Quiz 28: Income Inequality and Poverty


Income structure of every country depends on the skills and experience of the people who are working. In US there are different people with different skills, background, and experience. Some are highly qualified while others are less qualified. Since income depends completely on knowledge of the person, people with more skill set and knowledge earn higher salary than others. So this reason creates inequality in income among different persons. Fairness of income distribution should be judged on the basis of the skills the person possesses. If people with similar skills get different wages because of some sort of discrimination say color or region, then the income distribution is based as unfair. No, the Final outcome is not important because what matters the most in an economy is the fairness of the process. Even if the final outcome if the process is a very significant number but the process is unfair or unjust, the result would not make sense. So, it is important that both the process and the outcome be fair in their results.

Annual money income is not a good way to measure economic status. As annual money income doesn't state the true picture of an economy, it doesn't mean that if annual income is more, then the economy is doing well. There are other very important things which affect the status of the economy. For a Person with $80K income, there is no doubt that his income is twice that of a family earning $40k but it's not necessary that they will be able to purchase more amount of goods purchased by a family whose income is $40k because there are other factors which affect consumption and also units like price, quality, taste and preferences and area etc. everything being equal, the standard of living would be more for the person with $80K income, otherwise it can be even same or less. It all depends on the area and the tastes of the person.

Income mobility implies getting transferred to a different income group say from lower to middle and from middle to high income group. This leads to economic growth and reduces income inequality and reduces poverty in the society. However, such a move can also affect the income distribution negatively. Some people moving faster into higher groups and others being at their original levels would result in a wide disparity in incomes of the people.

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