Introduction
The phrase “the rich get richer while the poor get poorer” has become a worldwide anthem at many political and economic forums. While these facts are actually true very few or practically no one goes forward to act in a manner seen to strike a balance if anything many individuals are individualistic and greedy. Elite economists from IMF recently released a study on the causes and consequences of rising income inequalities. It is believed as a result of income inequality there could arise a myriad of complex problems, most of which touch and greatly impact upon the economic growth of different states in the world. It is estimated that for every one percent increase in the income distribution share to the top 20% will drag down the economic growth by 0.08 percent in a span of five years, whereas a similar increase of 20% among the bottom earners will result in significant economic growth. Economists believe that income inequality is a “necessary evil” and acts as a propeller of economic growth. Income inequality actually acts as a motivating factor that greatly contributes to great financial rewards, innovation and entrepreneurship ventures.
Arthur Okun an American economist in 1975 argued that “societies cannot have both perfect equality and perfect efficiency, however they must choose how much of one to sacrifice for the other” (The Economist). In this concept, he named it as the Opportunity cost of foregoing the comfort of having equal wealth by all residents of a state. To date most economists hold on to this view prompting further research into the economic costs arising from these income inequalities within the economy. Income inequality does impair economic growth especially where individuals or countries with low incomes are affected by poor health which leads to low productivity. Another factor that may contribute to the existence of this gap is the fact that the working population in some countries is too little compared to the dependent population, thereby bringing the productivity of the country down. Moreover, income inequality threatens the public confidence and financial security in handling in growth-boosting policies like free trade, entrepreneurship risks among others. In addition, income inequality leads to economic and financial instability within affected countries. Most governments however, respond to the concern of income inequalities by enabling credit flow to poor households such that these individuals are empowered to engage in money generating startups that improves their level or standards of living. Recent research reveals that most American households borrowed heavily in anticipation of the financial crisis in a bid to prop up their consumption. Economic gurus such as Ben Bernanke and Larry Summers argue that income inequality may also contribute to the world's "savings glut", since the rich are less likely to spend an additional dollar compared to the poor. Therefore, as savings grow there is a progressive interest rates fall which boosts asset prices and positively encourages borrowing which makes the work of Central banks complicated in their earnest effort to manage the economies.
In the 21st Century, the relationship between income distribution and economic growth has become greatly intertwined and inseparable. Most world economies are majorly dependent and run by their incomes generated inside or outside the countries’ borders by the citizens or investments. The relationship between the aggregate output and income generated is quite central in macroeconomics and determines the external business environment of entities within a country. However, in the new millennium the crest of the globalization age it has been characterized by several economic crises andrecessions, which greatly have implications on income inequality. Therefore, it necessitates to conduct a thorough analysis on the link between income inequalities as related to the economic growth. Furthermore, the existing and documented empirical evidence does not clearly clarify on the shared relationship between these two phenomena; income inequality and economic growth. While it is evident that the income inequality and growth relationship has significantly changed with time. This research study attempts to determine whether the determinants of economic growth and those of income inequality have changed with time.
2. Literature Review
The relationship between income inequality and economic growth is not conclusive. Studies conducted by economists over time reveal that there exist negative effects on economic growth through income inequality. Income inequalities within the United States have grown rapidly overtime demanding great attention from economists, scholars and policy and decision. However, despite America enjoys the rapid economic growth compared to other large industrialized economies, inequalities in the distribution of income have grown faster and are evidenced by the quality and standards of living in the United States. Moreover, with productivity, the economic growth is at a significant high while the levels of income inequalities among the American workers are seen to reap no meaningful benefit from the economic expansion. However, there occurs disparities among the top earners and bottom earners within the American society which has seen the levels of income inequalities increase. There occurs an income gap within the society which in itself is a parameter of measure
Income poverty can be considered as the phenomena of two significant reasons that are; the average income level and the distribution of that among the participating families and individuals. Therefore, holding the income levels constant, poverty generally will be more severe when incomes are distributed unevenly (Kanbur, 2005). The outcomes of poverty incidents and the depth of the incidence vary countries by countries. The countries that have comparable incomes have major differences in the outcome. The level of average income has huge impacts from the economic growth. The economic growth works as the determiners for the average income.
The initial distribution of all incomes provides equal and better platform to decease the poverty and inequality inside a country. The economic growth also plays important roles in this case when the money obtained are shared with the every public of the countries equally and used for the further improvement of the country that should provide long term returns from the capital.
