Meaning of Economic Inequality

In our society, some people are rich, while many are poor. The rich have many income-generating assets such as houses, land, industries, businesses, etc. On the other hand, the poor have no income-generating assets, or if they do, they are very few. 

In other words, the distribution of income and wealth among the citizens of the country is unequal. Some people are rich, but many are poor. 

This unequal distribution of income and wealth among the citizens of a country is called economic inequality. Economic inequality is a problem in almost all countries in the world.

In countries with economic inequality, a few individuals, who are very wealthy or in a small number, receive a large portion of the national income, while the majority of the poor, who are in large numbers, receive only a small portion of the national income. 

The unequal distribution of national income or economic inequality creates social conflict, revolution, political instability, unemployment, poverty, etc. 

Therefore, it is considered undesirable and unjust from a political, economic, and social perspective.

Causes of Economic Inequality

There are various causes of economic inequality. These causes are influenced by the economic, social, political, cultural, religious, etc., aspects of a country.

The main causes of economic inequality can be mentioned as follows:

(a) Inheritance of Property: In Nepal, since sons inherit the property of their fathers, the sons of rich fathers become rich, and the sons of poor fathers remain poor. Thus, the economic inequality of the past continues to be maintained in the present and the future.

(b) Unemployment: Nepal faces a significant problem of unemployment and disguised unemployment. Unemployed individuals cannot earn income. Therefore, unemployed people remain poor, while employed people earn income, leading to an improved economic situation. Thus, unemployment is also a causative factor of economic inequality.

(c) High Population Growth: High population growth is also a cause of economic inequality. Poor people tend to have more children, resulting in larger families. When their family splits, the little property they have is also divided, becoming even smaller. On the other hand, rich people have fewer children, so they do not face this problem. Consequently, economic inequality is created in the country.

(d) Unequal Distribution of Wealth: In less developed and agricultural-dominated countries like Nepal, the main sources of income are land, livestock, houses, etc. These sources of income are mostly owned by a few people, while many people own very little. The rich earn a lot of income from these sources, while the poor earn little income. Therefore, the unequal distribution of wealth creates economic inequality.

(e) Differences in Inherent Abilities: People have different inherent abilities. Even brothers and sisters born to the same parents and having received the same education are found to have different abilities. Individuals who are inherently talented earn more wealth and income, while individuals who are inherently weak earn less wealth and income. Thus, differences in inherent abilities create economic inequality.

(f) Inequality in Education, Training, and Opportunities: Not all people can get equal opportunities. People who have received good education, training, and opportunities earn higher salaries or income, while people who have not received good education, training, and opportunities earn lower salaries or income. Thus, inequality in education, training, and opportunities creates economic inequality.

Measurement of Economic Inequality

There are various methods to measure economic inequality. Among these various methods, the Gini coefficient is the most popular method. 

It measures the level of inequality in the distribution of income and wealth using a statistical method. Its value ranges from 0 to 1. A value of 0 indicates perfect equality, while a value of 1 indicates perfect inequality. 

If the Gini coefficient is close to 0, it means that economic inequality is low. Conversely, if the Gini coefficient is close to 1, it indicates that economic inequality is high.

Measures to Reduce Inequality

Many countries around the world, including Nepal, face a significant problem of economic inequality. Therefore, it is essential to reduce inequality. 

The following measures should be adopted to reduce inequality in Nepal:

(a) Economic inequality can be reduced by implementing a progressive tax system. In a progressive tax system, the tax rate is higher for individuals with higher incomes and lower for individuals with lower incomes. 

(b) Economic inequality can be reduced by providing employment to the unemployed population. 

(c) Economic inequality can be reduced by controlling high population growth, which is a significant cause of economic inequality. 

(d) Economic inequality can be reduced by increasing the salaries and wages of workers in both the formal and informal sectors in Nepal. 

(e) Economic inequality can be reduced by providing free education, skill development, and training opportunities to low-income families. 

(f) Economic inequality can be reduced by providing allowances and pensions to the disabled, sick, single women, elderly, etc. 

(g) Inheritance of property is also a causative factor of economic inequality. Therefore, the legal right of sons to inherit ancestral property should be abolished, and there should be a legal provision allowing parents to distribute property according to their wishes. This will help reduce economic inequality.