A little degree of inequality acts as a positive influence on economic growth in the short term. Some economists have found empirical evidence of a negative correlation between long-term growth rates and sustained economic inequality. Thus, higher rates of inequalities stifle growth rate.
Growth gets suppressed in economically unequal societies, after a phase of increased growth, by the decreasing availability of investments for human capital. Physical capital becomes increasingly scarce, as fewer individuals have funds to invest in training and education.
Many studies have showed a positive relationship between income inequality and crime. A wide gap between rich and poor tends to increase crime by reducing law enforcement spending in low-income areas. Wealthy members of a society tend to concentrate in secluded communities, especially as the disparity between the rich and poor increases.
When wealth comes in a small number of hands, political power tends to become skewed in favor of that small wealthy group. High-income groups are able to manipulate government in their favor through both legal processes and through corrupt practices. Hence, income inequality promotes political inequality and disparity as well.
India is one of the most unequal income distribution countries. It would take 941 years for a minimum wage worker in rural India to earn what the top paid executive at a leading Indian garment company earns in a year.
A few ways out seem to be by investing in agriculture and increasing the tax rate of high income populations. As per the World Bank, agriculture can help reduce poverty for 80 per cent of the world’s poor who live in rural areas and work mainly in farming. Investing in women’s education can also be of great help. Controlling Monopolies and implementing restrictive trade practices and minimum wage policies will also facilitate the decrease in income inequalities.
Fahid Fayaz Darangay
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