There are many causes of income and wealth inequality, Discuss Flashcards
Introduction
There are many causes of income and wealth inequality and this essay will provide a detailed analysis on the effect of these causes. The factors such as inherited wealth, low pay, structural unemployment and cyclical unemployment are all factors which can explain the causes of income and wealth inequality. Each of these factors are important and valid when looking at the income and wealth inequalities however I believe that inherited wealth is the biggest cause of income and wealth inequality. This is because inherited wealth puts individuals at a huge advantage as they do not need to work for the things that are passed down meaning they are ahead of others.
Inherited wealth
The first cause of income and wealth inequality is inherited wealth. Inherited wealth happens when assets bought by another generation is passed onto the next generation without those assets being earned /worked for. Intergenerational wealth is a way of describing when rich people pass their assets – like their home – down to their children so their children are also rich. This makes inherited wealth a more important cause of inequality than others as it means people who inherit wealth are more likely to have more assets which gives them a head start in paying for things however it may take a household on average salary years and years to gain assets. For example, a middle-income family on just over £26,000 would have to save everything for 96 years if they were to reach the wealth of a household in the top 10%. This emphasises the Advantage that people with inherited wealth are at, they are simply given more wealth and assets whereas it would be impossible for an average person to earn their way into wealth. The average home is now more than eight times higher than average wages. This puts low-income families at a disadvantage because it means it is extremely difficult to own an asset like a home due to the increase in house prices. In the uk 90% of wealth is owned by 50% of mainly elderly households and will go to their children. This is more than half of the wealth in the uk which will just be passed down for generations giving all these families a boost and leaving the more average people working hard to gain assets. The effect this has is that it means the rich will just get richer and that percentage of the uk will always be financially stable, however the average families will be left making no progress and for many poor people it would be logically impossible for them to gain an asset this cycle is a huge cause of income and wealth inequalities.
Low pay
Another cause of income and wealth inequality is low pay. The national living wage according to the government is currently £10.42 per hour if you are over 23. However, the charity the living wage foundation defines it should be £10.90 to live on. If you are under 23, it varies from £10.18 (21- and 22-year-olds) to £5.28 for under 18s. The national living wage causes age-based inequalities, this is an important cause of income and wealth inequality as it means the government assume that people under the age of 23 don’t need as much money however this is not the case as many people over the age of 18 share the same responsibilities as a 23-year-old may. It is also legal for a 16 year old to move out or for their parents to ask their child to move out. Meaning the wage, they are being paid will not be enough for them to live on properly. The idea of the national living wage is that you should be able to work a full time Job and not be in poverty, but this is not the case as workers are being paid less than what they need to live on which in turn continues the cycle of poverty. For example, the proportion of children living in poverty who are in working households has increased from 67% five years ago to 75%. (End Child Poverty Coalition). This shows that the problem is getting worse and it will lead to higher poverty rates across the country.
Structural unemployment
Another cause of income and wealth inequality is structural unemployment. Structural unemployment occurs as a result of decline of particular industries, which may be the result of a fall in demand for a particular good/service, the good/service being produced cheaper/more efficiently elsewhere or jobs being replaced by technology. Workers may also not be able to move from areas of high unemployment to areas with lower shortages due to difficulties of buying / renting a house. An example of when this happened was many jobs being lost in steel manufacturing in the uk because of steel being produced much cheaper in other places such as China in 2019. Losing your Job in a skilled job such as steel manufacturing is important in causing inequality as it means you don’t have transferable skills to apply in a job elsewhere. This means you are limited in options available for new jobs because you don’t have skills which can be used across different industries and fields leading to people such as the workers in the steel industry with no job. Unemployment causes inequality because if people lack paid income, they must rely on welfare benefits for income, but this is well below average earnings.
Cyclical unemployment
Another cause of income and wealth inequality is cyclical unemployment. Cyclical unemployment happens during a recession people spend less and employers lay off workers due to a fall in demand for their goods and services. E.g. UK unemployment rose by over a million between 2008-2012 following a financial crisis that caused the UK’s deepest and longest post-war recession. This means that many people in poverty rely on the economy doing well and as soon as there are problems it will cause difficulties in their jobs. Someone who is richer is more likely to have the resources to cope with a short-term period of unemployment and – if highly skilled – more likely to be able to find a new job. This lack of supply of jobs is important in causing inequality because those who are unemployed and less skilled are less likely to have savings than richer people who are less replaceable and are more likely to have savings which means they will find jobs easier.
Conclusion
In conclusion the factors inherited wealth, low pay, structural unemployment and cyclical unemployment all contribute to causes of income and wealth inequality. Low pay creates an age inequality and assumes that younger people don’t need as much money however this not the case as many 18-22 year olds have similar responsibilities to 23 years olds. Structural unemployment makes it difficult for people with less transferable skills to find jobs in different industries because they have always worked in one industry. Cyclical unemployment affects poor people as it means they are less likely to have savings to cope with a period of unemployment. However, I believe inherited wealth is the most important cause of inequality as these people do not have to go through any hardship in order to gain assets which puts them in a huge advantage as these days owning a house can take many many years, yet these people are given a head start.