Analysis
Survey:
The survey is one of the important part of conducting any research. The survey part consists of collecting information about the subject and continue the further steps to draw a possible result. The data collection always requires the correct data in order to perform an analysis that should be accepted and will be able to provide better results from the conducted survey.
The purpose of this paper was to find out about the income inequality and the economic growth. The countries are picked as the subject of this research. The paper should look at the GINI and other data of a country to get the inequality and find out the results. The GINI coefficient describes the inequality exists in a country. The GINI coefficient works as the indicator of inequality. It has some rules of measuring the inequality. It takes the average income, number of people under minimum wage, the number of poor people and many other economic details into consideration to get the result. The paper focuses on total of 20 countries to find out the differences. The result should be delivered from the GINI index of the 20 selected countries. It will also include some other important factors of finding the better outcome.
The research process have browsed the country lists at the early stage. The country lists were viewed by well developed countries and poor countries. There had total of 20 samples collected in the process of data collection. The next part of the research has focused on the all 20 sample countries to run further research about the economic condition of the countries. The result should come with the inequality level of those countries. It also focuses on the income growth of the selected countries to generate a better outcome.
Theoretical Analysis:
Over the years, economists have mentioned the inequality in the income of people in a particular population to be one of the reasons of economics back log. This is because the rise of vices such as robbery, corruption and other unmentioned vices come in as a result of the same.
Over the years, economists and statisticians have been working to see the equality in the distribution of wealth and incomes in a particular economy to no avail. There has to be a group that subordinates to another group and with this there is definitely a difficulty in the creation of balances in the income scales.
Another factor that came out of the study is the fact that some employees are simply content with their current levels of employment and income levels. This is evident in the fact that some of the individuals approached to provide information stated that there is nothing else that can be done apart from allow the employment systems to work the way they were designed by the managers. The gap may be brought about by the value of the professions one chooses to take as well as the amount of knowledge one may be having or may acquire. The means of acquiring wealth, income and earnings have also been diversified by the diversity of the industries. On the same note, it is difficult to have equal income inequality in income of a particular population is a major problem in the world economy.
There are no countries that have confirmed and recorded they have attained full equality. The GINI index indicator considers a country as having equal rights once the GINI coefficient is zero. The GINI coefficient varies from 0 to 1 or 100%. 1 is the highest number that indicates higher inequality. The inequality is major in a systemic way and the statistics show that almost every nation has huge difference among poor and rich people.
The sample data for the research have picked a total of 20 nations. The countries were picked on a random basis. There had some first world, some 2nd world and some 3rd world countries. The GDP and GINI are used as the 2 major elements to conduct the research. The research paper has picked the information about all the countries listed and the real world situations of those countries to determine the GDP, net income and inequality rates in these countries. The research has taken the GDP per capita and the GINI index in consideration.
The data collected initially shows that china got the highest rating on the GINI index and Denmark got the lowest rating on the results. The research clearly states that China is in more trouble with the GINI index. The results clearly show that the GDP of a country doesn’t have anything to do with the inequality. China got a bigger economy compare to Denmark. China got the world’s 3rd highest number of population as well. The equality level can be fixed after determining the wage per person, poverty level of a country. The results for China should be negative in this case. China has got many big businesses that doesn’t mean that China got all the citizens covered. The businesses or other govt workflow can just contribute to the GDP, but it can’t directly contribute to the citizen’s income. However, the increasing amount of GDP opens the chance of getting more business attracted on the country and provide the people of china on the workplace. However, there will always have inequality until all the resources earned are not distributed properly.
Denmark got the lowest inequality in that from the list. The lifestyle of the people of Denmark is also far better than the China. The country got less population as well. The result shows that Denmark divide the resources among the country people more fairly. The people really receives their portion and utilize it to improve their lifestyle. The pay rate for the job in this country is higher compared to China.
The collected data clearly shows that the countries with having a less GINI coefficient always earn success while the countries with having a higher GINI coefficient fails to improve the life style of the citizens. There have numerous different on the income of people at different level and that brings many people of the country under the minimum wage. The higher GINI coefficient leads the poor people to a poorer lifestyle while the rich peoples are being richer on that way. The economic balance is mandatory in this case to rescue the country from further problems.
