The Implications of Inequality on the Economy

Increased Globalization

This economics essay will tell you about globalization. Globalization is considered to be the main reason of a high income inequality in different countries. The growth of individual inequality is partly due to the increasing globalization.

Following the reports of International Monetary fund, a technological progress has truly led to the significant growth in global revenue inequality. The other important contributing features have been foreign direct investments and a high financial globalization. However, an increased trade globalization has only operated to the extermination of such inequality. The necessity of today’s time is politics has to ensure that incomes from technological globalization and innovation are allocated among a cross part of the nation’s population.

Emphasis should be laid on certain measures for improving a human capital base in economics. Such a point can be realized through a guarantee of quality education for all citizens.


The global economy is based on knowledge in the contemporary time.

Governments and local authorities need to provide policies, which would ensure the financial interests of poor class in a globalized market (“Effects of Economic Inequality” par. 8).

The factors that are responsible for causing economic inequalities are usually linked. They can be grouped under the main parts of a labor market, such as inherent ability, risk taking behavior, gender, culture, education, leisure-labor preference, wealth condensation, and development patterns. Contemporary job markets are described by a free action of market subjects. It has been noticed in the developing nations where a supply of labor far advances the demand for unskilled jobs. Such a moment leads to low wages for the employees (“Effects of Economic Inequality” par.11).

The situation can be completely opposite to the market for skilled workers. Therefore, there are differential wages or inequalities in various economic sectors. Nevertheless, salary differentials on a global scale are influenced by a range of factors, one of which is the current concept of outsourcing.

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The wealth condensation is another significant factor, which may raise a level of inequality. It is considered that rich people get only richer. A minority of a nation’s population is supposed to acquire the majority of its wealth. The individual with higher earnings and wealth demonstrates a higher marginal tendency to keep, as compared to one who has a low asset base. Afterwards, such savings are turned into investments. Wealth generates more wealth but just for lucky people. Often, the differences in the entitlement to productive resources do not lead to the constancy of significant income inequalities in the developing countries. The appearance of wealth condensation also results in an intergenerational inequality. The posterity of rich people gets a good and a decent start in life while individuals from the less fortunate class should primarily depend on their inherent abilities and affordable social security (“Effects of Economic Inequality” par.14).

Forms of Economic Inequality

Contrary to the theory of Adam Smith, a founder of the modern political theory, a wealthy population is not necessarily the source of political need for non-corruptive bureaucracy and effective courts. There are many forms of economic inequality such as differences in access to a good education and health care, documented and undocumented employees, labor and capital revenue. Income inequality is not a very useful point to feel economic inequality. A long school period, as well as a long life, leads to the high inequality of incomes over a long period of time without any increase of economic inequality. Following the view of Scott Sumner, Professor of Economics at the Waltham’s Bentley University, one of the noticeable economic points is immigration. He considers it as the most efficient anti-poverty program of the American government. Sumner states that immigration decreases economic inequality at the global level but raises income inequality in the USA (par. 2).


The biggest issue with incomes is that they do not determine what people consider it determines: resources that are available to humans for consumption. Scott Sumner mentions, as long as society concerns about economic inequality in terms of incomes, instead of salaries, education and health care, it will be impossible to move to the fiscal regime that allows solving specific challenges without burdening the economics with a non-growth tax regime (par.7). Moreover, there is evidence that social issues grow as inequality rises. High level of inequality may also have negative impacts on the economy. The society with ideal equality does not increase at the fastest possible rate. When everybody obtains an equal share of revenue, society may lose the motivation to try and go ahead of others. Mark Thoma, Professor of Economics at the Oregon University notes that community where one individual has everything while another one strains to persist, the most unequal allocation of income will not rise at the fastest possible rate either (par.2).

Lane Kenworthy, Professor of Sociology and Political Science at the Arizona University mentions that inequality has changed various wealthy nations over the last decades. It turns out that there is no link between varieties in income inequality and varieties in the absolute incomes of low- level households. The reason is that income increase of poor households has almost carried out through a growth in net government transfers (Kenworthy par.3).

Therefore, the states where lower income households have appeared better are also the places where income transfers have shown the highest level of growth. The society continues arguing about redistributive policies, which are negative for jobs and the whole America. However, the process of sharing economic benefits among individuals who have created them is appeared to be a positive step. Redistributive politics is the only way to guarantee that employees will get their share in the growing economic system in the future (Thoma par. 9). Globally, the wealth gap between nations is reducing at least in relative terms. While the financial crisis has struck on the financial assets of highly industrialized states, the average per capita income continues growing in the developing countries. The wealth increase in poor states was about seven times faster than in rich countries during the last decade (Heise par.1).

If society wants to save a socially healthy and growing economy, and avoid moving to a lower growth, then it is necessary to provide more income redistribution than is done over the last years. Such point is supposed that rich people will no longer receive it all or at least almost all. They can be asked to share economic success with employees who helped create it, workers who should be rewarded for their increasing productivity. Estimation and communication costs will continue dropping in the future, and society will continue meeting new billionaires being appeared a constant side effect of such technological tendency. The railroads, telegraph, ocean voyages, as well as companies of rich people, have created enormous wealth, so the population should expect the same from contemporary communication technology. Rich people have become richer because they have produced something that other people value, and the world, in general, has become richer, as well. Historically, salaries tend to represent productivity increase in the long term, and the same is likely to be observed today. Still, a high trade globalization is only operating towards the extermination of economic inequality. Today, the nation essentially requires effective and competent policies, which will ensure that the revenue from globalization and technological innovation is appropriated among the cross part of a state’s population.

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