ELIMINATING INCOME INEQUALITY SHOULD BE A KEY DEVELOPMENT

Running head: ELIMINATING INCOME INEQUALITY SHOULD BE A KEY
DEVELOPMENT PRIORITY
Eliminating Income Inequality should be a Key Development Priority
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ELIMINATING INCOME INEQUALITY SHOULD BE A KEY DEVELOPMENT
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Introduction
There are varied range of inequality in a society and one of the major inequality that
prevails in a society is known as economic inequality. The economic inequality can be measured
on the basis of the distribution of wealth and distribution of income. The distribution of wealth is
associated with the amount of wealth possessed by the people. On the contrary, the distribution
of income is associated with the amount of money paid to the people. The economic inequality
exists between the several groups of people, states and countries (Fotaki & Prasad, 2015). The
inequality hinders justice and economic growth. Moreover, the economic growth demoted due to
the unequal distribution of the human capital and land. Therefore, the issues generated from
inequality can be solved through the allocation of goods that is socially just, which is called
distributive justice. It mainly focuses on the perceived fairness in distribution of cost and rewards
and outcome is most important of the distributive justice. There are a wide range positive effects
of the economic development include poverty reduction, improved infrastructure and technology
and improved facilities in health and education (Sala-i-Martin, 2002). In order to, reduce poverty
and promote economic growth several policies can be adopted such as offering welfare benefits,
minimum wages, direct provision of goods and services. Furthermore, the economic growth can
be achieved with the help of free market policies. Several studies conducted on correlation
between the economic development and income inequality. The within country income
inequality is high among the developing countries, whereas, the developed countries registers
relatively lower income inequality. Other than economic consequences, income inequality also
brings political and social consequences in a country. It weakens the governmental policies
related to controlling poverty and consumption distribution. Thus, it leads to inequality in every
sphere of the economy and demotes economic growth.

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ELIMINATING INCOME INEQUALITY SHOULD BE A KEY DEVELOPMENT
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Main Body
Inequality creates a gap between the different groups of people in a society. Though,
there are several advantages of the inequality under a free market economy. The disadvantages
of the inequality creates fundamental problems in the society. The issues associated with the
inequality include homelessness, poverty, unfair-monopoly and unfair-inherited (Torsten &
Tabellini, 1994). The inequality is an ethical issue as it accelerates unjust in a society through
unequal distribution of the wealth and income. Therefore, the unfair distribution of the power in
an economy is resulted from the monopoly power related to inequality. The monopoly power
among the companies and group of people lead to exploitations of the consumers and other
people in a society. It can be stated that the deprivation of the people or consumer is unethical
and social unjust. The monopsony power arising form the inequality lead to the unfair
distribution of the income among the workers due to exploitations of the firms. The firms adopt
unethical practices to fix the wages of the workers because of the monopsony power, which in
turn causes unequal distribution of the income in a society. There is strong relationship between
the ethics and inequality (Ray, 1998). The social mobility and genuine opportunity for all people
considered as incompatible with the imbalance distribution in a society. Though, in some cases
inequality is ethically right, there exists moral objection in relation to the inequality. Inequality is
also origin of many social problems such as crimes and riots due to unfair allocation of the
opportunity. Another major problem of inequality is unemployment, which is social problem.
Moreover, inherited wealth also a major contributor of the social unjust.
According to the United Nations (UN), the key difference between the developed and
developing countries can be measured on the basis of per capita income, the standard of living,
GNP, industrialization and GDP (Berthe & Elie, 2015). Therefore, income equality is a major

