The Consequences of Income Inequality

“The love of money is the root of all evil” (New Jerusalem Bible 1 Timothy, 6. 10). Wars, family separations, personal implosions and more are all due to monetary greed. As many tend to say, money is what rules the world, but this is only true when the avariciousness of humans come out. The main outcome of this cupidity is a vast division in the income distribution in our society. Income inequality creates a rift in our society as a whole and it affects the population of a country collectively; therefore changes must be made to even out the distribution of wealth. If actions are not taken, more issues will continue to arise, and eventually, it will be far too late to fix what should be considered now.

Recently, due to inexperience and constantly being taken advantage of, the youth are the ones being singled out the most in the inequality. The youth are our future world leaders and this will continue to be a vicious cycle unless we take action. There comes the issue of equity versus efficiency among the youth: “Inequality can be a symptom of inefficiency” (Unknown, Growing Apart, economist.com). Efficiency creates an incentive for the cream of the crop youth individuals to work as much as they can to create a high wages for their futures; for those who are not as competent or self-driven tend to fall back and slack off with the notion that they cannot compete with the others, creating a high income inequality. As for equity, most people will take the equal incomes as an incentive to work fewer hours and with less effort, thus slowing down the economy and reducing wages as a whole. Right now in our efficiency-based economy in North America, where the lacking of experience youth is treated in equity, “The average disposable income of Canadians between the ages of 50 and 54 is now 64 per cent higher than that of 25- to 29-year-olds, the report found” (Lee-Ann Goodman, Age Not Gender the New Income Divide in Canada, ca.finance.yahoo.ca). The main cause for that is the minimum wage and the lack of experience rendering the youth to low paying jobs where they have no chance at advancing. Unmotivated, this keeps them stuck at a point in their lives where they are forced to stay living in their parents homes, off their parent’s bank accounts, knowing they will never amount to anything. If drastic changes are not made, it will affect our future generations forever.

As previously touched upon, whether one choses equity, a low income inequality or efficiency, a high income inequality, one will have to face the effects each bring on the economy and the business that come in it. According to a research done by David A. Moss, the John G. McLean Professor of Business Administration at Harvard Business School, he found that the sectors most affected are, “economic growth, public spending, financial stability, political representation, and average health and educational outcomes.” (David A. Moss, How Income Inequality Affects Individual Behavior, forbes.com). Efficiency, for one, has more affect on the overall picture of our economic growth, as for Equality, having more of an affect on our condition of living. Although the sectors are often linked, the longevity of both equality and efficiency changes are very different because of what they each do, even though they both slow down economic growth in the end. Efficiency, more of a short-term impact, creates trust barriers in the workplace and lower quality of life which means higher poverty rates which will impede progress in the health and education sectors. Equality, something that damages the economic growth of a country, will create faulty discipline and low incentive for workers, which will translate to poor service and availability of goods and services. This will will then lead to less spending and slow technical progress and most importantly affect the way our economy grows. Now, a country must to make a decision about whether they want equality, efficiency or a happy medium, and then must find out how they will fix the income inequality created by that choice.

After understanding what the major divides are and what are the affects of wealth inequality, the possible ways of correcting it should be examined. Many have different views of what causes all this indifference and how it should be fixed, but it all comes down to the same goal; equality. Maura Pennington of forbes.com states, “While the solution may be complex in its execution, it can be simply stated: Establish stable institutions to empower people to be free and productive and they will prosper. Redistribution of a static supply of resources accomplishes nothing and makes no one richer” (Maura Pennington, To Fix Income Inequality, forbes.com). She insists that Socialism is not the right path to take when she says, “Socialism is Insanity”, but believes that social institutions are what society needs so that workers can be free and productive in their own workplace. She ultimately believes that if people are not given incentives and instruction they will spin and circles and ultimately put a hold on the lining of the pockets of themselves and of the economy as a whole.

In an article by the Financial post, they debate whether or not it is moral to increase tax rates for seniors, as this does remove some of their self-reliance moving into the retirement stage of their lives. Next, they touch on the fact that the government should raise the age minimum allowing the youth to drop out of school, now only being at 16 years old in Canada (Evelyn Jacks, Long Term Remedies Require Strategic Thought, business.financialpost.com). In regards to the higher taxation of seniors, that idea should be dropped due to the fact that they have worked their whole lives for this moment and since they paid their dues, they should be able to retire comfortably without the stress of high tax rates pending over their heads. On the other side, raising the minimum education age is not a bad idea because this will assure that the youth gain enough maturity to understand that staying in school will benefit them later on in the future. This in the long run will reduce income inequality and increase economic growth.

Ultimately, income inequality has a dominant impact on our society as a whole; for those who are financially or even for those scramming every night to put food on their tables.  Not taking charge of this issue will continuously spawn short and long-term problems for businesses and the population. We must lessen the gap between the youth and the seniors by finding a balance between efficiency and equity to reignite the drive in our future’s leaders. If not, drastic booms and troughs will occur for our businesses and major recessions are inevitable. Inequality must be reached or else the firms of our society will face severe challenges; nevertheless, this does not only pose a problem for those in the business world. As it is known, economic issues can affect societies as a whole and change lifestyles drastically, and that is why these issues must be dealt with before innocent individuals will have to face the consequences.

By,

Connor Munro

 

References:

 Goodman, L-A. (2014, September 23). Age, not gender, the new income divide in Canada: Conference Board. Yahoo Finance. Retrieved from https://ca.finance.yahoo.com

 Moreno, K. (2014, March 10). Income Inequality, Envy and Attitudes Toward Big Wealth. Forbes. Retrieved from http://www.forbes.com

 Kotkin, J. (2014, March 20). Where Inequality Is Worst In The United States. Forbes. Retrieved from http://www.forbes.com

Unknown. (2014, September 21). America’s income inequality is growing again. Time to cut subsidies to the rich and invest in the young. The Economist. Retrieved from http://www.economist.com/

Jacks, E. (2014, October 8). Wealth Inequality: Long term remedies require strategic thought. Financial Post. http://www.business.financialpost.com

Moss, D (2013, August 19). How Income Inequality Affects Individual Behavior. Forbes from http://www.forbes.com 

Pennington, M (2013, August 3). To Fix Inequality, The Have-Nots Must Become the Do-Somethings. Forbes from http://www.forbes.com