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Updated December 9, 2020

Income Inequality and Wealth Inequality

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Income Inequality and Wealth Inequality essay
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Income Inequality

Piketty (2014 p. 242-244) Income inequality is defined by Thomas Piketty in his book “Capital in the Twenty-First Century” ‘mentioned these two points: inequality of income from labor and inequality of income from capital or Wages and Profit ‘ in general the income inequality can be from many changes in a society: High equality wages and low equality profit, low equality wages and high equality profit or even low equality wages and low equality profit meanwhile, Capital income in a society is greatly less alike because Investments derive from savings and borrowing, these society have enormous savings and can easily borrow more money without any tension and fear of interest payment, but on the other hand Poor society and meddle income families wisely design their investments plan but thoughtfully borrow and do not borrow as large sums of money as high income families do. Therefore, the rich people will invest rather a bigger sums of money, and get more advantage over poor.

The size of Investment also has impact on Income inequality. Those investor invest a higher amount moneys will easily get benefit and advantage thus build a much more return on investment. Because rich people have less time to manage their business and investment therefore they higher high qualified professionals to run their business (Piketty 2014 p.243).

Piketty in order to compare income inequality focused on the financial records of some particular nations throughout a particular period to compare the low, medium, and high labor and capital income inequality. However this does not for the aim of a direct comparison, but this will offer a viewpoint for the values. Thus he used US financial record in 2010, for high inequality measure, for middle inequality used France and Germany in 2010, and for low inequality he used Scandinavian countries during the 1970-1980’s. At the beginning he put light on the labor income for the above mentioned Nations. And Piketty finds that the wages for top 10% earners in high wage inequality nations is 35 %, in meddle wage inequality nations is 25 %, and for low wage income inequality Nations its 20 % of total wages. The wage income shares for the lower 50 % of people are 25 %, 30 %, and 35 %. (p. 247)

Surprisingly Capital income is rarer alike. We know investment is comprised of savings and borrowing, people with high will smoothly borrow much more savings or other property can more easily borrow more without any fear of interest payment but on the other hand Poor and meddle income families should plan very cautiously their investment in addition must not borrow as vast total of money as high income families do due to we The rich people have the potential to invest a lot of money in order to get high profit as said before. (Piketty 2014 p. 257)

Piketty’s studied the capital income comparison for the richest 10 % of same nations mentioned with specific period like he did before for wage income and find that low, middle and high inequality are 50 %, 60 %, and 70 % but on the other hand lower 50 % capital incomes have shares of 10 %, 5 %, and 5 %. (Piketty 2014 p. 248)

According to (Piketty 2014 p. 260) the different between labor income and capital income is clear. The significance of capital income in wealth inequality is much vivid, capital is frequently much more harmless from the effects of inflation and recession. For instance share values may decline in recession, but substitute investments are easily accessible to the alert business. Gold and currencies have the ability to serve as substitute investments choices to help reduce the special effects of inflation and recession. But families with Low income cannot easily transfer their minimum savings to these choices, as they need them in order to fulfill their basic requirements.

Wealth Inequality

The Credit Suisse on October 2014 published their Global wealth Report that cover from 2000 to 2014 period, and studied wealth inequality this period put light on the effect that the financial Crisis had on overall world economic Growth. (Davies et al 2014 p. 28) The Report said that through 20th century the wealth inequality was declined in high income societies, and now also this trend is repeat itself again. (Davies et al 2014 p. 28)

To find out the cause, the report put light on those nations growth included in the report. Due to lack of financial data for long run the report controlled to collect suitable data for ten developed countries namely: United States, the United Kingdom, Australia, Denmark, Finland, Norway, Sweden France, the Netherlands, and Switzerland. From 1920’s to 1970’s the trends showed decreasing in the share of the top 1 %, for these countries and then slowly increase since 2014. The overall result for the entire time interval 1914-2010 displayed decreasing for all of these nation excluding Switzerland, that there is no particular trend but the wealth share of the following 4 % had keep on the alike in 2010 as compared with 1914. (Davies et al 2014 p. 30)

Afterward (Davies et al 2014 p. 33) mentioned for world comparison the overall growth in twenty first century get the more data accessible. Wealth inequality slowly decline just because of short term growth of the entire world, this case is not for China and India. Nevertheless following the 2007 Financial Crisis, the US wealth inequality decline rapidly during 2007 but after that it was gradually increased throughout the US however wealth inequality in the rest of the world has already been exceeded by 2014.

For an actual figure, the US share of wealth for the top 10 % was 74.6 % in 2000, raised marginally to 74.8 % in 2007, and as a final point fallen back to 74.6 % in 2014. France started very greater variations from 56.4 % to 51.1 % and lastly to 53, 1 %. Germany from 63.9 % to 61.7 % and remained the similar in 2014. Asian countries had a very fast growing movement but very dissimilar from the US and European nations. For example Japan had 51.0 %, fallen to 49.4 % and additionally let go to 48.5 %, a little bit setback of the China’s trend. Russia had 77.1 %. Fallen to 75.4 % and after jump to 84.8, a rapid setback of the drop in 2007. India had 65.9, increased to 72.3 % and further increased to 74.0 %, Pakistan had 63.6, raised to 71.6%, and additional raised to 73.2 a very speedy increasing trend. (Davies et al 2014 p. 33)

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