InCome Inequality in Australian Economy

Income inequality in the Australian economy offers a variety of social and economic benefits for consumers and the workforce. Income inequality provides incentive for those within the workforce to work harder and more productive, and receive an award in the form of higher wages – an incentive.

The economic benefits of income inequality are that it increases the productivity of the workforce by providing incentives to improve their position in the distribution of income. Income inequality forces the labour force to increase their education and skill level in the form of advanced schooling in order to be able to earn a higher income. The potential to earn higher incomes provides incentive for the labour force to work longer and harder – producing more, while this comes at the cost of the loss of leisure hours and time with family, however this will only happen if the reward is worthwhile. The attraction of a higher income is used to entice workers to where it is required the most, for example, entrepreneurs. The rewards on offer is encouragement for them to take risks with their money and/or business. If entrepreneurs did not receive adequate reward for the risks that they take, there would be fewer jobs available, a slowed rate of economic growth, less businesses, and an overall smaller productive capacity throughout the economy. The savings of an individual can also be positively affected thanks to income inequality. The relationship between income and savings means that the higher the income, the more money there is to be saved. However, this can have an inverse effect. This means that greater income inequality should lead to increased savings in the economy because of the increased high-income earners as well as vice versa.

The social benefits of inequality, while there aren’t many, are important in the advancement of the workforce in terms of skills and education. Incentive is the main social benefit that comes from inequality. This means that people with lower tier wages and lower socioeconomic upbringings may feel the need to work harder to achieve a higher standard of living, in comparison to higher wage earners and people raised in a high-income household. Income inequality gives people incentive to improve their skill level and receive a higher education in order to apply for higher qualification jobs, which pay more. Overall, the incentive to work harder is a social benefit as a result of income inequality as it encourages individuals to work harder for goals such as a better education, which increases productivity levels of the workforce from the lower classes in society.

Yet despite this, are several social costs of inequality affecting the economy. These costs include poverty, lower levels of wellbeing and a widening gap in socioeconomic groups. There are many social issues that stem from these costs. This could lead to a myriad of things such as crime, life expectancy drops, lower levels of social mobility and an increase mental illness