One of the most widespread issues that developing countries deal with is the unequal distribution of wealth, which leads to a wide gap in the wealth that separates the rich and poor today. This gap between the rich and the poor is what is income inequality.

As Adam Smith said, “No society can surely be flourishing and happy, of which by far the greater part of the numbers are poor and miserable.”

Before doing a deeper analysis to understand how rich are getting richer and poor are getting poorer day by day, let’s understand in  brief what is income inequality.

Income inequality refers to the extent to which income is distributed unevenly among a population. When a large number of people have limited income, while a small group controls a significant share of wealth, the level of inequality is high.

Causes of Income Inequality
1. Wage Determination in Capitalist Markets: In a capitalist economy, wages are often determined by supply and demand. For eg., if there is a high supply of labor for a particular job and low demand, wages tend to be low. Conversely, a low supply of labor and high demand can result in higher wages. This disparity in wages contributes significantly to income inequality.

2. Inequalities in Land Ownership: Land is a crucial resource for rural populations, particularly in developing countries where agriculture is a primary livelihood. Many rural people are landless or lack adequate security of tenure, which limits their economic opportunities. The World Development Report notes that the landless are among the poorest in developing countries.

3. Access to Education and Professional Opportunities : In many developing countries, access to higher and professional education is often restricted to elite families. This creates a class divide, as only those from wealthy backgrounds can afford the training necessary for high-paying professions like business executives, engineers, physicians, and lawyers.

4. Seasonal Employment and Disguised Unemployment: Agriculture, being dependent on seasonal cycles, often leads to periods of unemployment for farmers. When crops are not in season, farmers may not have other resources or opportunities, leading to disguised unemployment—a situation where more people are employed than actually needed, often at very low productivity.

5. Colonial Legacy: The effects of colonial rule have left lasting impacts on many developing countries. Colonial powers exploited these regions, often destroying local industries and creating markets for their own products. This historical exploitation has contributed to persistent economic inequalities.