Why Does Income Inequality Exists?

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“WHY DOES INCOME INEQUALITY EXIST?”

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4. Why does income inequality exist?

Income inequality, also known as economic inequality or wealth and income differences typically refers to inequality among individuals and society, but it can also refer to disparity among countries. There are many reasons for this phenomenon to happen within the societies, most of them are often inter-related. However, we could say that the most important factor that causes greater income inequalities are wages and salaries.

The determination of wages by the market is a major cause of economic inequality. Wages work in the same way as price and by applying the law of supply and demand, the wage is determined by the race between the demand and supply of skilled workers. When the demand of skill surpasses the supply of that particular skill, we would expect that the market will offer a higher wage or price in order to persuade the skilled worker to work with them. The price of the skill will fall however, if there is an oversupply of that skill and seems like that the market won’t be needing too much of them.

The competition of the employees for the employees will drive up the wage while the competition of many willing workers for a job will drag down the wage. Therefore, the law of supply and demand has significant effect in the modification of wage level within the society.

Many people believe, and we do too, that innate abilities and attributes, such as intelligence, motivation, strength and charisma, play an essential role in the income inequalities. Every individual were born with their own unique abilities, skills, talent and forte. People who have high abilities would act and operate more accurately and effectively in the society regardless of the labor market. A person who was born with a talent in the field of arts would most likely to succeed and earn more if he had correctly chosen that career path. A mediocre or a hobbyist writer would probably be looking for a sponsor or publishers but a talented one is another story, the latter would be sought out by publishers instead.

In some materials and references we’ve found, it was said that another cause of income inequality is taxation. However, we’ve also encountered some essays, statements and studies disagreeing with this, claiming that they do not believe that taxation has created chasm of wealth between the rich, middle and lower class citizens. We may agree that tax contributes to income inequality given a different situation and taxation system

The technological changes, computerization and developing applied sciences also influence the economic inequality for the manpower is being replaced by electricity. This will lead to a higher demand for skilled workers to use computers and operate electrical machineries and equipment and would eventually increase theirs and other relative wages while the unskilled workers’ salaries would not. Hence, as the level of technology rises the income inequality is likely to continue.

Speaking of skilled and unskilled workers, here comes another factor- education. It is also one of the important factors that create income inequality. In school and trainings knowledge, skills, talents and abilities is being developed and instilled, making the person to be more worthy as an employee to the employer. A college graduate earns and receives higher pay compared to a high school grad or one that have attained nothing at all. This happens especially when an area or an industry requires a skilled worker, one that was knowledgeable with the work; this creates high wages for those with education. As a result, those, who were not able to afford education or had chosen not to pursue generally receives lower income. We could also relate family structure in this, because there are people who would like to be educated but are not capable of paying certain fees, daily allowances and other...
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