Causes of Poverty and Inequality and Its Impact on Economic Issues

Causes of Poverty and inequality and its Impact on Economic issues

Income and Wealth

In economic sense income can be a flow of income from capital stock or from employment. In most economies income is mostly derived from employment. As well, income is also derived from capital stock such as pension income, income from savings as interest, income from owning shares as dividends and income from property as rents and capital gains from the sale of property.

Wealth is a stock of assets which has market value. They can be savings deposits in banks, consumer durables, Property, Pension fund contributions and Life Assurance and other schemes.

They wealth also can be in terms of value of shares owned at market values.

Income differences in wages and salaries

In a market economy different occupations get different wages and salaries depending on the skill, training and duration in a particular profession or occupation because of incentives in a market system to have occupational mobility and geographic mobility in the labor market. For example the managerial and executive positions in public and private sector get the most salaries compared to skilled professionals ans semi-skilled professionals. As well there is also differences in a specific occupation on age and experience. As well, it also depends on whether it is full-time, part time or causal in particularly in unskilled and low paid jobs like cleaning, manual work and work in some agricultural unskilled jobs. In addition,the wages and salaries also reflect the trade union power and the economic cycle. For example when the economy is at a recession mostly the unskilled workforce is mostly affected my unemployment than others and their wages may be mostly decreasing than other occupations and it is distributed unevenly depending on age and geographical locations because of different structure of economic activity and scale of activity and the impact of recession is mostly uneven.

In other words, the income inequality in a market economy depends on the wealth of people and the work they perform as well as the economic cycle the market economy produces.

The concept of Absolute and Relative Poverty

Absolute Poverty

Absolute poverty refers to a persons inability to consume certain basic goods and services. However, the definition of basic standard of living is open to question as it is difficult to define basic standard of living in an objective sense. In advanced industrialized countries absolute poverty is comparatively low compared to developing countries. However, it exist in even the most developed country like USA and other advanced European countries to varying degrees whether they have a social security system and other social programs and the level of income inequality acceptable to that country as a society as a whole.