Global Distribution of Income/Wealth (1 Viewer)
- Thread starter lpodtouch
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An inequitable distribution of income and wealth provides an incentive for individuals to work longer and harder as well as to obtain higher levels of education in the hope of receiving higher income rewards. This allows for a greater output of goods and services as well as higher human capital, improving economic growth overtime. Inequality also encourages the labour force to be more mobile and to relocate to other economies where job opportunities are plentiful or more rewarding. This promotes a more efficient allocation in the factors of production (labour), improving allocative efficiency. Moreover, inequality allows for capital formation due to the higher marginal propensity to save for higher income earners. This provides the funds for investment.
Conversely, inequality can pose a constraint to economic growth in the global economy. This is because higher income earners have a lower average propensity to consume than lower income recipients, which contributes negatively to consumption (C), dampening potential aggregate demand and thereby growth. Further, high levels of inequality places burden on individual governments to pay transfer payments (such as unemployment benefits). This represents an opportunity cost in that the funds cannot be spent on other sectors of the economy for the purpose of expansion or building infrastructure. Finally, inequality may lead to health problems which can adversely affect an economy through decreases in productivity arising from the deterioration in the quality of its labour force.
Conversely, inequality can pose a constraint to economic growth in the global economy. This is because higher income earners have a lower average propensity to consume than lower income recipients, which contributes negatively to consumption (C), dampening potential aggregate demand and thereby growth. Further, high levels of inequality places burden on individual governments to pay transfer payments (such as unemployment benefits). This represents an opportunity cost in that the funds cannot be spent on other sectors of the economy for the purpose of expansion or building infrastructure. Finally, inequality may lead to health problems which can adversely affect an economy through decreases in productivity arising from the deterioration in the quality of its labour force.
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Three basic parts to this question:
1. Consequences of unequal dist. of income
2. consequences of an unequal dist. of wealth
3. judgment
Therefore, I will answer it in that format.
Note: consequences can be both + and -
Distribution of income
- there will be increased incentive for workers to migrate to countries that offer higher wages for the same job type. This causes a "skills drainage" in the domestic economy, while the foreign economy will benefit from increased inflow of highly skilled workers that have the potential to increase productivity levels within that country, contributing to economic growth.
- Advanced economies generally have higher GNI per capita of $17,200 (made it up, can't remember exact figure) while developing nations have an average GNI per capita of $7,320 (again made it up). This means that labour in developing nations will continue to be exploited by TNC's who desire to increase profitability by utilising cheap labour found in developed nations. Although TNC's may bring increased job opportunities for the host country, inequality in the distribution of income will persist between developed and developing nations, thus adversely impacting on the living standards of workers in the developed countries as they cannot greatly satisfy materialistic demands in contrast to those in developed countries.
etc
Distribution of wealth
- as discussed above, if inequality in the distribution of income persists between economies, individuals in developing nations will not be able to accumulate much wealth and will not be able to liquidate assets that could have been used to generate income and thus satisfy needs and wants. Again, this will mean lower living standards for those individuals, which may lead to the concept of 'poverty traps' as those who cannot generate enough income for themselves will tend to rely on social security and welfare, increasing budget deficits (that most developing nations experience, since not enough workers have high incomes for the gov. to receive huge tax revenues.)
Thus, the negative consequences outweigh the positives.
P.S. answers will vary, many other points can be discussed and I may have inaccurately answered or discussed things cause its night
1. Consequences of unequal dist. of income
2. consequences of an unequal dist. of wealth
3. judgment
Therefore, I will answer it in that format.
Note: consequences can be both + and -
Distribution of income
- there will be increased incentive for workers to migrate to countries that offer higher wages for the same job type. This causes a "skills drainage" in the domestic economy, while the foreign economy will benefit from increased inflow of highly skilled workers that have the potential to increase productivity levels within that country, contributing to economic growth.
- Advanced economies generally have higher GNI per capita of $17,200 (made it up, can't remember exact figure) while developing nations have an average GNI per capita of $7,320 (again made it up). This means that labour in developing nations will continue to be exploited by TNC's who desire to increase profitability by utilising cheap labour found in developed nations. Although TNC's may bring increased job opportunities for the host country, inequality in the distribution of income will persist between developed and developing nations, thus adversely impacting on the living standards of workers in the developed countries as they cannot greatly satisfy materialistic demands in contrast to those in developed countries.
etc
Distribution of wealth
- as discussed above, if inequality in the distribution of income persists between economies, individuals in developing nations will not be able to accumulate much wealth and will not be able to liquidate assets that could have been used to generate income and thus satisfy needs and wants. Again, this will mean lower living standards for those individuals, which may lead to the concept of 'poverty traps' as those who cannot generate enough income for themselves will tend to rely on social security and welfare, increasing budget deficits (that most developing nations experience, since not enough workers have high incomes for the gov. to receive huge tax revenues.)
Thus, the negative consequences outweigh the positives.
P.S. answers will vary, many other points can be discussed and I may have inaccurately answered or discussed things cause its night