Source: Asia Pathways
Income inequality is one of the most profound social, economic, and political challenges of our time. A survey conducted by Pew Research Center (2014) found that more than 60% of worldwide respondents regard the gap between the rich and the poor as a major concern. Piketty (2014) draws the unequivocal conclusion that growing inequality between the rich and the poor—between the owners of capital and the rest of society—is the normal state of affairs under capitalism, and that periods of decreasing inequality, such as during a post-war boom, are the exception, not the rule. The income gap is at its highest level in decades for advanced economies (Dabla-Norris et al. 2015), while the inequality trend has been rising in many developing countries. In Asia, despite recent economic growth, income distribution has been worsening as well. Inequality for the Asian region as a whole has grown significantly, rising by almost 42% in around 2 decades.
Many factors, such as globalization, biased technological change, labor market imperfections, education, fiscal policy, and demographic changes, among others, have been identified as drivers of growing income inequality. Although globalization spurs economic growth, it can also affect income distribution if trade increases the differentials in the returns to education and skills, leading to the marginalization of certain groups of people or geographic regions. Liberalization may also not by accompanied by the development of adequate institutions and governance. Meanwhile, improvements in technology have dramatically augmented productivity, but they have also affected income distributions by altering the rate of return on assets, favoring capital over labor as well as skilled labor over unskilled labor. Flexible labor markets promote economic dynamism through the reallocation of resources from less-productive to more-productive firms. However, greater flexibility can increase the risks disproportionately for low-skilled workers (Alvaredo et al. 2013), exacerbating income inequality. Education …continue reading