Causes and Consequences of Income Inequality

Question: Discuss about the Causes and Consequences of Income Inequality. Answer: Introduction: Economic Inequality is defined as the unequal distribution of the income and wealth among the people of large populations. It is an obvious thing that the excess of anything is harmful similarly in the case of excessive inequality because it is harmful to the economy of Australia. Currently, the income distribution in Australia is higher than the OECD (organization for economic co-operation and development) member Countries. Australia is ranked 11th for the inequality among the 34 members of the OECD. In Australia, from the last 17 years the strong employment growth helped to reduce the inequality, but still the income is not distributed evenly in all the states and territories of the Australia. For example- people in Tasmania are not treated in the same way as compared to the people of Western Australia. This inequality is measured by conducting the survey in the country and also with the help of Gini Coefficient that is statistics used to analyze the variation in the levels of ineq uality (Council, 2015). Talking about the time of 1970's, people of the Australia is facing the challenges of the problem of "conventional wisdom" that refers to the aspect of scarcity instead of attaining managing the wealth in an efficient way. There were many problems that are required to be solved and addressed the problem of wastage of resources at the time of war and quality imbalance among the population. After the period of post-war, a new world with new ideas and concerns over the past has been developed and these new ideas focused more on the decreasing significance than inequality. There are many things that observed in the social history of Australia about the reasons of increasing the inequality as an economic issue. The numbers of reasons are various as a large amount of the population had a sense of security level and the economic imbalance. Since the 1970s the real income of the population rises dramatically. The theory of transformation helps in describing this situation very well (Fletcher Guttmann, 2013). According to this theory, the people of the Australia were able to shift from agriculture to industry because of the industrialization of the Australia, but the number of people who will shift is less because this is not possible that all the citizens of the country will prefer to enter into an industry. Thus, this is the reason that inequality increases as some of the people become rich, whereas there are still some people who remained poorer. Moreover, the industrialization in the Australia leads to provide education, the rise in the wages of manpower and rise in the powers of politics for the huge population and all these were the reasons that cause the inequality in Australia. From the last 20 to 30 years there is a continuous increase in the level of inequality has been observed in most of the OECD (Organization for economic co-operation and development) countries among the Australia. Talking about the recent times Australia is the 11th most unequal country among the 34 countries of OECD country members (Norris, et al., 2015). This essay outlines the reasons of increased level of economic inequality in Australia with the explanation of the nature of the economy using the techniques of both historical political, and this essay is focused on the fact that the main cause of the inequality in the economy is government policies and ideas of transferring the income of the people from wages to profits. Another reason is that the income of the people is shifted from the lower level to the middle and top-level income earners, but at the same point of time the usage of that income is reduced and sets an aim of increasing that income by the way of investments. Skill-biased changes in the technology is also another factor that is responsible for the imbalance of the income among the people and the impact of these technological changes influenced by globalization. Beneficial for the skilled people and raise their income, whereas unskilled people remains at the same place. The skilled based technology favor all the skilled people such as educated experience and capable persons and unfavorable for uneducated people. It has been found that these companies offer more premium wages to the people having the skills and according to their experience (Holmes, 2016). However, globalization is the biggest reason of economic inequality in Australia as the commodities of labor intensive are outsourced to the group of people having low wages and will lead to reducing the prices. As a result of which the demand of the unskilled people in the Australia becomes low because most of the production systems now largely dependent on the advanced information techn ology and lead to rising in the demand for skilled labor who are capable of using these technologies. Also in the manufacturing sector, the employment opportunities increased for the highly educated people and usually these people get the higher wages as compared to the less educated. It is clear from these facts that the due to globalisation, industrialization and the polarization, the well and skilled people have the opportunity of being more richer and unskilled people remains poorer that creates the income inequality in Australia. Looking at the previous figures, in Australia, there was a decrease in the income levels of 50 percent to 35 percent in the year of 1929 and in 1932 but later on, in the year of 2007, it again increased with the same percentage of 50%. After the year of 1970, there was a change in the distribution of income has been seen. At that time, it was found that rich population's income is changed by only 1 percent, whereas the more than the half of the population is highly affected by the globalization. Further, the change in government policies and impose a tax on the salaried class people also reduces the income of the middle-class people. The government rules and regulations also caused inequality as these regulations are also applied to all the group of people in the country and maybe