What Causes Income Inequality and Why it is Bad.

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On January 16th, Oxfam released a report called "The Economy of the 1 percent". The report was released just before the wealthy and the most powerful people around the world met in an economic forum in what is described as a discussion on how to shape global, regional, and industry agendas. The report highlighted a shocking statistic - the top 1 percent own as much wealth as the rest of the world combined. Last year, 62 people owned the same amount of wealth as the bottom 50 percent - which is 3.6 billion people. This year it has fallen to a shocking eight. Also, the wealth owned by the bottom 50 percent has fallen down by a trillion dollars in the last five years.

What is Income Inequality?

Income Inequality is the difference between the highest wage and the lowest wage in an economy.
Income Inequality is the difference between the earnings of top 1 percent and the rest of 99 percent.
Income Inequality is the uneven distribution of income among the people in an economy.
Income Inequality is the share of the income of the top 1 percent,
✘ Wrong

Income inequality is the uneven distribution of earnings among different people. To a certain extent, economists consider inequality to be good; it can be an incentive to take risks and work hard - contributing to the growth of the economy. But in the recent years, wealth produced by hard work and rise in productivity has increasingly gone to the rich, while the poor and the middle class are receiving very little reward for their effort.

What are the causes of Income Inequality?

Wage Stagnation and Decrease.

It is true that globally, the income growth has been responsible for many great achievements like - reduction in extreme poverty from 43 percent in 1990 to 21 percent in 2010 and, India and China becoming global economic powerhouses. But, even though the world is twice as rich in the last 30 years, the benefits of income growth have largely gone to the richest 10 percent. The richest 10 percent have received 46 percent of the income growth

while the bottom 10 percent has seen only a _________.

0.6 percent increase
2 percent increase
10 percent increase
5 percent increase
✘ Wrong

The bottom 10 percent have seen only 0.6 percent of the income growth. According to Oxfam, the top 10 percent have received more than the bottom 80 percent and four times more than the bottom 50 percent. (Image-OXFAM)

The income of the poor is not growing at the same rate as the global economy. If the poor had received the same rate of increase in income as the economy of their country,

the extreme poverty rate would be down by _______________.

100 million
500 million
50 million
200 million
✘ Wrong

There are 700 million people living in extreme poverty. If the people living in extreme poverty had received the same income growth as the economy, extreme poverty would have reduced by 200 million. If they had received 2 percent more, poverty rate would be half the current number. (Image-UNHCR)

Even for the middle-class, wages have not kept up with rise in productivity. The share of the income going to workers is actually declining while business owners and CEOs have seen steady increase - most often at the expense of the workers. In the United States, the productivity has grown close to 72 percent in the period 1973-2014 but the inflation adjusted median wage has only increased by 8.7percent over the same. Hourly non-supervisory wage earners who make up 80% of the American workforce have only seen a 9.2 percent rise.

productivity and typical worker's compensation

Meanwhile, from 1978-2014, the CEO pay has risen by _________________________.

997 percent
100 percent
568 percent
675 percent
✘ Wrong
CEO to typical worker pay chart.

CEO compensation has increased from an average of $1.5 million to $16.3 million in USA. In the same time span the typical worker pay has risen from an average of $48,000 to $52,200. While companies are profiting, the benefits are only being transferred to the rich.

Tax Evasion

Taxes are important - especially in developing countries where it pays for welfare schemes like free primary education and healthcare - improving lives of millions of people. But, Taxes are complicated and the wealthiest corporation and individuals have the resources to find loopholes in domestic and international taxation - evading trillions of dollars in tax.

It is estimated that 7.6 trillion dollar is kept in offshore tax haven which is more than ________

the GDP of USA
the GDP of Germany and United Kingdom
the GDP of China and India
the GDP of European Union
✘ Wrong

The tax havens have more wealth than Germany and UK combined, all of which is hidden. Africa loses 14 billion dollars a year to tax haven; money that can provide 4 million children with healthcare and education. When the wealthy corporations and individuals don't pay their taxes, the tax burden falls on the middle class and the poor. The revenues are often insufficient to carry out socio-economic upliftment programs like healthcare, education, sanitation and drinking water facility etc. and the poor lose out in opportunities.

Since 2000, USA has lost close to 5 million jobs as a result of ___________________

Trade Deals
Shadow Finance
✘ Wrong
Car Robots


Increase in Automation of industries has destroyed manufacturing jobs that were a source of income to a lot of low skilled and blue collared jobs. USA has lost close to 5 million jobs to automation since 2000. Large scale unemployment coupled with automation means that there are fewer jobs for large number of people. This causes income to stagnate as people are more willing to put up with low income wage rather than be unemployed. Stagnant wages means that re-education in jobs available in the skilled sector - those often requiring computer skills can be an expensive and a risky proposition.


There are two types of subsidies that the rich gain from. One is capital gains tax breaks, another is large scale industrial tax subsidies.

Capital Gains is ________________

tax rebates on higher income earnings for business owners.
profit gained from a sale of an investment where the selling price is higher than the purchase price
lower taxes on financial savings in offshore businesses.
corporate income tax owed to the government.
✘ Wrong
Capital Gains for top 1%

In America, capital gains ( stocks, bonds, real estate ) are largely held by the rich - the richest 1 percent took home 71 percent of the capital gain in 2012 and the top 10 percent own 80 percent of all stocks in America. The capital gain tax rate is well below the regular income tax level and are often given further tax breaks - which increase the after-tax income benefitting the rich again. (Image-NYT)

The second type of subsidy is the one given to large industries which are dominant in their field and have lobbying power to create monopolies and tax breaks for themselves.

Fossil Fuel industries are given around _____________ in subsidies by G20 nations.

112 billion dollars
452 billion dollars
300 billion dollars
45 billion dollars
✘ Wrong
Emissions and Pollution by the top 10 percent

The 20 richest economies in the world have given 452 billion dollars in subsides to oil and gas industries. These industries also lobby governments into denying the existence of climate change - while the world's top 10 percent produces 50 percent of global carbon emission. The poorest suffer harm because of the subsidies which could have better paid for civic amenities and also because the poorest of people live in areas that are most vulnerable to climate change.

There are also other reasons that are contributing to the burgeoning wealth inequality like the shadow financial system, globalisation, lack of education etc. But, like all the causes mentioned above the message remains the same. People are working hard but are cheated out of their fair share. The unfair system where the rich get richer is slowing down global growth, which in turn cycles back to hurt the poor - as they suffer from bad income, lack of healthcare and education, and poverty.

All in all it is gross injustice.

Images from Wikipedia Commons

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