In any given population, there is a difference between what people within the population earn. The uneven distribution of income in any given population is income inequality. In order for there to be income, there has to be several sources of income. These sources of income may be combinational or independent per person receiving the income. Income may result from wages, rent, bank account interests, salaries or even profits made in business transactions ( Stiglitz, 2012).
In his hypothesis, Karl Marx foresaw income inequality in a capitalistic as a major problem that would lead to an economic evolution. The main reason he foresaw an evolution was ...view middle of the document...
The process of plotting continues until exhaustion of all cumulative values of member incomes (Lorenz, 1905).
For a perfect Lorenz curve, all members in a family would earn the same amount and the Lorenz curve would be a diagonal with the lowest point being the lower left hand corner moving progressively towards the higher right hand corner. This diagonal shows an ideal situation and it is the baseline in determining income inequality. Since not all family members receive an equal income, the Lorenz curve turns out as a curve instead of a diagonal. The area between the curve and the diagonal dictates the measure of inequality from one member of a given family to the next member (Lorenz, 1905).
Income inequality is a broad topic with numerous key issues to discuss. In this research, income inequality will be under analysis in terms of the cause, the advantages of income inequality, the disadvantages of income inequality, the impact of income inequality on the economy and ways of reducing income inequality in a society. Understanding the several key factors mentioned above enables one to understand income inequality. Understanding income inequality is important since it has been a major issue in predicting economic growth and development globally. Income inequality has always been an area of contention between capitalists and communists whether it is good or bad (Pikketty, 2014). Understanding how income inequality affect the society gives one the tools necessary in making an ethical standpoint on whether it is a good thing or vice versa (Pikketty, 2014).
Causes of income inequality
Since it is consensual that there is an income gap between different people in the society, it is important to discuss what causes the different levels of income between people of the same society or between people of the same social class in different societies. According to Rousseau’s statement, income inequality emerged in the duration when societies began moving from the ‘primitive state’ to ‘conform state’ where private ownership of property predominated the mental state of the society (Rousseau, 1992).
In development of the private ownership of property, each person had a specific role to carry out in the society, which led to inequality depending on the importance of each role. Classification of what causes inequality lies in two different classes in a broader sense, which are; individual causes, or external conditions leading to income inequality ( Rousseau, 1992). In simpler wording, the causes of inequality lie within endogenous causes and exogenous conditions.
Endogenous causes of income inequality
Endogenous causes are those causes that are unique and attached to an individual’s characteristic. These characteristics lie in the ability of an individual to produce more than other individuals hence earning more than other individuals in the same market. These characteristics include better qualifications in carrying out a given job or other uncommon...