Inequality: Why is it a Problem?
The Gap Between The Rich And Poor:
Inequality is defined by economists as the unequal distribution of income and opportunity between different groups in society.
Inequality is a significant issue for economists and the gap between rich and poor is continuing to grow. In the 1980s, the richest 10% of the population in OECD countries earned 7 times more than the poorest 10%. They now earn nearly ten times more. When you include property and other forms of wealth, the situation is even worse: in 2012, the richest 10% controlled half of total household wealth and the wealthiest 1% held 18%, compared to only 3% for the poorest 40%. The poorest members of society suffer in the short term as a result of inequality, but in the longer term, the whole economy is also damaged. OECD figures show that the rise in inequality between 1985 and 2005 in 19 countries knocked 4.7 percentage points off cumulative growth between 1990 and 2010.
In the UK the median income has been rising by 2.2% on average for the last five years. Most of this is a result of the rise in average income for the richest fifth, which has increased by 4.7%. The poorest fifth, however, have seen a fall in income by 1.6%. In 2018, households in the bottom 20% of the population had on average a disposable income of £12,798, whilst the top 20% had £69,126. When original incomes are compared, the difference is even greater, the richest fifth had an income more than 12 times the amount earned by the poorest fifth.
However, these statistics do not show the extent of the difference between the world’s richest and the rest of society. This is due to the the top 1% having much greater income than the rest of the top 10%. In the Uk the percentage of income earned by the top 1% has been rising, reaching 13% in 2015. The top 1% of the world hold 20% of total income.
Why is inequality a problem?
There is always going to be inequality in the free market, and yes, we should not simply take the rich’s money and distribute it so everyone is equally poor. However, inequality does cause major problems for society, there are clear links between inequality and violence, incarceration, teen pregnancy, drug abuse, mental health conditions and obesity. Although, one might be considered poor in one country and rich in another, our well being is grounded in how we are doing in comparison to those around us. Furthermore, it is impossible to claim that inequality exists as a result of a difference in work ethic between individuals, a nurse works equally as hard as an investment banker for a fraction of the income. When wealth inequality is so high that the rich end up sitting on more money than they can spend, all that money is doing is sitting in a bank account. If that money were more widely distributed among people who needed it, they’d be buying things, making investments, traveling etc; it increases economic activity that has positive effects for society as a whole.
