Understanding what causes wealth inequality in our world.

 Income inequality, or the sharp gap between the rich and the poor, is a significant problem in modern society. These wealth and income distribution gaps have widened dramatically over the past few decades, with the wealthiest people collecting unheard-of fortunes while many struggle to meet their most basic requirements. According to Oxfam, the richest 1% of the world's population will own more wealth in 2020 than the other 99% combined. As a result, there are growing worries about its social, economic, and political repercussions. This essay explores the factors contributing to the rising wealth disparity, focusing on elements of our society you may not have previously considered.


Causes and Roots of  Wealth Inequality

Automation and technological advancements.

 As technology develops, sectors are being transformed by automation and artificial intelligence, displacing workers and polarizing wages. While some industries expand and generate well-paying jobs, others see job losses and wage stagnation. Up to 375 million workers, or about 14% of the global workforce, may need to change careers by 2030 due to automation, which will also make many people unemployed, according to a report by the McKinsey Global Institute. For instance, there has been a considerable movement towards online shopping in the retail industry, resulting in the closure of many brick-and-mortar businesses and the loss of several low-skilled employment in traditional retail.


Globalization and outsourcing.

While there is no doubt that technology plays a significant role in the global rise in wage inequality, the current trade-versus-technology debate obscures a more critical question about how businesses react to import competition and how these reactions are passed on to the labor market. Manufacturing and service outsourcing are now commonplace because of globalization, which has enabled businesses to access the less expensive labor markets in developing nations. In wealthy countries, this has lowered salaries and resulted in job losses. For instance, when businesses relocate production to nations with lower labor costs, like China and Vietnam, the manufacturing sector in industrialized countries like the United States has suffered a job loss. 


Tax Evasion

Tax policies that benefit the rich, such as lower capital gains tax rates and loopholes, exacerbate income disparity. The wealthy can also avoid paying taxes on their money by evading taxes and using tax havens. For instance, how rich people and corporations utilize offshore accounts to cheat taxes and conceal assets was made public by the Panama Papers leak in 2016. As a result, taxes like progressive taxation fall short of their intended objectives and continue concentrating a sizable share of wealth among the top 1% of earners.


Declining unionization.

As a result of declining labor union membership and diminished workers' rights, the workforce's bargaining strength has decreased, which has led to stagnating salaries and reduced job security. For instance, union membership in the United States has dramatically reduced over the years, going from around 20% in 1983 to about 10% in 2020. As unionization rates decline, labor (workers' wages) receives fewer shares of economic value, while capital (business profits, owners' incomes, capital gains, and machinery) receives larger shares.


Educational and opportunity inequalities 

Socioeconomic outcomes are significantly influenced by access to high-quality education and opportunities. People with less access to education will have a more challenging time finding well-paying professions and escaping poverty. According to Susan E. Mayor's book, "The Influence of Parental Income on Children's Outcomes," children from families with low socioeconomic status, as demonstrated by the parent's income, education, and occupation, have a difficult time surpassing their parents' financial and social circumstances in the future, creating the endless vicious cycle. According to the World Bank, each additional year of education is linked to a 10% rise in a person's perspective wages.


Transfer of Wealth and Inheritance

Because the wealthy pass on their holdings to the next generation, giving them advantages not available to others, inherited wealth keeps income disparity alive. According to a Federal Reserve survey, nearly one-third of the wealthiest Americans' net worth comes from gifts and inheritances. Moreover, The Institution for Fiscal Studies predicts that wealth disparity will only expand shortly since "the inheritances are likely to be larger compared with lifetime income for younger generations than for their predecessors." 


In conclusion, income inequality is a complex problem shaped by various economic, social, and political factors. Globalization and technical progress offer economic opportunities but exacerbate the wealth and poverty disparity. To reduce economic disparity and promote a more equitable society, numerous policy initiatives, such as progressive taxation, expenditures in education and social safety nets, and protection of workers' rights, therefore, are essential.

Written by Ulpan Nurdilda | Proofread by Yasmin Uzykanova

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