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ELIMINATING INCOME INEQUALITY SHOULD BE A KEY DEVELOPMENT
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factor of economic development. The financial inequality among the developed and developing
countries estimated depending on the wealth, income and consumption. One of the widely used
measure of the income inequality the Gini Index. The inequalities among all countries of the
world is estimated by the World Bank with the help of Gini Coefficient. However, there are
some limitations of the Gini coefficient as it is over sensitive in some cases (Uslaner &
Rothstein, 2016). As per World Bank data, the most unequal nations of the world in terms of the
distribution of income include South Africa, Namibia and Haiti. These countries are categorized
under the developing countries in terms of financial conditions. On the other hand, the most
equal countries of the world in terms of the distribution of income include Ukraine, Slovenia and
Norway. These countries can be categorised under the developed nations of the world.
The inequality is desirable in a free market economy to provide necessary incentives. In
some cases, absence of inequality may lead to economic stagnation. It may also encourage the
lack of enterprise in an economy (Marcińczak et al., 2015). Thus, it is equally important to
analyse the merits of the inequality in a society. The positive effects of the inequality are as
follows:
 Trickle-down effect
 Rewards
 Incentives
 Fairness
Trickle-down effect
When the additional gain from trade or business is pass on to the other people, then it is
known as the trickle-down effect (Alesina, Michalopoulos & Papaioannou, 2016). Here, the

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ELIMINATING INCOME INEQUALITY SHOULD BE A KEY DEVELOPMENT
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people get benefitted when gains from the trade or business pass on to them in form of better
wages and employment opportunities. Though, the gap between the lowest and highest earners of
the society till exists. The lowest earners may get benefitted from the presence of the gains from
trade or business. Therefore, trickle-down effect represents the merits of the inequality.
Rewards
In order to encourage the new businesses to take risks inequality is required. Here, the
role of the substantial reward is crucial. It encourages to focus on new business opportunities by
providing incentives to take risks and challenges. Therefore, the growth of new business largely
depends on the substantial rewards, which can be achieved from the inequality.
Incentives
Incentives works as a motivation for the workers to put extra efforts. In an organisational
structure, workers are motivated to work more in order to avail incentives (Uslaner & Rothstein,
2016). It is possible in presence of the inequality in wages. On one hand, incentives encourages
the businesses and trade to achieve excellence. On the other hand, it also encourages the workers
to boost the individual productivity, which in turn will generate higher output for the business
and nation.
Fairness
The varied wages and earnings of the people are reason of inequality in a society.
However, the inequality also enables people to avail higher wages in an organization (Ferreira,
Lustig & Teles, 2015). Thus, in some cases, inequality also generates better gain due to the
market demand. The increased gap of income of among people also establishes fairness or just
for the some people of the society.

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ELIMINATING INCOME INEQUALITY SHOULD BE A KEY DEVELOPMENT
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According to the previously conducted studies, the inequality and growth of a country is
interlinked with the per capita income. Therefore, fall or rise in growth with respect to inequality
depends on the per capita income. Therefore, in order to promote growth in poor countries, it is
required to adopt the policies that are income-equalizing (Curtis & Andersen, 2015). On the
contrary, to encourage growth in richer countries high levels of inequality is required. There is a
trade-off between the contraction in overall economic growth and the merits of higher inequality
in terms of active income redistribution in case of richer nations. However, the overall
relationship between the investment and growth and income inequality is weak. The reason can
be justified with the help of Kuznets curve, which is U-shaped curve.
In the way of achieving economic development, the income inequality first scales up and
then it scales down. Other than, per capita income, the role of technologies is also essential here.
The use of advanced technology is evident in case of richer countries, whereas, the old and
outdated technology is used by the poor countries. However, at first, the application of
technological innovations brings greater inequality in the richer countries. Later, it falls
dramatically as more people engage themselves to use new technology (Dixon & Suk, 2018).
The higher per capita income leads to higher inequality in poor countries, which creates
difficulty in escaping from the acute problem of poverty and retards economic growth. In
addition, the higher per capita income brings reduction in inequalities of income, which pushes
down the growth of the richer countries. Therefore, it can be concluded greater inequalities
implies promotion of economic growth for the richer countries, while, greater inequalities
implies demotion of economic growth for the poor countries.
The unequal distribution of the income and wealth causes poverty and it is essential to
control poverty to promote economic growth. There is an inverse relationship between the

