factors to consider in the distribution of economic inequality

factors to consider in the distribution of economic inequality

Inequality has developed to an important factor in discussing how the distribution within an economy can be affected in various ways. Observing factors like GDP per income and occurrences of natural resources are part of economic inequality and its development during the last forty years.

The best way of highlighting the factors above we must consider the distribution of economic inequality throughout different regions or continents.

The distribution seems disproportional in reality when looking at the level of development in terms of low-income countries and high-income countries, as discussed in the journal by Ray.

Indeed, there’s a high dynamic in economic inequality when referring to low-income countries and high-income countries.

As mentioned by author Ray, inequality is linked to globalization leading to unevenness in production at the country level (Ray, 2010).

In other words, educational status referring to the labour force of underdeveloped and developed countries plays a significant role in realizing how a change in inequality reflects a cause of uneven growth. Human capital sets the tone in a country, meaning the more skilled labour is, the higher the level of economic growth. In accordance with this, the author Ray implies in his research how educated labour with higher skills witness an even growth, and on the contrary unskilled labour in low-income countries is devoted to non-traded goods (Ray,2010). As a result, globalization does have an effect on inequality inducing uneven growth.

Per capita income depicts a fundamental difference between highly developed countries and countries that have been colonized and still suffer from dependencies in advanced countries.

In countries driven by capitalism, the magnitude of economic inequality is significantly larger than in countries driven by socialism, where social welfare is provided.

This is basically amplifying the development gap, such as the division between the rich and poor, by considering the status of a country’s development.

Referring to the results of Norton and Ariely, the above-mentioned aspects don’t necessarily fit. The focus lies more on America’s politics leading to different income distribution. You could argue that even though the U.S. is considered a highly advanced country, income inequality is inevitable, leading to uneven growth. The middle class has shrunk significantly over the last years, where many experts mention that there is no middle-class at all.

The status of a country’s development doesn’t necessarily mean how income is distributed among the population. With the help of the study by Norton and Ariely, the fact of high wealth inequality can be retrieved, while the American people even underestimates the level of wealth inequality in their country (Norton and Ariely, 2011).

Once realizing that the top wealth quintile owns 84%, the majority of Americans prefer the income distribution of Sweden. Wherein political debates about a redistribution of wealth are still on-going.

To sum it up, by emphasizing the disparity between high- and low-income countries, their effect on globalization, and the effect on income inequality, thus leading to uneven growth, a change in economic inequality can definitely be seen as a cause of uneven growth.

However, after analyzing the results of the study by Norton and Ariely, in highly advanced countries, discrepancies in society do also evolve, leading to changes in economic inequality, which reflects on being rather a consequence than a cause to uneven growth.

The way of measuring a person’s well-being is linked to his/her wealth. This fact led to many discussions and concerns in almost every country about the dynamics of economic inequality, which has a significant influence on politics, and people are often trapped in poverty having small chances to climb the social ladder.

Question 4a)

Are inequality and ecological sustainability interlinked?

In the following passage, we refer to the correlation between inequality and ecological sustainability.

Wealth or to be more accurate, income inequality has a significant influence on ecological sustainability in terms of wealthy people who can easily skew policies on sustainability and a greener environment. In contrast, poor people must live with the consequences. Countries where the Gini coefficient is closer to zero, meaning income has been distributed more equally, tend to overcome this issue of social discrepancy and ecological sustainability.

Many theoretical statements about the linkage of social inequality and ecological sustainability can be made. Still, when referring to the practice, it is evident that most people living in threshold countries are more exposed to environmental damages.

Economic-strong countries like the U.S cover themselves for losses in terms of natural disasters. On the contrary, threshold countries like Brazil or Mexico with a high occurrence of biodiversity cannot fight the risk of natural catastrophes due to limited resources, leading to a decrease in biodiversity.

As author Jerome Chave depicted in his results, an estimated inequality exponent shows how an increase of 1% in the Gini ratio is connected with a rise in the number of threatened species, a biodiversity loss. (Gregory M. Mikkelson & Andrew Gonzalez, 2007.)

Not forget here is with the increase in GDP, the land will be principally used, thus driving biodiversity loss. As the above-mentioned economic growth is currently the principal cause of increased climate change, leading to biodiversity losses.

Some authors tend to say that with the increase in income inequality, economic growth and Co2 emission depend more on each other.

Moreover, do underdeveloped countries strive for tools to access resources like water or energy, which might be ordinary for developed countries. The occurrences of ecological resources are naturally given for underdeveloped countries, however making use of it, is a significant challenge. Threshold countries tend to have higher biodiversity, but due to limited resources is leading to a decrease in biodiversity.

