Income Inequality As a Positive Force

Income inequality is the unequal distribution of earnings among people in the society. It is no secret that the United states has a growing rate of unequal distribution of earning among individuals, it has been on an increase since the 1970’s. Today, it is often viewed that the gap between the 1% and the 99% is too big, the rich keep getting richer: Two years ago, Oxfam International found that the average household in the top 1 percent of earners makes more than nine times as much income as the 90 percent of households (Davos, 2015). Households in the top 0.01 percent make, on average, roughly 198 times more than the bottom 90 percent household.

Notwithstanding, income inequality is a vital characteristic for a social order where individuals act entirely out of their own will. In an article by Aparna Mathur, which was published by the American Enterprise Institute, ‘growing inequality gap is associated with growing opportunity….’ Income inequality is essential to America’s economy because provides a positive force which reinforces different sectors in the economy. Income inequality should be accepted in the society because it is a benefit to the country’s economy, there cannot be an improved standard of living for people in the society without inequality being present.

Income inequality provides positive force by increasing motivation for risk-taking among individuals. Dr Keith Payne, the President and co-founder of the National Institute for Public Policy, analyzed the relationship between income inequality and risk-taking. He stated through a research that income inequality boosts individuals to capitalize in rewarding, risky investments. Dr Payne carried out this experiment in collaboration with a former student of The University of North Carolina at Chapel Hill(UNC), Dr. Jazmin Brown-Iannuzzi and current UNC doctoral student Jason Hannay. He proved this point using two kinds of experiments; in one of the experiments, online volunteers were asked to play a gambling game.

The average results of prior players were shown to the volunteers; half of the volunteers were told that the best players who played before them earned higher than other players, while the other half of the volunteers were told that the difference of the prior players winning was small. Then each of the volunteers was asked about the amount they believed they needed to win in order to have the satisfaction of doing well and then they were asked to play the game by placing bids to win the money in the real world. The bidding was made in such a way that greater risks equals greater payoffs.

At the end of this first experiments, the volunteers who were told of the winning difference of the prior players placed risky bids and displayed a higher necessity to win the money than the other volunteers. They went further to apply this to real-world condition where they studied google search string data between people who live in states in America where the income gap is high and those who live in states where the income gap is low. Payne and the other two researchers found that those who lived in states where income gap is highest inclined to invest in more rewarding opportunities than those in states where income gap is low. Therefore, when inequality is present, individuals are motivated to choose high, rewarding incentives to increase their standard of living.

Income inequality motivates people to strive harder in achieving more earning. Higher income or holding more wealth denotes the signal that it is achievable for anyone too; h igh salaries motivate not only the capitalist class, but also the people who aspire to be and move up the economic ladder in future. Thus, what inspires college students the most to work hard and get involved with great opportunities is the high pay associated with their aspired work field. In October 11, 2016, Edward Conard stated that, “entrepreneurs become more likely to take risks the higher the potential payoff is…It also makes investors and people who have institutional knowledge more likely to invest in new ideas”. He continued that wealth “is the payoffs for risk-taking that motivate risk-taking and create these institutional capabilities”. In this context, Conard entails that entrepreneurs purposely take the risks which improve economic capabilities in return and makes the most talented workers more productive and dynamic. When fruitful and new ideas are created by capitalists, it brings about more jobs for workers, also providing more products and services that benefit consumers as well. If we do not have inequality in the society, people who don’t work as hard will make as much money as people who do work hard; and this does not help the economy of the society to move forward. Therefore, income inequality is a necessary and beneficial factor.

Cite this page