Impact of Income Inequality

Let us look at two hypothetical countries, X and Y

X - 90% of the population earn an annual income of $40,000 while 10% earn an average of $120,000 (3 times).
Y - 90% of the population earn an annual income of $40,000 while 10% earn an average income of $240,000 (6 times).

In X, the top 10% earn 25% of the total income. In Y, the top 10% earn 40% of the total income.

Which country give a better life to its people? Most people would probably say that country Y is better - as 90% of the people l earn the same income as X, and it gives the opportunity for the remaining 10% to earn much more.

But this reasoning is wrong. The higher income earners of Y can afford to pay higher prices for property and other products and services and push up the cost of living - which creates a negative impact on the remaining 90%. This is why "the rich gets richer and the poor gets poorer".

A country with a greater income equality will allow more people to earn enough to meet the cost of living and raise a family. This is why a low income country with greater income equality gives a better life to the people, rather than a high income country with greater income inequality.

It is the inequality of income and the high unemployment rate (a main contributor to the inequality) that leads to unrest that has been seen in many countries during the past year.

Read this article about income inequality in America.

This article compares the Gini index of Singapore with other familiar countries.

Tan Kin Lian