Economics Essay Example: Income Inequality and Its Cost

Published: 2022-08-25
Economics Essay Example: Income Inequality and Its Cost
Type of paper:  Essay
Categories:  Macroeconomics
Pages: 5
Wordcount: 1178 words
10 min read

In recent years, the issue of inequality has taken a new boom; it has stopped being seen as a simple macroeconomic result, to become an essential topic in the study of the growth of the economy. Previously, the majority of the reviews on the subject of the distribution of income tried to determine the levels of inequality and the causes that cause it. It is until recent years that the angle of observation on the relationship between economic performance and inequality has been modified, giving rise to a growing literature that studies the effects that inequality may have on economic growth. Also, it also assists in studying the mechanisms of transmission through which inequality affects macroeconomic variables. Income Inequality is an ever-controversial issue, present in the political and economic debates of almost every free and civilized society.

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However, despite the importance of the subject and much discussion, there is very little formal empirical research to support these issues. These debates acquire of vital significance; since they could derive economic policies that if not well supported could be detrimental to the economic growth of the country, both in the short and long term. Previously inequality was seen as a necessary factor to achieve rapid and stable growth, which was based mainly on various aspects one of which is through the Kaldor hypothesis, which states that the marginal propensity to save by the rich is higher than that of the poor (Atkinson & Bourguignon, 2000).

Therefore, if the growth of the domestic product is directly related to the aggregate saving rate, then, economies with a higher concentration of income will tend to grow more. The indivisibility of the investment proposes that the investment projects be reflected in growth only when they cover a high initial cost, and therefore, it is.

According to (Todaro, 1969) in his book on economic development, raises some arguments for which he considers that inequality is at all not beneficial for the growth of developing countries. It results in unproductive investments by the rich. The poor maintain a lower level of human capital as the poor tend to consume more national products, unlike the rich who have a more biased pattern of demand for imported products. Rejection and political instability caused by the masses are also experienced as a result of the inequality. These considerations exist intuitively; however, they were pioneers in what concerns the questioning of the relationship between inequality and economic growth.

It is worth noting that it is crucial to generating public policy by understanding the differences in quality of life, inequalities in income and regional disparities (Congress, 2011). An essential part of the variation is explained by the existence of income gaps between departments.

To manage economic inequality, it is necessary to understand the vast differences between geographical spaces. In this aspect, the recent evolution of inequality has shown that in the country the departmental income asymmetries have been sustained. The fact that tax policy is a substantial element to achieve a more equitable distribution of income, it would be appropriate to think about a mechanism of tax differentiation that seeks to mitigate the gaps between departments. Income inequality exposes states to the following three outcomes.

Socioeconomic inequalities result in economic inequality in the field of health. In some regions of the world, and especially in the developing world, fewer jobs have been done empirically on the subject. Health inequalities are almost always to the detriment of the poor. The poor tend to die before and present higher levels of morbidity than those who have more money. Currently, income inequalities tend to increase with ill health, as starvation and high mortality rates, which are apparent signs of the menace, are evident in most countries. Mostly, it is crystal clear that in the developing countries, the latter sometimes produce gradients perverse, so that the wealthy say have worse health than the poor. Economic instability in developing countries tends to show poor results on health services than the states with the high gross domestic product (Congress, 2011). In every country, poor people have more problems with health that face them. The connection between poor state and inefficient healthcare practices reflects a relationship of bidirectional causality. Rise in the cost of health care results in a Poor state of the health sector. This state is common especially when the majority cannot afford the services. Low incomes rates result in ill health. Income inequality results in the emergence of extreme poverty among people. Poor people suffer multiple deprivations expressed in high levels of ill health. In this way, poor people get caught in a vicious circle whereby poverty breeds ill health and ill health maintains poverty.

The psychological effect of the inequality income is also a common challenge in the modern world. Income and equal distribution of resources are considered the main determinants of mental and psychological health. General satisfaction of diverse aimed and personal needs leads to well being which, hence positive state of affairs. In the corporate sector, income inequality has a direct impact on the psychology of the workers. One possible approach of reducing income inequality is boosting the subjective well being (SWB). In cases where workers in higher ranks earn incredibly high salaries compared to low earning workers, who even receive pay cuts, the workers end up considering it an unfair offer. Some reject the proposals while some carry on, as they need to work to earn a livelihood. As a result, their work output decreases affecting the efficiency of the whole firm. Job Studies have explained that if the workers have a fixed salary and independent of the production, the labor force will be discouraged to make a better effort and therefore there will be lower productivity, which consequently would result in a lower growth rate. This type of considerations captured to a large extent the idea that economists had about the relationship between inequality and growth.

Studies have also found out that income inequality can lead to corruption. This challenge is common in democracies where power concerning politics and state wealth are easily exchanged, in over many countries in the world. Unequal distribution leads people engaging in unlawful means of getting money. In reality, there is more and more evidence that the economic cost of corruption is vast. Levels of corruption-related crime Vary considerably from some developing countries to others, the struggle against corruption is viable, and strategies to combat this evil should keep in mind its fundamental causes and, the role of incentives, prevention and economic and institutional reforms specific

According to the Federal Reserve's survey on consumer finance, savings among the labor force is decreasing over the recent years. The trend in income inequalities is in the rise, and more research on appropriate strategies would reverse the growth.


Congress, U. S. (2011). Trends in the Distribution of Household Income between 1979 and 2007. Congressional Budget Office, 25.

Atkinson, A. B., & Bourguignon, F. (2000). Introduction: Income distribution and economics. Handbook of income distribution, 1, 1-58.

Todaro, M. P. (1969). A model of labor migration and urban unemployment in less developed countries. The American economic review, 59(1), 138-148.

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