Causes and Effects of Income Inequality in Developing Countries
Income inequality in developing countries is not a new subject. Uneven income distribution has proved to be a major issue in developing countries mainly because the rich get richer while the poor get poorer. Reports indicate that one percent of recipients of income earn 15 percent of the global income while the other five percent receive 40% of the global income. The poorest, who make up 20% of the population end up receiving a mere 1 percent of the world’s income.
There are several factors that contribute to income inequality in developing countries. This inequality is however mostly driven by the rise of inequality in salaries as well as wages. Thomas Piketty, an economist specializing in inequality study argues that economic disparity has widened in an inevitable manner and attributes it to free market capitalism in which case the return rate on capital is higher than economic growth. Some of the common aspects that contribute to economic inequality however include the following:
- Outcomes of labor markets
- Technological changes
- Ethnic discrimination
- Policy reforms
- Technology changes
- Increased regressive taxation
- Gender discrimination
Whenever education is universal and free, income equality has the tendency to decrease. This is because the economic system is designed in a manner that ensures people rise only when they apply ability in their endeavors.
In most of the developing countries, governments impose high taxes on low income earners further widening the inequality gap between the poor and rich in society.
This is yet another factor that contributes to income inequality in developing countries. It refers to the capability of individuals to shift from their humble origins to better opportunities.
This is closely associated to issues of culture and it also contributes to incidences of economic inequality in developing countries. When individuals in these countries have the option of either working hard in order to earn money or spending more leisurely time, they settle for the latter. This in turn affects labor markets and influences cases of income inequality.
Income inequality poses a major challenge largely because it leads to increased rate of social and health problems. It also leads to decreased levels of economic utility and consequently lowers economic growth. Other factors that also contribute to income inequality among individuals in developing countries include unionization decline, offshoring, shrinking of the government and lowered taxation for the rich in society. Income inequality in developing countries should be addressed for purposes of ensuring all enjoy equal growth opportunities.
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