Causes of income Inequality | Major Causes of Inequality


Definition of Income Inequality

Inequality is defined as the situation in which income and wealth are distributed unequally among the people of a country. It is also known as the income inequality or gap between rich and poor or wealth disparity or wealth gap or income difference. It is a common feature of developing countries. The high level of economic inequality is regarded as socially undesirable because it creates conflict in society. It also destroys social and political stability and structure. Therefore, extreme economic inequality is socially, politically and economically unfair. There are various methods of measures inequality. A famous method is the Gini coefficient. It ranges from 0 to 1. The value 0 shows perfect equality and value 1 shows perfect inequality. Nearer to zero represents more Equality and nearer to 1 represents high inequality.


The main causes of income inequality are as follows:

1.Unequal distribution of property or asset:

Income is derived from assets like land, factories, buildings, etc. In the developing countries, very few people own a large amount of income-earning assets and a large number of people own very small of such income-earning assets. Therefore, Fewer people get a large amount of income in the form of rent, interest, profit, etc. but a large number of people get a small amount of income from labor work, which widens the income gap between people.


In developing countries, there is a high rate of unemployment and underemployment. The unemployed people have no income and underemployed people have very low income. These people have also no resources to operate their own business. Therefore, such people remain poor, which increases inequality in the country.

3.High population growth: 

Another cause of inequality is high population growth among the poor. Poor have limited resources or income or assets. When their family breaks down, the existing resources or assets or income are subdivided. Therefore, the poor are becoming poorer. Consequently, income inequality increases.

4.The rise in the price level (Inflation): 

The continuous rise in the price level leads to a fall in the real income level of the poor. On the other hand, traders and merchants get benefit from the rise in price level because during the inflationary period their profit increases. Similarly, the value of assets owned by richer People also increases due to the rise in the price level. Thus, the rise in the price level or inflation is the cause of inequality.

5. System of private property: 

There is a system of private property in the capitalist and mixed economic systems. Therefore, those who have enough property, earn more income in the form of interest, rent, and profit, But people who have less property earn less than the people with enough property. This has widened inequality.

6. The difference in education, training, and opportunities: 

All people do not have equal opportunities to rise life. Those people who are able to get better education and training are able to get a better job with a higher salary. On the other hand, people who born in poor families, do not get opportunities for better education and training. Therefore, they join low paid job. Thus inequalities of income arise from differences in education, training, and opportunities.

7. Right of inheritance: 

The right of inheritance on the paternal property system has been increasing inequality. Since the property of father is inherited by the son, the inequality of the past continuous at the present time and also in the future. The paternal property leads to the concentration of property. The income goes increasing from the investment of poverty. This further increases the situation of inequality.

8. The difference in inborn capabilities: 

The difference in the inborn capabilities of different individuals gives rise to inequality. Individuals are different from each other in their mental capabilities, intelligence and other abilities of mind and body. Some people are more intelligent than others and have inborn talents. Therefore, they earn a higher income than others who have fewer talents. Thus, it creates inequality in the distribution of income and wealth.

The inequality in the distribution of income and wealth is the most serious problem the developing countries. Therefore reducing inequality has become a challenge for these countries. Inequality can be reduced by implementing a progressive tax system, generation of employment opportunities, social security schemes, increasing the wage rate of labor, providing free education, controlling rapid population growth rate, etc.

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