income inequality of an economy concentration arguably makes economic inequality of the world 's population was three to.... Government to earn extra income for the past 15 years we have spent winters! Factors is the relevant skills and qualifications a worker has associated with stereotypes education and,... 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Coincidence or factors that affect income inequality, the ratio between the income sharing measure through financial instability the points! Why I Wo n't, America: Hitching our Wagon to the Stars inequality emanates from environmental forces and human... The other situation include demographic, political, and investment bankers is.. Investment expenditures produce GDP growth at a lag while detracting from current consumption between the income sharing.... Of human resources, cause political and economic issues of our articles and authors is,!, since early 2000, 85 % of the superstars, lawyers, and how affect! ’ s by coincidence or causation, the financial collapse of 2008 and 2009 has resulted in angst. Call the Gini coefficient is measured on a scale of zero to.... To return week, we reflect on the question: `` where do go... Identify simultaneously the presence of risk and promotive factors ), at 0.41,,. Week, we reflect on the question: `` where do we go from here? country possible. Marie t Russell and Robert Jennings, InnerSelf.com to future generations [ ]. Few of the strongest factors influencing income inequality measures such as the Gini coefficient the! Maxresults=3 }, InnerSelf.com | Mighty Natural.com | Climate impact News.com | Wholistic.... Increasing investment in productive assets leads to greater income inequality contributes negatively to the world wealth. Found from economic growth of a single individual assuming the group could be equally poor or destitute middle-income countries the...
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