Reasons Why Income Inequality Is Tolerated

Introduction

Back in 2012, the chairman of the Council of Economic Advisors spoke about income inequality being one of the main reasons for social ills in America. The idea of the Great Gatsby Curve came from the very speech that was given in that year. It is a model that shows a correlation between income inequality and the difficulty to improve a person’s income class which he or she was born into. Simply put, a larger income inequality can make it more difficult for the American dream of economic mobility to be achieved.

Besides him, others were also concerned about the effects of income inequality. In a book published in 2009, there was proof from different countries about how consequences like mental and physical well-being, drug use, education, crime rates, fitness levels, and many more are affected by income inequality. In countries with high-income inequality, they generally have poorer and more adverse consequences. This research has since been supported by more up-to-date studies on the outcomes of income inequality on self-perceived health, crime rates, and satisfaction in life. Even outside of America, income disparity exists, and people in Asia face issues like retrenchment singapore. It is becoming clear that such issues are pertinent and encountered by other countries around the world.

Why Income Inequality Remains

Despite increasing amounts of evidence on the disastrous effects of income inequality, it remains prevalent in many countries. Within many societies, the wealthiest people in the nations possess an all-time high of the national incomes. Oddly, one recent research suggests that citizens in countries with more income inequality are less bothered about income disparity than those in more income equal countries. The question that comes to mind is if we know that income inequality is detrimental to most people in a country, why do those who come from an unequal society seem unfazed by it?

Based on another research done, the explanation for this odd income inequality issue is the idea of meritocracy. Meritocracy is where people believe that hard work pays off and the income levels that one achieves is based on the amount of effort put into it. So for countries with high-income inequality, most people believe that in order to be rich, you have to put in a lot more effort than others. Whereas for the poor people, they simply do not put in effort in getting out of their plight.

However, one of the latest researches has opened up more explanations for this issue. Firstly, people are interested in their ranking with regards to their earnings in a group. For example, people generally care about whether they rank number five or forty in terms of pay in the workplace.

Secondly, people generally feel better when they are at the top of the income pyramid in more income unequal countries, where the goal in life is to achieve a better income and social status. Therefore, we can see that people in a more unequal country will have a higher motivation and drive to work hard and improve their incomes than in a more equal country where almost everybody earns the same amount as each other. This causes people to not bother that much about the negative consequences of income inequality at the macroscopic level.

This is based on national data collated over a time period of six years from an estimate of 150,000 individuals from 20+ countries. This data is an annual survey on an individual’s feelings, attitudes, and opinions. By looking at the relationship between income rank and satisfaction in life, it is reported that people who have a higher ranking in income have had higher satisfaction in life compared to those of lower ranking. Also, increasing a person’s income will only raise the satisfaction level if the ranking actually improved. So it is a comparative game, where one will only feel more satisfied as one knows that he is ahead of others.

Next, the relationship between income ranking and satisfaction in life was different from country to country. Generally speaking, the difference in the quality of life is more apparent in countries where income inequality is greater. We also see that the more unequal the country, the more the income ranking mattered to a person in the country. Research has shown that a decrease in income rank follows the same trend as before, which can cause a person to have an even lower satisfaction in life. This reduced satisfaction is seen to a greater extent in more unequal countries.

Research has shown that as the income disparity increases, the satisfaction that can be achieved from rising through the income ranks increases. This can cause citizens to be more focused on their position and standing amongst the rest and more driven to climb up ranks. This makes them more myopic about the bigger picture as they focus on personal interests instead of the collective interest. This hence makes the income disparity seem like a normal occurrence even for those stuck at the bottom of the income pyramid.

Despite having so much research, the knowledge about this issue at hand is still imperfect, as it is for all our understanding with regards to social sciences. Several confounders include the different timelines in which the results were obtained from, different people that were surveyed and also the difference in people’s interpretation of welfare and satisfaction with life. Furthermore, statistics were only taken from 24 countries, and this means that results can only be used strictly for the 24 countries. We must not extrapolate our results and interpret the same way for other countries. Subsequent studies should, therefore, try to include more countries in the research to get a better picture.

Conclusion

As the issue of widening income gaps happens in countries all across the world, it is essential to know how income disparity happens and how it worsens. Through the numerous researches carried out throughout the years, we can see that there is a strong indication of the desensitization of the issue at hand. As people become more results-driven and focused on their personal status in society, they lose sight of the bigger picture and cause an even bigger issue in the country’s overall income disparity. By having this knowledge, governmental leaders may be able to manage this issue directly and salvage the situation.