There are many countries in Africa and Asia, but the poor nations got more inequality indeed. The results of poorer nations show that there are huge number of people who are living under the minimum pay rate, but there are also some people who owns a large portion of capital. Corruption is the most common practice in these countries. That leads to a measurable or less progressive lifestyle to the citizens even after having large improvements on the GDP. The results of GDP can’t be an indicator for the lifestyle of the country citizens. It can’t be mentioned that a country got equality until a well-defined outcome is generated. The country can be said as moving toward equality only when it progress on the GINI index and removes the measurable lifestyle of the country people. The countries need to share the resources to every citizen of the country equally to ensure the equality.
The country’s economic growth has higher impact from the equality. The countries that don’t have equality fails to keep the trend of GDP growth ongoing for the long term. The population that grows under the inequality brings problems for the country in the future in this type of scenario. The policy makers need to get work hard to find solutions. Everyone looks for their rights and the country failed to provide it. That might be a problem for the country to fall in a great problem. The civil wars that are ongoing in the world is also caused by inequality and different initiate taken to keep the people in darkness by revoking their basic rights. The countries that have provided equality are living in more peace and sharing a shared vision with the citizens to achieve some long term success goals while the countries with inequality scramble to find some solutions of ongoing problems. It clearly indicates that equality is a must needed element for the economic growth of a country.
Data Analysis
Economic growth and economic equality are two different constructs that formulate aspects of what a country entails. The hypothesis for this analysis was
That economic inequality will postulate delayed economic growth. The economic inequality was tested here via Gini index. We aimed at finding a measurement of economic growth unified across different countries. We decided to go with GDP per capita measured in USD.
This stage involved manual and computer based analysis using Microsoft Excel and SPSS V16. Data received from the survey was processed in three stages:
1. Entering data - initial data was captured immediately after the field work.
2. Checking data which included: A visual check of completed questionnaire forms; Arithmetic and logical data check during data entry; Arithmetic, logical and statistical check of data in the array; and Check of calculated values of indicators.
3. Refining data which consisted of correcting any errors and inconsistencies that existed after checking the data entered. The data was tabulated and analyzed and frequency counts and cross tabulations were made for every question to confirm data accuracy.
Above are our data and the results of the analysis
The data in the table above has a zero correlation coefficient and this means the data is no perfect correlation.
The regression equation is simplified by the formula shown below:
Y=Bx-a
Considering that the data has a zero correlation, the regression of the data is found to be 3.1477.
It can be seen from the results that there is not significant correlation between economic inequality and GDP per capita.
Making a comparison of the GDP per capita amongst the countries produces the graph. This leaves USA having the highest GDP therefore showing a strong economy at the same time.
A comparison of the Gini report of all the countries also produces a graph that is skewed to the opposite direction as that of the GDP per capita. This is shown by the following graph.
OLS Regression Analysis
OLS Regression Analysis in Steady State Level
Again, the main purpose of this paper is to investigate how the equality in the income of all the citizens of a particular economic zone would affect the economy of the area. Therefore the sake of this analysis, this paper recalls the equation for OLS Regression Analysis:
logy*=α+ β1 logsK+β2logsH+β3logsR+β4 logn+d+g
The dependent variable for this equation is average GDP per working population between with four independent variables: sK, sH, sR, and, n+d+g. For this analysis, this paper makes the assumption that 34 OECD countries and 23 non-OECD countries reach the steady state level and that the countries are currently operating at a state of inequality of the incomes of all the state citizens and residents.
The question is here, why were there no associations between both? It could be argued that the GDP per capita is not a true representation of the economic growth. However, the more relevant one could be the fact that economies can be driven by a small group of wealth owners without distributing economic benefits equally across the population.
The table below attempts to make an analysis of the question and come up with an answer based on the regression analysis.
There seem to be several reasons for inequality. The main one could be the inaccessibility to economic growth opportunities by low SES members. One way of removing inequality is providing programs that allow impoverished members of society to not only work in low skilled jobs, but gain access to entrepreneurship opportunities. It will also require to get the skilled peoples from those SES members under a same place.
Reliability of statistics and figures is another crucial element in deciding whether this correlation is a true representation of the proposed relationship or not. Further analysis is needed with bigger samples. The analysis is completed here by taking little number of samples to show some initial research results. The analysis with bigger data size and areas can be helpful to deliver much accurate indication.
