"Income inequality is troubling because, among other things, it means that many people in our society don't have the opportunities to advance themselves."

Ben Bernanke, Public Servant

Economic Inequality: Causes, Effects & Solutions

causes, effects, solutions for economic inequality

Economic inequality (also sometimes referred to as unequal distribution of wealth) can be defined as the difference in wealth and income levels of individuals or groups in a society or even on a global scale.

 

Currently, on our planet, there is a high level of inequality in the distribution of wealth and income.

 

While in rich Western countries, there are high levels of wealth for the local population, people in poor developing countries often have no wealth at all and even struggle to survive.

 

In this article, the causes, effects and solutions for unequal wealth distribution are examined.

Audio Lesson

Is Wealth Equally Distributed on a Global Scale?

Not even close! According to Oxfam, as of 2019, the richest 26 people on the planet own as much wealth as the poorest 50% of our global population. You heard right! It is insane. 26 people own as much wealth as around 3.8 billion people combined. This gives clear indication how perversely unequally distributed our global wealth really is.

Causes for Global Wealth Inequality

  1. Differences in education levels
  2. Geographic conditions
  3. Heritages
  4. Tax advantages
  5. Family income
  6. Differences in public infrastructure
  7. Political motives
  8. Globalization
  9. Differences in technological advancements
  10. Corruptive actions
  11. Unemployment
  12. Homelessness
  13. Drug use

Differences in education levels

Since education and wealth are closely linked, differences in education levels also account for significant differences in income and wealth levels.

 

For instance, if you have a high level of education, you will have a much easier time finding a well-paying job compared to someone who only has a low level of education.

 

Moreover, you are likely to earn a much higher income. Therefore, differences in education levels can be regarded as huge factor when it comes to differences in wealth and income distribution.

Geographic conditions

In some regions, people have it much easier to build up wealth compared to other regions. If you are born in the rich Western world, you will have much more opportunities to get proper education and to get a good job than if you are born in a poor developing country with insufficient education infrastructure.

 

Moreover, the climate can also play an important role, since our brain works much better in moderate climatic conditions compared to dry and hot climates. Therefore, geographic factors play an important role for the unequal distribution of income and wealth.

Heritages

Extraordinary high levels of wealth are often not due to work, but rather due to big heritages. For instance, if you inherit a big firm, you will receive a huge income every year without actually having to work for it.

 

Thus, if you are one of these lucky guys, chances are that you will be able to accumulate pretty big wealth. Therefore, luck regarding a heritage is an additional factor when it comes to differences in wealth distribution.

Tax advantages

In some countries, it is easier to accumulate wealth than in others due to lower income or wealth tax rates.

 

For instance, if you live in a country where you have to spend almost half of your total income for income tax and social security, chances are that it will take you quite a long time to save a significant amount of money.

 

On the other hand, if you live in a country with virtually no income tax, the accumulation of wealth will be much easier and faster.

Family income

The income of you parents or other family members is also closely related to the chances for you of becoming wealthy or even rich. This is due to the fact that children with wealthy parents will have access to better education and can also afford tutoring.

 

Therefore, these children will have a higher chance to be able to go to university and get a high-salary job afterwards.

 

In contrast to that, children from poor parents will have a much harder time achieving the same goal, since they have none of the advantages mentioned before.

Differences in public infrastructure

Infrastructure also plays an important role for capital accumulation. For instance, if you live in a region with insufficient public transport and your parents do not have a car, chances are that you will not be able to attend school if it is too far away.

 

Moreover, infrastructure also includes the access to computers and the internet, which is crucial for self-learning. Therefore, if you live in poor countries where you do not have access to those facilities, chances are that you will suffer from a low level of education and the resulting adverse consequences once you grow up.

Political motives

Money is not only a medium for buying pretty things, it also implies significant levels of power. Therefore, some countries may not even have an interest to increase the wealth levels of poor countries since they fear to lose their power once these developing countries turn into industrialized ones. Therefore, political motives may also play a role for the sustainability of poverty on a global scale.

Globalization

Even though globalization has significant upside, it also poses some problems, especially for poor developing countries which are often exploited by the Western world. For instance, there are still many companies which do not care about fair labor and only pay quite low wages in poor countries since it increases their profits. Therefore, for people in those countries, globalization can also contribute to poverty rather than wealth.