Analog to the World Bank, alone in Sub-Saharan Africa, estimated costs of clean water run outreach 11 billion dollars (World Bank, 2012). Lack of resources is one of the main issues for countries with low GDP. According to Laurent and Raupach, developed economies utilize half of the global resources and still damage the environment by emitting 45% of greenhouse gas emissions (Laurent and Raupach, 2012&2007). On the contrary, the poorest, suffering from also a high inequality account for only 7% of CO2 emissions.

It cannot be ignored how a valuable continent with a high amount of natural resources contribute a significant part of decreasing GHG emission, by only accounting 4% (Laurent and Raupach, p.81, 2012&2007). However, another dimension of inequality will affect Africa negatively. Namely, the population will suffer water shortages caused by climate change (Laurent and Raupach, p.81, 2012&2007).

Inequality can be clustered in different aspects, such as income or even gender inequality, which is also interlinked to ecological sustainability.

In a report from the World Bank concerning gender inequality, it is stated that women tend to outlive men by several years, leading to an increase in male mortality (World Bank, 2012). The mortality rate is related to risky behaviour by men such as smoking and alcohol, which is causing environmental pollution and reducing an aspect of the human development index, in particular the life expectancy of men.

Developed countries do have the resources, but tend to care less about environmental sustainability; thus, social discrepancies remain the same.

Developed countries with higher inequality do consume a lot more resources and generate more waste than threshold countries. As we can see in terms of income inequality, the rich tend to care less about the environmental component, which affects ecological sustainability negatively.

Threshold countries don’t have the skilled labour forces to embrace technological progress by using and even protecting biodiversity, wherein potential job possibilities diminish, leading to the same result in higher income inequality.

In my view, different types of inequality are linked to ecological sustainability, wherein, for instance, the more powerful countries or less powerful countries contribute their part.

Author Islam states that higher income inequality causes in many societies a higher aggregated level of pollution than in a community with equal distribution of income (S. Nazrul Islam, 2015).

How can the economic system lead to a reduction in emissions and inequality?

A way of explaining the overall economic system and its influence on emissions and inequality, additional variables have been used. These variables serve to comprehend if there are essential dependencies to reduce emissions and inequality.

To start with, we look at the GDP depicting a standard indicator for economic growth. Following the GDP, we look into GDP per capita very carefully, which reflects the “average” revenue per person in the economy. Assuming that GDP grows, it will have an impact on the inhabitants of a country, leading to a higher standard of living. Especially countries with a large amount of population tend to have more job opportunities leading to higher productivity wherein economic growth can be reinforced and ensured. Speaking about developing countries, since the beginning of industrialization, strong economic growth was linked to an increase in carbon dioxide emissions. Through new rules facing this issue of significant risk in air -water pollution, more countries invest in renewable energy, thus leading to a decrease in emission of greenhouse gases. (Source:

European Commission, 2019).

The best-case scenario would imply that developed countries make use of their financial stability to invest in renewable energy, which will then end up decreasing greenhouse gases emission. However, in practice, events like the financial crises lead to a decrease in greenhouse gas emissions. Here, countries are obliged to minimize investment into harmful ecological projects due to high financial risks, thus leading to a reduction of greenhouse gas emissions.

Furthermore, with the increase in GDP, a country will increase the estate tax and hence reduce the income inequality within an economy.

To be more accurate wealthier people are getting money without going to work, fostering the way of passive income streams. According to the “OECD” increase in wealth tax is going to reduce income inequality and reinforce social mobility (“TheGuardian,” 2018). Due to an increase in housing prices, people’s wealth depends highly on how much they inherit. The fact that inherited wealth is unearned, many couples end up in avoiding the payment of inheritance tax, thus leading to higher inequality and unfairness in reality.

The estate tax has been considered because wealth inequality nowadays becomes higher than income inequality, meaning pensions or real estate savings have increased a lot.

In line with the published book by author Bowles, we refer to the growth in productivity which leads to long-term increases in living standards, however equal redistribution is limited, thus leading to a decrease in income inequality (Bowles, S. 2012.)

Not to forget is once again the Gini coefficient, which illustrates, as above-mentioned, a widely used measure of income inequality and underlines the aspect of adding the variable of Estate tax in the model. To depict a linkage between Gini and inequality, hence the ratio of Gini tends to be lower after-tax income than for before-tax income (Figure 3).