Economic Inequality and Wage Dispersion - Essay Example

Economic Inequality and Wage Dispersion Economic inequality is the gap between the rich and poor people in a country or the gap between rich and poor countries. This gap is caused several factors that act either independently or together. On the other hand, wage dispersion is the way that wage is distributed among different groups of the population, especially between people with the same skills. One of the main causes of economic disparity is the employmentmarket which determines the earnings that different categories of people receive. The current market for labour which is market driven leaves the determination of labour to forces of supply and demand, therefore employers and employees have no control on the amount of wages that are paid to workers. However, it is generally accepted that markets are imperfect since there are a lot of loopholes in flow of information, competition is not perfect and the chances to access education and skills are unevenly distributed; these imperfections act as catalysts to economic inequality. In a labour market where there are many worker who are actively searching for employment, the wages are likely to be low while in a market where there are many employers who are actively looking for employees the wages are likely to be high therefore fuelling income inequality among workers in these two markets. The markets that have a lot of people looking for employees are those that do not require specialized training or skills or those where there are a lot of people possessing the required skills, for instance jobs that require a candidate to have completed basic education. On the other hand, the markets with high wage rates are those that require workers with specialized skills which are not common, for instance market for skills like nuclear science, or surgeons is likely to have a lot of potential employers but very few employees. The level of education is another factor that affects the economic inequality among individuals. The duration that an individual has spent in school or acquiring skills will be directly proportional to the size of his wages, therefore the longer the period of time that one has spent in school, the higher his wages. The time that an individual spends in school is considered to be directly associated with the level of skill that he has acquired therefore greater output from him which then translates to high remuneration. This trend means that there is likely to be a high income disparity between individuals who have spent large part of their time improving their skills and those that attended learning institutions for a shorter time. With literacy levels increasing and the desire for furthering education increasing, income gap is as a result of the years an individual spends in school is decreasing. For instance, in the early 20th century in United States of America, people were encouraged to finish their high school education leading to increased level of skills therefore reduced income disparities. Economic inequality is also driven by the gender of individuals; for a long time, women have been discriminated against especially in terms of employment and the type of professions that they can pursue, for instance engineering professions which pay relatively have been considered as a preserve for men therefore locking women out. In United States of America, the average income of women to that of men is 77 per cent; this shows that even in the most advanced nations of the world, economic disparity due to wage differences exist based on gender of the workers. This trend is worse in developing countries where women do not have the privilege to work on the same level as men since they are considered as weaker beings. In countries with high economic inequality levels, negative outcomes especially on development are bound to happen, these outcomes include issues such as poor health conditions in the country. Countries that have high levels of inequality among its citizens have health problems. This is because individuals with high income levels who can afford to pay for quality health care facilities are usually a small part of the population while a large part of the population are usually on the lower end of the inequality divide. Research conducted among the richest countries show that countries that have high inequality levels usually have lower life expectancy than those that have achieved relatively high levels of income inequality. For instance, in United States of America which is one of the richest nations with high levels of incomeinequality has a life expectancy of 77 years while Sweden and Japan which have achieved relatively high levels of income inequality have life expectancies of 80 and 82 years respectively (Bartels, 2009). Insecurity is another issue that is caused by high inequality levels in a country. Countries that have the highest crime rates are those that have high economic inequality; research has found out that high levels of equality create an atmosphere that builds social capital (trust, goodwill and social connectedness) that important in reducing crime levels. Robert Puntham (2000) stated that community and equality are mutually reinforcing... Social capital and economic inequality moved in tandem through most of the twentieth century. In terms of the distribution of wealth and income, America in the 1950s and 1960s was more egalitarian than it had been in more than a century... [T]hose same decades were also the high point of social connectedness and civic engagement. Record highs in equality and social capital coincided. Conversely, the last third of the twentieth century was a time of growing inequality and eroding social capital... The timing of the two trends is striking: somewhere around 1965–70 America reversed course and started becoming both less just economically and less well connected socially