that changes are in favor of rich people and not in the favor of the poor (Dollman, et al., 2015). Adding more to this problem, there has been many effects of this extreme inequality on the quality of life of the people of Australia.The difference in the level of income of the people among the population has a great impact on the economy of the Australia. It has both the positive as well negative effects on the life of people and the economy. Talking about the negative impacts of this higher inequality is that it lowers the growth of the economy by decreasing the capabilities of the low-income people underinvestment in education takes place because the children from the poor family will gain their education from low-quality schools and the chances of getting higher education in colleges are less. Moreover, the people of lower income will face the situation of financial crisis as stagnant earning of the poor and middle class of people and leads to affect the short as the well long-term growth of the economy. Thus, increased level of income inequality leads to face the challenge of globalimbalances. Italso creates the situation of conflict as increased level of imbalances in income may damage the trust and social pressure that also discourage the people to invest their money (Fletcher Guttmann, 2011). Furthermore, the positive impacts of higher income inequality are that it promotes the education system and motivates people to shift themselves from agriculture to industries. Because of the globalization, the employment opportunities have been created to motivate the public to earn more and use their skills. Because of the industrialization, the wages for the labor or manpower increases and helps the low people to increase their level of income. As we know that, the country with the high level of inequality in which the distribution of income is not in the favor of the poor is not successful in the reduction of poverty (Richardson Denniss, 2014). But the more employment opportunities for the labor will help the country in lowering the poverty. Conclusion- At the last, it is concluded that it is very difficult to get the society at the equal position because of the globalization and the government policies. The negative effects of the rise in inequality in the society are more than the positive. To deal with this economic issue the government has to take some steps and acts smartly to facilitate successful some operations without harming the people for the development of the country. The government is only one support for poor people who have the ideas and powers to reduce that inequality by changing and making some new policies taking into consideration the social security, low wage rate and high tax rates for the highly paid people or income earners (Cooney, 2016). The taxation and government income help to reduce the policy by imposing more taxes on the highly earned people and providing government income to people such as pensions, scholarships for children, and family payments etc. The government is recommended to add more funds for the improvisation of the education sector and appoint good faculty for teaching the students as youth is the future of the nation and it is important to develop the youth. It is suggested to open more educational institutions who are not normal or who are suffering from any mental or physical disabilities and provide them education for free as well as other incidental services for free too and help them learn things and motivate them to stand with the other normal students at par (OECD Team, 2008). To control that economic issue, some of the actions that can be taken to reduce the inequality in free education and medical facilities for the poor children so that they will become more skilled and fit to earn moreand development of Government policies in the favor of poor people with the aim of to reduce the poverty. The government should also increase the number of employment opportunities for the unskilled people. Small states and territories also need to be addressed to reduce the inequalities because there are many places in the Australia which are not covered and need some attention and still under the line of poverty. The causes of higher inequality need to be analyzed so that the government develops some policies keeping in mind all the factors. Economic equality is good for every country. Thus, it is very important to control this situation by taking corrective actions and to manage and maintain the economic stability in Australia. References Cooney, M., 2016. Inequality: the facts and the future, Available at: https://www.chifley.org.au/wp-content/uploads/2016/08/Chifley_ResearchDocument_19.08.16-FINALV2a-min.pdf Council, A., 2015. Inequality in Australia, Available at: https://www.acoss.org.au/wp-content/uploads/2015/06/Inequality_in_Australia_FINAL.pdf Dollman, R., Kaplan, G., Cava, G. Stone, T., 2015. Household Economic Inequality in Australia, Available at: https://gregkaplan.uchicago.edu/sites/gregkaplan.uchicago.edu/files/uploads/dollman_kaplan_lacava_stone.pdf Fletcher, M., 2011. Income Inequality in Australia, Available at: https://www.treasury.gov.au/PublicationsAndMedia/Publications/2013/Economic-Roundup-Issue-2/Economic-Roundup/Income-inequality-in-Australia Fletcher, M. Guttmann, B., 2013. Income inequality in Australia. Issue 2, Available at: https://www.treasury.gov.au/~/media/Treasury/Publications%20and%20Media/Publications/2013/Economic%20Roundup%20Issue%202/Downloads/PDF/3-Income-Inequality-Paper.ashx Holmes, A., 2016. Some economic effects of inequality, Available at: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook44p/EconEffects Norris, E. et al., 2015. Causes and Consequences of Income Inequality: A Global Perspective: IMF, Available at: https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf OECD Team, 2008. Growing Unequal? : Income Distribution and Poverty in OECD Countries, Available at: https://www.oecd.org/els/soc/41525263.pdf Richardson, D. Denniss, R., 2014. Income and wealth inequality in Australia: TAI, Available at: https://www.tai.org.au/system/files_force/PB+64+Income+and+wealth+inequality+FINAL.pdf