3.4.7 Causes of economic inequality and poverty Notes

There are different causes for economic inequality and poverty, including:

1. Inequality of opportunities
2. Different levels of resource ownership
3. Different levels of human capital
4. Discrimination (gender, race and others)
5. Unequal status and power
6. Government tax and benefits policies
7. Globalisation and technological change
8. Market-based supply side policies

Inequality of opportunities

1. The concept of inequality of opportunity assumes that true equity would exist if everyone started life under identical conditions with equal access to resources: if all had equal opportunities.
2. In such a scenario, individual outcomes (wealth, income, success...) would be determined solely by factors within a person’s control, like effort and hard work.
3. In reality, this ideal is unattainable: factors such as socioeconomic background, systemic discrimination, and geographical disparities mean that opportunities are not evenly distributed, making this assumption unrealistic.

Different levels of resource ownership

1. Resource ownership refers to the extent to which households own assets such as wealth, property, or capital that generate income.
2. Some individuals benefit from inherited wealth, generating high returns, while others have no inherited access to such resources.
3. Resultantly, those without inherited assets must rely solely on wages, which may not always provide sufficient income to cover basic needs or enable wealth accumulation.
4. Furthermore, low-wage earners often cannot afford to buy property and must rent instead, which often consumes a significant portion of their income, further limiting their ability to save or invest. Overtime, this cycle of poverty exacerbates economic inequality.

Different levels of human capital

1. Wealthier individuals can afford better schooling and higher education, providing them with more opportunities to accumulate human capital and secure higher-paying jobs.
2. On the other hand, low-income individuals may face barriers such as expensive tuition fees, limited access to quality schools, or early entry into the labor market, preventing the acquisition of high-income-paying skills.
3. Since people without high human capital are often restricted to lower-paying jobs, the differences in human capital tends to widen income inequality.
4. Furthermore, lower levels of human capital in one generation can perpetuate inequality in the next. This is because parents with lower income and limited education often cannot provide their children with the resources to develop higher levels of human capital.

Discrimination (gender, race, and others)

1. Discrimination occurs when individuals are treated unfairly based on characteristics such as gender, race, or ethnicity.
2. This can potentially limit access to jobs, education, and other opportunities, for the people who may be part of certain communities.

Unequal status and power

1. Individuals or groups at the top of social or political hierarchies often hold significant power: they can shape laws, regulations, and institutions in ways that preserve or enhance their economic advantages, making it harder for low-income households to climb the social ladder.
2. Those with higher status and power often have control over critical resources, which allows them to secure higher incomes and wealth while limiting access for others.
3. Contrarily, disadvantaged groups may face institutionalised discrimination (unequal voting power, biased judicial systems...), perpetuating economic inequality.
4. Furthermore, those in positions of power often pass down their advantages to their descendants. This perpetuates a cycle where power and wealth b concentrated in the hands of a few.

Government tax and benefits policies

1. Household on lower incomes, typically receive government benefits, on which they heavily depend on.
2. Therefore in case of reduction or removal of such benefits could increase the economic inequality.
3. Furthermore, governments' tax systems tend to favour the rich:
   1. This is because the same percentage of tax represents a higher percentage of the income for essential neccesities the poorer one is.
   2. Therefore, tax systems impact people on lower incomes more, constraining their incomes, and hence further increasing economic inequality.

Globalisation and technological change

1. Since the Industrial Revolution, the development of technology has accelerated, where technologies get more productive, functional and efficient at what they do.
2. These advantages of technology therefore leads many employers to replace their workers with technology to increase efficiency and cut labour costs.
3. Most of the people getting affected by this job cut, are the low-skilled, low-earning workers.

Market-based supply-side policies

1. Policies like deregulation and privatisation aim to increase efficiency in markets.
2. Such policies allow private firms to fire low skilled workers and replace them with technology by deregulating labor protection laws.
3. These policies often benefit those with capital and skills, leaving low-skilled and low-income people behind.