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poverty and economic growth. There are various policies and measures to mitigate the level of
poverty and increase growth. To tackle the poverty, the country may rely on reducing
unemployment. Unemployment leads to poverty due to lack of income generation among the
people. The supply-side policies for the training and education of the structurally unemployed
people would help to reduce the unemployment and eventually poverty (Andrei & Crăciun,
2015). Another way to avoid poverty is imposition of the progressive taxes on the wealthier
section of the country. The wealth collected from the progressive taxation would curtail the level
of regressive taxation and stimulate the welfare benefits for the disadvantaged section of the
country. Hence, it would lower the level of poverty in an economy and restore economic growth.
One of the main reason for poverty is unequal distribution of wages.
Thus, the government may implement the policy like national minimum wage to tackle
poverty through equal distribution of wages. In this regard, the countries that have already
implemented national minimum wage may offer higher wages under national minimum wage.
The developing countries may adopt policies such as higher spending training and skill
development to lower the level of poverty. In addition, diversification of the economy is also a
key factor to prevent poverty by enabling higher economic growth. The investments should be
encouraged in education and infrastructure development with the help of foreign direct
investment (FDI) (Seven & Coskun, 2016). Hence, the financial aid in form of FDI may help the
developing countries to reduce poverty and induce economic growth. The investments in the
public services also vital for the disadvantaged group of people. It reduces the burden of the
poorer people by allowing services at a subsidized rate and reduces poverty.
Sweden is considered a one of the most equal countries in terms of distribution of income
and wealth. However, there was also inequalities in Sweden that overcame by the country to

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restore economic growth (Kraus, Park & Tan, 2017). In the early 1990s, there was rapid surge in
the income inequalities in Sweden. The country faced largest form of income inequality between
1985 and early 2010 among all OECD countries due to the expansion of the inequality by one
third. The average income of the bottom 10% of income earners remained 6.3 times lower than
the top 10% of income earners in 2012. Hence, in order to achieve income inequality, the
country took several measures such as cash benefits and income taxes. These two tools plays
pivotal role in redistribution of the wealth and income in Sweden. Eventually, the country
plunged the inequality of the working age population by around 28%, whereas, the average of
the OECD countries stood at 25%.
However, it further weakened before the mid-2000, as the inequality of the working age
population remained between 35% and 40%. Thus, the country benefitted from the relatively
equal distribution of the income and restore higher economic growth. It is recognized as one of
the richest countries of the world in terms higher living standard and per capita GDP. There
exists some limitations of the tax and benefit system of the Sweden to redistribute the wealth and
income. There was a considerable adverse influence of the tax burden on the wealthier
population of the country (Grisold & Theine, 2017). The abandoning wealth taxation and
lowering capital taxation brought the negative consequences for the wealthier section of the
country. On the other way, public social in-kind benefits of the Sweden acts as a pillar of the
redistribution of wealth and income. Hence, Sweden tackles the income inequality and scaled up
the economic growth. Likewise, other Nordic countries such as Finland and Norway were also
able to reduce income inequality and achieve growth.
There are various policies that intended to mitigate the income inequalities among the
countries. The Organization for Economic Cooperation and Development (OECD) suggest some

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ELIMINATING INCOME INEQUALITY SHOULD BE A KEY DEVELOPMENT
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measures to control the income inequality in 2011 (Amat & Beramendi, 2016). These policies
are essential in establishing the equality in income include well-targeted income-support policies,
better job-related education and training for the low-skilled workers, encouragement and
facilitation of access to employment and better access to formal education (Nishi et al., 2015).
One of the essential step to control the income inequality is to offer better job-related education
and training in order to boost the skills, which will enhance the productivity of the individual
workers and businesses. As a result, the earning opportunities of the workers also increases. One
of the important model that can be used to reduce the income inequality is progressive taxation.
The inequality in absolute advantage can be reduced with the tool of progressive taxation
(Hughes et al., 2017). Another legislation that is also proposed to negate the effect of the
inequality called wage ratio. According to the OECD, in order to minimize the ever-expanding
wealth gap, the public spending plays a crucial role. Some economists suggests to tax the
wealthy at a higher rate to restore equality in the society in terms of income and wealth.
Others way to address the inequality include improvements in social safety net provisions
such as offering assistance to the families with dependent Children, the food stamp program,
welfare, social security, forming community interest groups, reforming and strengthening higher
education subsidies and raising infrastructure spending (Márquez, Lasarte & Lufin, 2019).
According to some economists, the innovation and technology is a result of inequality and
capitalism in the United States (US). However, there exists arguments against the relationship
between the inequality and innovation and technology. The Nordic countries such as Sweden and
Finland also ranked high in the Global Competitiveness Index in terms of most innovative
country by the World Economic Forum (WEF), although, these countries also stood top most in

