The Major Social and Economic Costs and Benefits of Income Inequality

Topics: Social class, Working class, Economic inequality Pages: 2 (787 words) Published: October 8, 2013
The labour force consists of all the employed and unemployed persons in the country at any given time. Glenn Stevens the governor of the RBA suggests that the Australian labour market in conjunction with the free market price mechanism facilitates income inequality within the Australian Economy. Income inequality within the Australian economy is measured by the gini coefficient. Australia’s Gini coefficient according to the ABS stands at 0.53 this indicates a moderately high level of income inequality within the economy. The benefits of income inequality may be that it encourages the labour force to increase education and skill levels and it also encourages the labour force to work longer and harder. Some of the economic costs of inequality may be that inequality reduces overall utility and it can reduce economic growth. Subsequently there are mainly economic benefits of inequality, but social costs are involved. Whilst theory suggests that greater growth may be achieved through either reducing or increasing inequality. SMH Economist Jessica Irvine suggests that to maximize growth in the Australian economy, income equality must be reduced in order facilitate in spending areas of structural change. The two major social costs of inequality are those associated with social class divisions and poverty. Social class divisions make reference to the distribution of income and how wealth creates class distinctions in modern economies, such as between groups broadly described as upper class, middle class and working class. These divisions can sometimes lead to social and economic instability. In 2013, a group of researchers from UNSW had found that only 2% of Australia’s population had classified themselves as the upper class on the nation’s economic totem pole whereas 57% of Australia’s population had classified themselves as the middle class. However the source of these social divisions stems from the different income levels within the labour market. The labour market...
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