Reasons for Income Inequality

The notion that all human beings are equal looks good only in books and theory but in practical life or real life it’s never the case because there is lot of inequality among human beings and majority of that inequality is due to income or wealth of individuals. Income inequality refers to that situation where the gap between rich and poor is very wide and hence rich keep getting richer and poor keep getting poorer which in turn leads to dissatisfaction among people because small percentage of rich people hold majority of wealth of the nation while majority of population live life which is below normal standard. Given below are some of the reasons for income inequality –

  1. The first and foremost reason for income inequality is government policy towards taxation and subsidies, majority of governments all over the world tend to levy tax on all sections of society uniformly so a person who is earning $1000 per month and person who is earning $100000 per month would have to pay tax at same rates, if government introduces pro- rata taxation system then person earning $100000 per month would pay more taxes than person earning $1000 per month which in turn can be used by the government to improve infrastructure facilities for poor and needy people so that poor people don’t have to pay for basic facilities like school, hospitals, shelter etc….
  2. Population explosion is another main reason behind income inequality because supply of majority of resources is limited and when population rise exponentially it leads to more demand for everything which in turn leads to inflation and scarcity of resources and that in a way leads to survival of the fittest implying that it does not affect rich people that much while middle class and poor people life becomes more miserable. This is the reason why countries whose population is more tend to have greater and widespread income inequality than nations which are having lesser population.
  3. Another reason for income inequality is greed and capitalist mindset of companies, as companies grow they become more greedy and their only motive is to generate profits for shareholders and owners of the company at any cost and they do not pay attention to their social responsibility. Hence on one hand you have huge structures having all modern facilities and on other hand you have people living in slums.
  4. Inflation is another reason for income inequality because when inflation increases the real wealth of people decline and income of majority of poor population does not increase in line with inflation leading to widening gap between rich and poor.
  5. Technological changes is another reason which has been cited by many people because in the last 20 years there has been huge technological advancement made in every field whether it is healthcare, banking, manufacturing, agriculture etc.., and this has led to automation of many systems which was previously done by humans and this in turn has led to lose of jobs for many people and which in turn has lead to more unemployment and hence increase in income inequality for such segment of people.

Above reasons are not exhaustive because reasons for income inequality are not universal and differ from country to country so reasons for income inequality in America will be different from reasons for income inequality in India and hence one should keep this factor in mind while analyzing the reasons for income inequality for a particular country.

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