3.6.3 The impact of inequality on economic agents

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    ISSUE WITH INEQUALITY

    • Weak demand in goods and services
      • Consumption levels are dependent on wages of those in lower/middle end of income scale rather than profits of the wealthy
    • Household debt
      • With stagnant wages, households rely increasingly on debt to maintain lifestyle – loans easier to get
    • Wealth concentration
      • Wealth at top of income scale increases risky financial speculation (Wall Street Crash)
    • Poverty increases
      • Expensive to deal with/solve inequality (benefits)

     

    IMPACT ON INDIVIDUALS (poorer end affected more)

     

    • Lower aspirations
    • Poorer health
    • Social immobility
    • Cannot participate in society
    • Lower life expectancy
    • Lower educational attainment

     

     

    IMPACT OF INEQUALITY ON FIRMS

    • Pattern of demand alters for mainstream businesses. Those targeting rich or poor survive whilst others suffer from less demand.
    • Low income groups have less disposable income (will spend less) so sales are affected.
    • Businesses may take advantage of increasing inequality e.g. zero-hour contracts (so have lower costs) to cope with flexible demand
    • Harder to recruit skilled employees in some areas due to polarisation of poor citizens (possible skills shortages)

     

    IMPACT OF INEQUALITY ON THE ECONOMY

    • Loss of output due to low productivity and employment
    • Loss of talent – poorer children may not go to university and have less opportunities
    • People unable to save – vulnerable population
    • Lower economic growth – mainstream businesses especially
    • Increased cost to health services (and Gov. have opportunity cost) due to poor living/working conditions
    • Minority of rich people influence decisions

     

    LINK BETWEEN LOW PRODUCTIVITY AND INCOME

    • Employees less motivated and productive (less skilled/low-paid)
    • Higher absenteeism
    • Higher labour turnover and poor customer service

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