Income Inequality and Wage Determination
In this paper, I will analyze a news related research on the relation between the richness and the life expectancy. The news article by Ronald Bailey conveys information about an economic research on the wealth and the life prepared by the Brookings. According to the research, the life expectancy is getting relatively higher among the rich people(top ten percent of the population) compared to the poor people (bottom ten percent of the population) (Bossworth, Burtess & Zhang 1).
The studies indicate that there is a strong relationship between personal income and life expectancy. Especially, the technological advancements in the developed countries such as the US and the European countries have bettered off the living conditions. Also, the developments in the medical sciences have made essential contributions to improving the societal health status of the nations (Schroeder 1222). However, the central question remains: Is the economic development transformed into a socioeconomic development which includes creating equal opportunities and equal income for everybody in the society? In this paper, I will try to analyze whether the technological advancements and the economic development have contributed to the socioeconomic evolution of the world population.
The classic approach in economics is the Malthusian approach in this field. The Malthusian approach claims that when the population increases, then the needs of the growing population cannot be satisfied with the limited natural resources. Consequently, the scarce resources cannot feed the large population, and the population decreases. When the population decreases, the natural resources become enough for people, and the population starts increasing again. Therefore, there exists a natural rate of population growth in the classical economics. However, the technological advancements and the economic development in the 20th century have caused a very drastic increase in the population, and the increase was logarithmic compared to the economic growth.
Graph 1: Malthusian Growth
The graph 1 exhibits how the Malthusian growth works. When the population increases up to a point where the world population reaches a peak, the social and economic crises occur in the global economy. Although the Malthusian growth theory is an old theory, the studies indicate that its assumptions can be verified by using a long historical data.
The wage determination in the different countries can easily be engaged with the Malthusian growth theory. The developed countries could increase the salary up to a high point thanks to the rapid economic development after the 1980s. However, the most recent global financial crisis has ended an era in these countries. Nowadays, these countries have faced the enormous problem of job losses. This situation caused pressure on the workers, and even many of the qualified workers have to get part time jobs with relatively lower wages. Depending on this state of the developed economies, it is possible to claim that the world economy is suffering from an economic recession, and we observe the negative influences on the job markets.
The American economy has been named as the economy of equal opportunities, and the US could attract many qualified people from the other countries to America in the last 50 years. However, these days, the dream country for the skilled workers and the entrepreneurs has been disappearing, and even it is possible to see that some skilled workers are moving to the developed countries, or back to their original countries. The unemployment has increased in the US. More eminently, the American economy is having difficulty to create new jobs after 2008. Many of the businesses in the US is outsourcing many of their facilities because the legal wage for hiring an American citizen is much higher than the countries from which the services are outsourced.
The most notable problem the world economy face is the increasing income inequality in many countries including the developed countries such as the US and the European countries. The income inequality is an important structural problem because the income inequality might cause some other issues related to the motivation (or reproduction process) of the labor, and some social issues.
The income inequality is proved by many researchers such as Gilson (1), Zuckerman (1), and Mulas-Granados (1). The top percent of the population is getting 23% of the total GDP in the US, and we observe similar scenes in the other developed countries while the bottom ten percent has been receiving much less than this amount. The trend from the beginning of the 1900s indicates that the income inequality is increasing in the developed countries (Zuckerman 1). Therefore, it is possible to claim that the Malthusian growth is working, and an unfair economic system has occurred even in the developed countries.
The income inequality between the countries is the other facet of the inequality problem. The developed countries have enjoyed their advantages in the international trade arena by using the advantageous exchange rate between the raw materials mainly supplied by the less developed countries and the processed products mainly produced by the developed countries. Only considering that the most of the petroleum are manufactured in the less developed countries with the weak economic structures, and this oil is consumed mostly by the citizens of the developed countries gives us an important clue.
The less developed countries have faced many general strikes because of the economic conditions pushing the majority of the people into poverty. The attacks have caused conflicts in the Middle Eastern countries and some of the African countries. Many people from these countries are trying to immigrate to the developed countries, and the world is facing the immigration problem. The Western nations have preferred keeping their gates closed to the immigrants; however, it seems to be that the immigration to the developed countries will continue legally or illegally due to the ongoing conflict in many less developed countries. If the Western nations open their gates, then the pressure on the workers in the labor markets will increase, and we might see that the social security systems in the developed countries might collapse. If that happens, the developments might push the wages down even in the developed countries.
Another significant problem the developed countries face is the loss of the labor productivity. The pressure on the wages or the less available jobs in the developed countries has increased the pressure on the workers. The insiders-outsiders theory implicates that when there is a significant of the community of employees is unemployed, the insiders (currently hired workers) feel unsafe at work. The high risk of losing the job in a recession times increases the stress of the workers, and their productivity level decreases. Considering that the number of the new entrepreneurs has fallen after the global financial crisis started in 2008, we might assume that the workers even in the developed countries will continue facing this stress. The loss of the labor productivity also might an essential factor for decreasing the wages in the developed countries because, according to the microeconomic theory, the wages equal to the contribution of the workers to the company. When the workers lose their productivity for psychological reasons, it might influence their wages.
References
Bossworth, B., Burtess, G., & Zhang, K. (2016). Later Retirement, Inequality in Old Age, and the Growing Gap in Longevity between Rich and Poor. Brookings. Retrieved 19 February 2016, from http://www.brookings.edu/~/media/research/files/reports/2016/01/life-expectancy-gaps-promise-social-security/execsummary_chapter4_laterretirement_inequality_longevity.pdf
Gilson, D. (2016). Charts: Income growth has stalled for most Americans. Mother Jones. Retrieved 19 February 2016, from http://www.motherjones.com/politics/2013/09/charts-income-inequality-middle-class-census
Mulas-Granados, C. (2015). Growing Wage Dispersion Increases Income Inequality | EconoMonitor. Economonitor. Retrieved 19 February 2016, from http://www.economonitor.com/blog/2015/06/growing-wage-dispersion-increases-income-inequality/
Schroeder, S. (2007). We Can Do Better at Improving the Health of the American People. New England Journal Of Medicine, 357(12), 1221-1228. http://dx.doi.org/10.1056/nejmsa073350
Zuckerman, M. (2016). ebate Club TJS Politics Blog World Report Economic Intelligence Knowledge Bank Policy Dose Faith Matters Mort Zuckerman National Issues Best Countries Cartoons Photos The Report Making a Mockery of the American Dream. US News. Retrieved 19 February 2016, from http://www.usnews.com/opinion/articles/2015/03/27/income-inequality-makes-a-mockery-of-the-american-dream