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terms of economic equality. Therefore, there are several measures and models can be
implemented in order to achieve economic inequality among the countries.
The positive impacts of the development is significant on the countries. The level of
inequality in terms of income and wealth is lower in Nordic countries. Thus, it contributes
positively on the development of these countries. The advent of science and technology is one of
the most vital positive impact of the development (Berg & Ostry, 2017). The process of
manufacturing accelerates due to inclusion of science and technology. It increases the efficiency
of the production process and enables the manufacturers to produce goods independently. Hence,
it reduces the dependence on the imported goods and able to save huge money on that.
Therefore, it lowers the cost of the production at a manufacturing industry to a significant level.
Second most important positive impact of the development is making a country independent. As
the dependence on the trade decreases due to development, it helps the country to produce within
the country.
It leads to the growth of business and trade, which have positive impacts on the
employment generation and wage growth (Jauch & Watzka, 2016). As the country start
producing independently, it requires huge labour force to meet the market demand. Therefore, it
represents the possibilities of employment generation and wage growth. The improvements in
the manufacturing industry spikes the growth of other industries as well. Thus, the development
has many positive attributes on the economic growth. The growth of the business boosts the
confidence of the investors. As a result, accumulation of foreign direct investment (FDI) is a
vital feature of the development (Bapuji & Chrispal, 2018). The accumulation of capital and
innovation and technology helped the Nordic countries to increase funds in infrastructure and

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ELIMINATING INCOME INEQUALITY SHOULD BE A KEY DEVELOPMENT
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skill development. Thus, the robust growth of all sectors contributes significantly in the
development of the Nordic countries.
Conclusion
One of the key development priority is eliminating inequality. Inequality in terms of
wealth and income implies social unjust, which is against the ethics. Inequality brings poverty,
which in turn bring the underdevelopment. Other than poverty, there are several others
limitations of the inequality. The level of inequality distinguishes the developed countries from
the developing one. The countries with high inequality include Namibia and South Africa (Gupta
& Vegelin, 2016). Moreover, the countries with lower inequality include Finland and Norway.
However, in some circumstances inequality is desirable and brings positive outcomes for the
countries. Initially, higher inequality results in lower economic growth, although, later it induces
economic growth by achieving higher per capita income. Therefore, higher inequality is
detrimental for the economic growth of the poorer countries.
On the contrary, higher inequality implies higher economic growth in case of richer
countries. Here, application of technology plays a vital role to promote growth. One of the
advanced countries that tackle the income inequality and increased growth is Sweden.
Previously, it was among the most unequal country in terms of wealth and income among all
OECD countries. Overtime, it controlled the income inequality with the help of taxation and
social benefits. Other Nordic countries also registered inequality and later improved the position
of the countries and achieved robust economic growth. The reduction of the poverty is also
pivotal to encourage economic growth (Hartmann et al., 2017). Several policies can be adopted
in order to decline the poverty and incline growth. These policies involve reduction of

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ELIMINATING INCOME INEQUALITY SHOULD BE A KEY DEVELOPMENT
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unemployment, investments in education and infrastructure, improvements in national minimum
wage and social benefits.

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ELIMINATING INCOME INEQUALITY SHOULD BE A KEY DEVELOPMENT
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