Differences in technological advancements

Technological progress is crucial in order to escape poverty and to raise the average income levels of countries. However, in poor countries, the amount of money that can be afforded for research usually is quite low compared to the rich Western world. Therefore, poor countries tend to be left behind when it comes to the latest technological advancements, which in turn exacerbates the poverty issue.

Corruptive actions

Corruptive activities may also contribute to difference in global wealth levels. In some countries where bribing still is a big problem, plenty of tax money may be wasted for the pleasure of single individuals rather than to improve the living conditions of the general public. Therefore, due to corruptive actions, improvements in infrastructure or other important measures may not happened sufficiently fast and the general public may pay the price for it.

Unemployment

In some regions, there is a quite high level of unemployment, while in others, almost all people have a job.

 

This also plays a huge role in the development of poverty and differences in wealth levels since in regions with almost no unemployment, people will be able to get high salary jobs and to accumulate substantial levels of wealth.

 

In contrast to that, people suffering from unemployment will not be able to build up substantial wealth, since they will simply not have an income to do so.

Homelessness

Homelessness may also account for differences in wealth and income levels to a certain extent. If you are homeless, your chances for getting a job is virtually zero. Therefore, you will never be able to accumulate significant levels of wealth and may rather be happy to make enough money to survive on a daily basis.

Drug use

The use of drugs may also be a factor when it comes to unequal wealth distribution. Drug addicts will usually not be able to attend work at some point anymore since they need their whole time to ensure their substance supply. In turn, these people may get unemployed or even homeless and will likely suffer from significant poverty in the long run.

global inequality regarding wealth distribution

Effects of an Unequal Distribution of Wealth

  1. Poverty
  2. Lack of education
  3. Homelessness
  4. Use of substances
  5. Lack of health insurance
  6. Hopelessness
  7. Frustration
  8. Mental issues
  9. Physical health issues
  10. Discrimination of minorities
  11. Conflicts
  12. Fundamentalism

Poverty

Economic inequality can lead to serious levels of poverty for the affected people. It is kind of a vicious circle. With high levels of poverty, people may suffer from insufficient access to education, which may lead to a higher chance for unemployment.

 

Unemployment may likely trap those people in poverty, especially in countries with only insufficient social security. This circle may continue for many generations and it is hard to break it without the support of third parties.

Lack of education

The unequal distribution of wealth can also contribute to a lack of education. For instance, if your parents do not have enough money to ensure proper education for you, chances are that you may also end up with a low level of education. This in turn will likely lower your chances in several areas of life.

Homelessness

People with low income levels are also more likely to end up homeless. This is due to the fact that these people will not be able to accumulate enough money for difficult times. For instance, if these people become unemployed for some reason, they may no longer be able to pay their rent and may end up in the streets due to that.

Use of substances

Studies have shown that low levels of income or wealth and drug use are positively correlated. This means that people with low income levels are more likely to take illegal substances. In turn, this may lead to additional issues, since the use of drugs increases the chance for homelessness and the implied adverse effects.

Lack of health insurance

Low levels of income often also lead to a lack of health insurance for many people. Especially in countries where health insurance is not mandatory, poor people may often refrain from getting health insurance since they simply are not able to financially afford it. However, this may lead to serious health issues in the long run, since in case of injury or diseases, those people will not have access to proper medical treatment.

Hopelessness

The unequal distribution of wealth may also lead to significant levels of hopelessness for the poor fraction of a society. These people may see no shiny prospects for their future, since they may be overwhelmed by their daily problems.

Frustration

Hopelessness related to poverty may also lead to significant frustration and envy. People may not be able to see rich people enjoying their life while at the same time, these poor people have to work in shitty jobs for only a few bucks. Therefore, economic inequality can lead to serious levels of frustration, which may lead to social tensions in the long run.

Mental issues

Unequal wealth distribution may also contribute to mental issues for the poor part of our global society. For instance, many people may worry about their future due to unemployment and bad financial conditions. This worries may translate into mental problems, which may further trap them in poverty.

Physical health issues

Apart from mental health issues, there may also be physical health problems from unequal distributions of wealth. In case of injury, many poor people on our planet may not be able to afford proper medical treatment, especially in countries with insufficient mandatory health insurance. This may lead to serious health issues in the long turn and even to death in the worst case.

Discrimination of minorities

The unequal distribution of wealth may also contribute to significant level of discrimination. For instance, studies have shown that the level of discrimination towards women increases with the level of poverty. Moreover, studies found that the burning of “witches” becomes more probable if poverty levels increase.

