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Sample essay on the effects of income inequality on economy
1. Sample Essay on the Effects of Income Inequality on
Economy
Income inequality is a problem that is today affecting almost every
economy across the globe. Income inequality is a phrase that is used in
reference to the uneven distribution of individual or household income
among a given population. In simple terms, it can be referred to as the
gap between the rich and other people forming the population. In most
countries today, the gap has been viewed as continuously widening,
creating different impacts on their economic muscles.
Income inequality can have various kinds of effects on an economy.
However, it should be noted that the greatest effect of income disparity
is economic instability. In fact, income inequality greatly curtails the
growth of an economy since it creates differences in the spending
habits of the entire population. Those who usually earn much less often
tend to spend more on consumables compared to those in the high-
income brackets. As a result of this, those in the lower income brackets
are unable to grow economically since most of their earnings or profits
are used up in consumption. Since the low-income earners often use
most of their earnings on consumables, they are unable to save or even
acquire credit facilities as a means of raising their economic standards.
The above argument has also been cited by some economists who say
that in one way, income disparity can fuel economic growth. According
to their argument, a greater portion of the rich’s income is not spent on
consumable; instead, they tend to save and invest more. As a result of
this, there is expected economic growth due to the increased
investments made by those with high incomes over the years.
Income inequality is viewed by most people to be a result of
government policies that impact an even distribution of income among
its population. One of such policies is marginal top tax rates cuts,
2. weakening of unions and persistent unemployment. With cuts in top
tax rates, there are minimal wage increases and little capital
improvements. However, it facilitates spending on high-end goods, thus
widening the gap between the profit seeker and the wage earner. The
overall result of this is an increase in the levels of income inequality and
suffering on economic growth.
Persistent unemployment is yet another scenario of income inequality.
When the rate of unemployment keeps rising, there is a redundancy of
earnings, meaning that the wages remain stagnant for a very long
period of time. Even if they increase, it is often with a very little
percentage. Besides, any labor gains in productivity are simply passed
on to those at the helm of the industries. Thus, the low-earners shall
remain poor while the owners of the industries continue to enrich
themselves. In most occasions, it is viewed that certain governments
initiate policies that enable companies to profit by maintaining high
levels of unemployment. This continued income disparity can
significantly harm economic growth in the long term.
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