Income inequality

20 Dec, 2017

According to the World Inequality Report 2018 based on interactive collection of data compiled by an international team of researchers, global income inequality has worsened over the past four decades, with the wealthiest one percent of the world's population capturing twice as much income growth as the bottom half. The world's middle class, made up mostly of people in North America and Europe has fared the worst. Globalisation has boosted incomes in developing countries, particularly China and India, while it has lowered pay for manufacturing workers and other middle-income employees in the developed world. The US and Western Europe had similar levels of inequality in 1980, with the top one percent holding about 10 percent of income but by 2016, the top 10 percent in Europe held a 12 percent income share compared with 20 percent in the US. The report also showed that income groups soared after 1980, though they levelled off after the 2008 financial crisis. The richest 1 percent of the world's population saw its share of global income slip from 22 percent in 2008 to just above 20 percent in 2016. During this period, the share of global income going to bottom 50 percent rose slightly. The US fared the worst. The share of income earned by bottom 50 percent of Americans sank from 20 percent in 2008 to 13 percent in 2016. It was also revealed that while national wealth had substantially increased, public wealth is now negative or close to zero in rich countries.
The Inequality Report 2018 compiled by renowned economists like Thomas Piketty and Emmanuel Saez is quite interesting and sheds light on many aspects of income inequality on a global scale. According to the report, rich would continue to get richer if proper policies to ensure a change are not designed and implemented. Secondly, the rapid development in China and India over the last few decades has made a big difference on the overall scene on income inequality. Thirdly, incidents like financial crisis in 2008 could alter the course of global income inequality. And fourthly, the increasing incomes and wealth do not mean that the government's exchequer would also benefit on account of a growing pie. On the other hand, public wealth is now negative or close to zero as opposed to the surplus in the past. On the policy side, the countries could reduce income inequality through more progressive taxation and by subsidizing education. For instance, Western Europe has fared much better than the US in closing the gap between extremes. The divergence occurred partly because the tax code become less progressive in the US, while European policies provided more support for education and health which benefited lower and middle income families. In fact, the US situation is likely to worsen in the near future so far income inequality is concerned. It is clear that a tax cut now moving through the Congress will benefit wealthier class and worsen the wealth gap further. The House and Senate proposals, if adopted, would either eliminate or severely limit the estate tax which would make it easier for wealthy families to pass on fortunes to next generations. The policy of the transfer of public wealth to the private sector has left most of the governments without the resources needed to invest enough in social sectors to help counter inequality. In developing countries like Pakistan, the relevant data is difficult to get. However, there are signs of increasing income inequality in most of the countries which need to be measured, monitored and countered by appropriate policies. If these countries fail to address income inequality concerns, the situation can lead to various sorts of political, economic and social catastrophes. In countries like Pakistan, there is also a concern that top professionals are attracted by developed countries which further undermines the potential of the developing countries to progress.

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