Conflicts

Due to social tensions and frustration, also the chances for conflicts increase in poor regions of our planet. People may be more willing to engage in those conflicts since they feel that they have nothing to lose and their frustration may turn into physical aggression. Therefore, the unequal distribution of wealth may also contribute to conflicts of all sorts.

Fundamentalism

Due to the poor living conditions related to economic inequality, people may also be more willing to engage in fundamentalism. The more desperate people are, the more willing they may be to engage in radical actions to financially support their families, even if they may not even believe in those radical values at all.

global wealth inequality by country

Solutions for Economic Inequality

  1. Global support
  2. Trade
  3. Fair labor conditions
  4. Better access to education
  5. Create jobs
  6. Global wealth tax
  7. Donations
  8. Adjust your consumption behavior
  9. Raise awareness on this topic

Global support

In order to fight the global inequality regarding the distribution of wealth, governments from rich Western countries have to support poor countries all over the world with financial subsidies in order to improve their education infrastructure and to make them more competitive.

 

By doing so, those poor countries may be more likely to close the global income and wealth gap to a certain extent and may be able to transit from the state of a developing country to the state of a developed country faster.

Trade

The trade with poor countries has to be set up in a way that rich Western countries do not exploit those countries, but rather offer them fair trade conditions. Fair trade conditions are crucial in order to strengthen the local economy of developing countries and to increase the overall wealth of local companies and workers.

Fair labor conditions

Governments all over the world should also set strict regulations regarding labor conditions. This may imply minimum wages for local workers which are sufficient for them to afford housing and basic things for their daily life.

 

Through the introduction of fair labor conditions, the people in poor countries may be able to accumulate more wealth, which may lower the problem of the unequal global distribution of wealth to a certain extent.

Better access to education

Education is key to overcome poverty and to accumulate wealth. Therefore, it is crucial to improve the access to education. For instance, this could mean that every child may be entitled to attend school.

 

It could also mean that poor families get financial support in order to be able to send their kids to school or to university.

 

By supporting poor families and by strengthening the rights of children regarding the access to education, poverty and the unequal distribution of income and wealth could be reduced.

Create jobs

It is also crucial to create jobs, especially in regions with high levels of unemployment so that people have more working opportunities and can generate a higher average income to accumulate wealth.

 

This could be achieved through tax advantages for companies which are willing to settle down in those regions.

 

By giving companies tax advantages or other financial benefits, companies may be more eager to open branches in those regions and to create jobs.

Global wealth tax

Some researchers and politicians also claim that a global wealth tax may be the answer to fight global inequality of wealth levels. This could mean that a low percentage of each billionaires’ wealth is deducted and redistributed to poor people.

 

However, even though this may sound as an effective measure on the first glance, such a global wealth tax may be hard to implement since some countries will likely refrain from joining such commitments, which may lead to loopholes for billionaires to protect their wealth by shifting it to other countries which do not take part in the wealth tax program.

Donations

On an individual basis, everyone of us can make his or her contribution to fight the economic inequality issue by making donations for institutions that aim to fight poverty in poor regions on our planet. However, before making a donation, make sure that you give your money to official and renowned organization to make sure that it will be used in an efficient manner.

Adjust your consumption behavior

In order to close the global wealth gap, it is also crucial that you refrain from buying things from companies which are known to exploit workers in poor countries of our planet. Instead, try to buy things that have been manufactured with the use of fair labor in order to improve the overall conditions of people in poor countries.

Raise awareness on this topic

You can further improve your positive impact for our global society by raising the awareness of people on the issue of unequal global wealth distribution. By doing so, people may become more aware of the problem and may take measures in order to reduce the global wealth and income gap.

Conclusion

The global unequal distribution of wealth is a significant social problem. It leads to serious issues for the affected people. In order to fight economic inequality, governments around the world have to work together. Moreover, everyone of us can make his or her contribution in our daily life. By do so, we can improve the overall living conditions of millions of people on our planet.

Sources

About the author

 

My name is Andreas and my mission is to educate people of all ages about our environmental problems and how everyone can make a contribution to mitigate these issues.

 

As I went to university and got my Master's degree in Economics, I did plenty of research in the field of Development Economics.

 

After finishing university, I traveled around the world. From this time on, I wanted to make a contribution to ensure a livable future for the next generations in every part of our beautiful planet.

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