Causes of Income Inequality in Developing Countries
There are numerous causes of income inequality in developing countries. Income inequality can be defined as unequal distribution of individual or household income across different participants within an economy. This inequality is usually presented in form of percentage of income to the percentage of a population. Income inequality is associated with income fairness. Usually, it is considered unfair for the rich to disproportionally have a larger portion of the income of a country as compared to the entire population. Causes of income inequality vary significantly depending on various factors including gender, social status, education and region. On the other hand, a developing country is a country where most people live on money that is far less with few basic services being offered by the public sector than those in the industrialized countries. Incomes in the developing countries are below $2 in a day and most people in the population of these countries live in extreme poverty or under $1.25 per day.
What are the major causes of income inequality in developing countries?
Income inequality is felt more in the developing countries for various reasons.
- Technical change
Technical change is one of the major causes of increased income inequality in most developing countries. This is because technical change is biased towards capital and higher-skilled labor and globalization has disseminated it widely. The new international trade patterns have led to a bias against low and middle skilled labor. Due to technical change, production has become more specialized to a level where components of final products are produced in different countries. This complex fragmentation has led to an increase in the need for capital and skilled labor to the total added value as well as a reduction in the share of the unskilled and middle labor. Capital applies in this process while skilled labor is favored leaving the unskilled or middle labor with little or no income.
Taxation also causes income inequality within most developing countries. Majority of these countries are unable to collect income tax directly and effectively. As such, they turn to indirect taxation that has a tendency of being regressive because it does not relate to the income level of a person. Such indirect tax is imposed on certain foods, cooking fuels and edible oils as well as clothing among other commodities that the poor consume. This indirect tax continues to widen the inequality gap in the developing countries with the poor being unable to afford basic commodities in these countries.
- Family structure
Most families in the developing countries have a single income earner. This is where the man is seen as the sole provider of the family while the woman is left to take care of the children at home. This implies that such families have low income than in the developed countries where both man and wife are income earners.
How to address the causes of income inequality in developing countries
To deal with these causes of income inequality within the developing nations, various stakeholders should be involved. For instance, middle and low skilled people in the developing countries need to undergo technical training so that they can take up jobs that require the use of the latest technology. This will ensure that they will not become jobless due to the introduction of new technology. Governments of the developing countries should also avoid imposing heavy taxes on basic commodities that the poor segment of the population needs. Instead, they should tax individuals on the basis of the income that they earn. This will help in reducing income inequality because it will make basic commodities affordable to the poor, reduce the taxes that the poor pay and therefore increase their incomes. Additionally, family structure needs to change. People in the developing countries should educate both men and women to ensure that they all become income earners in the future. This will increase the income that families earn in the developing countries.
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