Why Does Income Inequality Exists?

Topics: Economic inequality, Supply and demand, Gini coefficient, Wage, Distribution of wealth / Pages: 6 (1427 words) / Published: Aug 10th, 2012
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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

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