The Link between Equality, Economic Growth and Stability

Posted: May 13, 2016

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The Link between Equality, Economic Growth and Stability

Income inequality has significantly increased in the majority of Organization for Economic Co-operation and Development (OECD) nations within the last few years. While top earners in some countries have captured a greater share of the overall income, others income have captured only a little (OECD 82). Economic scholars are increased convinced income equality is closely associated with economic performance and stability. This essay explores the link between equality, economic growth, as well as, stability.

Scholars have unanimously agreed that evaluation of economic performance should not take into consideration both income equality and overall income growth. Some of the measures than can minimize income inequality, boost GDP per capital and enhance stability include the removal of product market regulation that suppresses competition, initiating policies that fight all forms of discrimination and promote the integration of immigrants (Baillet 67). Transfer systems and tax can also play an integral role in reducing overall income inequality. The majority of policies revolve around a double dividend as they improve long-term Gross Domestic Product per capita while at the same time minimizing income inequality. Some of these policies encompass promoting female labor market participation, enhancing the integration of immigrants, minimizing labor market dualism, making education less dependent on both social and personal situations, as well as, promoting the accumulation of human capital. However, a broad range of policies may revolve around a trade-off between increasing GDP per capita and minimizing income inequality (OECD 84). Some of these policies include setting labor costs at extremely high levels. Nevertheless, cash transfers targeted to lower income can be employed to ease this trade off.

Some policies that target GDP per capita improvement may have uncertain effect on income inequality. One of these policies encompasses raising employment by avoiding long-term unemployment benefit.  Although this policy may broaden the distribution of income among employees, it may have uncertain impact on income inequality (Nafziger 5). Without income equality and economic performance, stability can be attained. Equitable distribution of income and economic performance can play an integral role in boosting stability in a country. The majority of countries experiencing economic instability, particularly in developing countries is a result of inequitable distribution of income and reduced GDP per capita.

Some of the factors that shapes income inequality include household adjusted disposable income, household disposable income, household market income, household labor income, as well as, individual labor income. Increasing income, as pointed out by Cypher, is often influenced by the rising concentration of income at the higher end of income distribution (30). For instance, in the United States, the top earners who account 1% of the entire population receive 18% of pre-tax in 2008.  Globalization coupled with new information and technology has significantly broadened the market for top earners.

Drastic reforms to boost human capital have been found to be critical in enhancing the living standards of people as well as minimizing labor income inequality. Existing literature demonstrate that an increase in the share of employees with higher education is closely connected to reduced labor earning inequality (OECD 92). Some of the policy initiatives that have been undertaken to improve higher education achievement encompass providing special support of at risk students, enhanced training and teacher recruitment, and improved accountability for learning institutions. However, some surveys have indicated that motivating additional students to pursue higher education may have uncertain impact on earning inequality.

Increasing social mobility by ensuring that academic outcome is less dependent on both social and personal conditions may promote GDP per capital through proper allocation of human capital and improving entrepreneurship (Cypher 31). Available literature demonstrates that equity in education is closely associated with equitable distribution of labor income leading to improved GDP per capita. Some of the reforms that have been undertaken to promote equity in education include offering basic schooling and early childhood for all, strengthening the relationship between home and schools, as well as, postponing early tracking.

As argued out by OECD, placing much emphasis on active labor market policies may increase employment and ultimately improving both labor income inequality and GDP per capital. Additionally, enhancing the integration of immigrants can play an integral role in raising GDP per capital and minimizing inequality through increased labor participation (Baillet 68). Some of these polices can enhance the integration of immigrants include putting in place transparent systems for acknowledging foreign qualifications and promoting language courses. Gender equality is also key to improving income inequality and raising GDP per capita. Traditionally, women used to take increased caring responsibilities and reduced working hours. Consequently, they used to take home less pay. Policies should be put in place aimed at minimizing gender differences in working hours. This will translate to increased income equality through improved labor participation. Moreover, GDP per capita will be improved.

Policies aimed at fighting discrimination will lead to improved income equality and increased GDP per capital. Bridging the earning gap between non-immigrants and immigrants can help in increasing income inequality and raising GDP per capital. Taxes can also play an integral in improving GDP capita and increasing income equality. Additionally, taxes influence the income distribution (OECD 93). While some tax reforms appears to be integral in improving GDP per capital and enhancing income equality, other tax reforms may negatively affect GDP per capital and income equality. Some of the tax reforms that can be undertaken to minimize inequality and enhance growth include re-evaluating tax expenditure that is advantageous to top earners. Reducing this tax expenditure may play an integral role in improving income distribution, minimizing marginal tax rates, as well as, enhancing GDP per capital.

Reducing relative labor cost may have a positive impact on employment. In particular, young and low-skilled employees may benefit from this initiative because they will increasingly secure employing opportunities. Consequently, income equality and GDP per capital will be improved. A significant number of adults in developing countries are increasingly unable to secure adequate earning in order to address numerous needs of their families (OECD 95). Additionally, a considerable number of people in developing nations are unemployed. A good number of those who have succeeded in securing employment work long hours under worse working conditions and have no job security in most cases.

The creation of decent jobs can as well play an integral role in reducing income inequality, improving GDP per capita and boosting stability. The productivity of poorest employees should be improved by initiating a broad range of sustainable development approaches (Rigg 26). The creation of decent jobs will combat the negative impacts of prolonged job crisis as witnessed during the 2008 global financial crisis. Critical elements of employment-oriented development approach encompass labor market policies, social policies, job creation, and investment. Additionally, the creation of decent jobs works in circumstances of human dignity, security, equity, and freedom.

Conclusively, it is evident in this essay that there is a strong relationship between equality, economic growth and stability. It is important that agreed that evaluation of economic performance should not take into consideration both income equality and overall income growth. As indicated in this essay, some of the measures than can minimize income inequality, boost GDP per capital and enhance stability include the removal of product market regulation that suppresses competition, initiating policies that fight all forms of discrimination and promote the integration of immigrants. Transfer systems and tax can also play an integral role in reducing overall income inequality. A significant number of policies revolve around a double dividend as they improve long-term Gross Domestic Product per capita while at the same time minimizing income inequality. Specifically, these policies encompass promoting female labor market participation, enhancing the integration of immigrants, minimizing labor market dualism, making education less dependent on both social and personal situations, as well as, promoting the accumulation of human capital. However, a broad range of policies may revolve around a trade-off between increasing GDP per capita and minimizing income inequality. Some of these policies include setting labor costs at extremely high levels. Nevertheless, cash transfers targeted to lower income can be employed to ease this trade off. As unraveled in this essay, some of the influences income inequality include household adjusted disposable income, household disposable income, household market income, household labor income, and individual labor income.

Works Cited

  1. Baillet, Cecilia M. Security: A multidisciplinary normative approach. Leiden: BRILL, 2009. Print. 67
  2. Cypher, James M. The process of economic development. London: Routledge, 2014. Print. 30
  3. Nafziger, Wayne E. Economic development. Cambridge: Cambridge University Press, 2012. 5
  4. OECD. Reducing income inequality while boosting economic growth: Can it be done?. Web. 16 Dec. 2015.
  5. Rigg, Jonathan. Challenging Southeast Asian Development: The Shadows of Success. London: Routledge, 2015. Print.
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