Last but not least, we need more on ground organizations that work with economic empowerment mindset, providing accessibility to the market for their community members. They can help the community members to learn more about the necessity of economic equality and provide them the ways of obtaining that goals. They can work with the people of rural areas and help them to improve their lifestyle. The rural areas are the most concerned areas of a country that have lower amount of income. The government programs and programs organized by NGO to improve the lifestyle of people can help to ensure equality.
Conclusion
In any given society, Inequality in the income of the population poses a challenge to the socio economic aspect of life as a whole. This is because the generations will always come up knowing of an existent economic gap that will never end. The inequality is one of the common problem of many societies. It is essential to take the proper care of it by ensuring the resources are allocated to the every person in a country. It needs to be ensure that peoples are not eliminated from their basic rights and every human rights are ensured. Resource allocation in the economy may be one of the solutions that may be taken in order to achieve part if not total equality in the division of resources in an economy. The research shows that inequality is a major problems for every countries in the world. It is the time to take steps and make equality for further progress of the country. The government of a country is the main concerned constitution to make the first move in this case. The awareness of government is mandatory in order to achieve the desired goal. It will not be possible for any organizations or any other NGO to success in a place easily to empower the population of that place without proper government support. It is expected that the government supports and voluntary works can be helpful at great extent to increase the equality rate. The research concludes that, GDP of a country don’t drive the inequality rate as inequality depends on other factors too. The inequality can bring dangerous future for a country and it is necessity to ensure equality for a smooth move to be a more developed nation.
APPENDIX 1: QUESTIONNAIRE
THE STUDY QUESTIONNAIRE
The aim of this questionnaire is to conduct an analysis of the current state of the economy in your state and to assess the equality in income of each member of the population. The questionnaire also aims at evaluating the challenges faced by the populations in the economic chain and to establish a means of achieving equilibrium in the distribution of wealth in the state. In a nutshell, the questionnaire seeks to analyze the opportunity cost control needs for the successful establishment of the equilibrium in the economy and distribution of incomes.
QUESTIONS FOR STAKEHOLDERS IN THE ECONOMY OF THE STATE
Thank you for taking your time to take this interview. I would like to assure you that your response to the questions will be kept confidential and your feedback will only be used for research purposes. Please answer all questions by ticking where the answer is appropriate.
DEMOGRAPHICS
Where among the following classes does your age fall?
15-20 years
21- 25 years
25- 31 years
31-35 years
Above 35 years
For how long have you been working in your current industry/ firm/ organization?
0-3 years
3-6 years
5-8 years
8-11 years
More than 11 years
RESEARCH QUESTIONS
Where would you classify your income as compared to all other workers who you work with in the firm/ organization you currently work for?
Peanuts/ very low
Medium earnings
Not little not much
Cannot complain
Enough
More than necessary
What is your current position in your company?
Senior management
Sales person
Technician/ machine operator
Research and product development
Other (please state) .
Is there any notable difference in the lifestyle you live as compared to the other employees you work with at different job levels earning different salaries?
Yes
No
Other (please give a brief description) .
In your opinion what is your most preferred level of income and work that you would love to achieve?
Management
Laborer
Accounting
Manufacturing/ operations
Transport and logistics
Not sure
Other (please state) .
What measures can be takes by your firm/ employer in order to reduce these discriminative measures that exist in the different job groups and to ensure equal treatment in incomes and in lifestyles?
Introduce new systems of management
Using information systems and computerized systems (eg. Cameras)
Reducing the number of employees
Having a fixed and strict budget for financial years
Nothing can be done
Others (state)
What is your level of satisfaction on a scale of 10 with your current level of income and your current level of employment?
Where 10 is very satisfied and 1 is completely dissatisfied
1 10
Thank you for taking part in this study. I would like to ensure you that the questions and your answers will only be used for study purposes. Your name and details will remain confidential to the study only.
****** End of interview ********
References
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Chenery, H., and Syrquin,M (1975). Patterns of Development 1950-1970, London: Oxford University Press.
Cromwell, J. (1977). The Size Distribution of Income: An International Comparison. Review of Income and Wealth, 23.
Hicks, N., and Streeten, P (1979). Indicators of Development: The Search for a Basic Needs Yardstick. World Development, 7.
Isaacs, L. (1981). Comparative Economic Inequality. International Journal of Comparative Sociology, 22.
Knight, J. (1976). Explaining Income Distribution in Less Developed Countries: A Framework and an Agenda. Oxford Bulletin of Economics and Statistics, 39.
Kuznets, S. (1963). Economic Growth and Income Inequality,” American Economic Review, 40.