and politically (p.359). Critics have argued that the economic inequality especially as a result of wage disparities is as transitory and not persistent as most economists have argued. Studies that have been conducted especially in developing nations show that there is a likelihood that economic disparity will reduce with time.Research conducted in the united states of America in 1970’s and early 1980’s shows that more than a half of the rise in economic disparity experienced that time was transitory, however, in the recent past (from 1990’s) conclusive research has not been conducted to determine whether the ever increasing economic inequality among different social classes is transitory or persistent (Debacker, Heim, Panousi, Ramnath&Vidangos, 2013). In order to ensure fair distribution of economic resources, several factors must be considered. One of the factors is ethical leadership; by this, we mean leadership that is concerned with creating a more inclusive and balanced society, a leadership that is ready to protect human rights and the rights of marginalised groups. Another factor to consider in ensuring fair distribution is to ensure that every person has access to basic goods and services such as medicine and education among others, which will ensure that every individual lives with respect and in a dignified manner. Inequality as a challenge to fair distribution of resources can be viewed from two perspectives. The fist one is the intra generational inequality, which involves people within one generation. In this perspective, inequality is viewed as how we distribute resources such as income, health resources, environmental benefits and other factors affecting the well-being across different groups such as urban and rural dwellers, poor and wealthy individuals among other groups. The other perspective of measuring inequality is the inter-generational inequality, which is connected to sustainability; this it to mean that our actions today might deny the future generations the chance to enjoy the resources that we enjoy currently. This dimension requires ways that will enable us to measure the reduction of risks since this might act as an incentive to the policy makers to put in place those policies that reward activities that reduce future risks and vulnerability and the expense of some present gains. A new approach to economics has brought a lot of contention on the economic inequality. Introduction of happiness as a measure of economic wellbeing has complicated the measurement of economic inequality since an individual may be wealthy in terms of material wealth but that wealth does not increase his quality of life, for instance, the wealth may be used to mitigate negative effects of pollution. On the other hand, an individual may not be endowed with a lot of material possessions but he lives in a clean environment and he can be generally considered happier than the more wealthy individuals. Adjusting for these differences in measurement of inequality is therefore likely to pose a challenge. In a bid to overcome these challenges economists have suggested several ways that can be used to measure happiness. For instance, gross national happiness which would measure how happy individuals in a country are and would include factors such as kindness, compassion and generosity among others; the challenge with this is that all these measures can only be measured at a macro level. Wage dispersion, which can be defined as variation in wage rates that exist in the economy between people with similar skills. This dispersion usually occurs due to several reasons; one of them is the employers paying people with similar skills different wages, secondly, it can also happen where the employees do not have knowledge of the amount of wages that people in their wage group deserve therefore settle for whatever their employers give them. In addition, wage dispersion can also be caused by government policies that exist in a country of the different rates that exist in different organizations. For instance multinational companies and NGO’s pay well than local companies for people with similar skills. Wage dispersion has to a large extent contributed to income inequality as people with similar skills are paid differently. Different organizations have different wage policies which contribute to the dispersion, for instance, small organizations and start up companies are likely to pay their employees lowly compared to the large multinationals due to differences in their financial capabilities (Mortensen, 2005). In addition, some organizations may opt to pay their employees well in order to motivate them while others offer job security to their employees instead of high wages (Martins, 2008). Elimination of wage dispersion and economic disparities can be possible through setting up of a common global body that will take into consideration the different wages paid in different countries or organizations and encourage implementation of policies that serve to reduce economic inequality. In addition, promoting fair distribution of resources will also empower people to increase their earnings therefore reduce inequality. References Bartels, L. M. (2009). Economic inequality and political representation.The unsustainable American state, Retrieved on April 26, 2014 from http://www.princeton.edu/~bartels/economic.pdf Debacker, J., Heim, B., Panousi, V., Ramnath, S., &Vidangos, I. (2013).Rising Inequality: Transitory or Persistent? New Evidence from a Panel of US Tax Returns. Brookings Papers on Economic Activity, 2013(1), 67-142. Martins, P. S. (2008).Dispersion in wage premiums and firm performance.Economics Letters, 101(1), 63-65. Mortensen, D. (2005). Wage dispersion: why are similar workers paid differently?.Cambridge, Massachusetts:MIT press. Putnam, R. D. (2000). Bowling alone: The collapse and revival of American community.NY: Simon and Schuster. Read More