Why the gap between rich and poor is increasing
The gulf in class between the rich and the poor has always been unequal but that gap has been increasing at a significant rate over the past 40 years.
While the poor are getting poorer albeit the occasional testament of an overnight success, the rich somehow get richer.
What then caused this Nile long gap in wealth between the rich and the poor? The answer isn’t that straightforward but can be chalked up to rising inequality in income, wealth and taxes.
Income vs. Wealth vs. Tax
Robert Manduca, a PhD student in the Sociology and Social Policy degree program in the Graduate School of Arts and Sciences carried out a study that proved that there has been an increase in the number of people living in communities at the extreme ends of the income scale.
His study also claims that the majority of this change is due to increases in income inequality at the national level.
The study was also described in Social Forces, a journal published by Oxford University Press.
“Only about 12 percent of the population used to live in places that were deemed especially rich or especially poor back in 1980, ,” Manduca said.
“By 2013, the number was over 30 percent. So what we’re seeing is a polarization, where people are increasingly living in places that are either much richer or much poorer than the country overall.”
Manduca attributed part of that shift to “sorting” – an idea that high-earning individuals and high-paying jobs have become more geographically concentrated. He claims this was as a result of rising inequality.
It is believed that since the 1970s, the richest people and communities have seen a significantly higher income growth than the poor and modest communities. This inequality has led to a glaring difference between regions.
This perceived inequality led Oxfam, a UK-based non-governmental organisation to publish a report titled ‘Time to Care’ showing that the gap between the rich and poor is increasing globally.
Amitabh Behar, Oxfam Chief Executive Officer described the uneven distribution of wealth and income as problematic and a major player in increased poverty across the globe.
The Government Accountability Office in the US also carried out a study proves that the widening gap between the rich and the poor not only affects income and wealth. The study showed that the rich also tend to live longer than struggling.
Their study proved that about three-quarter of rich Americans in their 50s and 60s in 1992 were still alive in 2014. While just over half of poor Americans in that age bracket in 1992 were still alive in 2014.
Not everyone is against inequality though; some will argue that it’s a good thing. Some will argue that it motivates people to work hard.
And while it’s true that the poor tend to be very hard working to make ends meet, it must also be argued that a lot of factors works against them to make them magically become rich from working hard.
There is no such thing as equality of opportunity, it’s a myth. The rules are rigged against everyone but the wealthy.
Quoting a sentence from George Monbiot, a writer and activist. he said, “every woman in Africa would be a millionaire, if wealth was the inevitable result of hard work and enterprise.”
It is also important to know that this inequality is a result of years of deliberate policies and rules that were put in place to favour a few – the rich. So at the moment, you can say it is what it is.
Inequality has always been on the rise in Britain. In fact, income gains have been split among the top 1% since the 1980s. The richest 10% take about a third of all income and own about two-thirds of the wealth.
Britain experienced significant growth in wealth by 13% between 2016 and 2018 to reach a record £14.6tn. During this period, the richest 10% households have also experienced an increase in wealth almost four times that of the poorest 10%.
Office for National Statistics (ONS) also published a study which found that for the poorest 10%, they had debts three times greater than their assets. While the richest 10% had a wealth 35 times greater than their total debts.
What this figure shows is a growing disparity between the haves and don’t have. This disparity can also contribute to some economic factors like standard of living, pension rights, property values, taxes, health care rights and so on.
In fact, many of those up the wealthy ladder have retained much of their property values and pension rights since the 2008 financial crash.
The Resolution Foundation ‘thinktank’ also suggested that the wealth of the richest 10% increased by 11% between 2016 and 2018 while it increased by only 3% for the poorest 10%.
Perhaps the most amazing thing about all this is that very few citizens share these concerns. Surprisingly you’ll feel people should be more awake to issues such as this.
I took a while to ponder upon this fact and it struck me that a lot of this negligence might have to do with our upbringing. Many of us come from homes where we were told success comes exclusively through nothing but hard work.
While this is true, I believe it is now becoming clear to the younger generation and some of the older generations that success requires more than just hard work. Success requires a plan.
You can now see more and more people now picking up side hustles and getting that extra skill. These two acts are ways you can increase your income and potentially your wealth.
We have a very useful article on 10 Side Hustle Ideas for you.
I don’t think you can get a proper understanding of the situation of inequality in the 21st-century without understanding the difference between wealth and income.
Income is the money an individual or business receives for work done or providing goods or through investments or assets. Income is used to fund day-to-day expenses.
Wealth is the total valuation of all the financial assets or physical possessions owned by an individual, community, company, or country. Wealth is calculated by the gross calculation of all physical and intangible assets owned minus all debts.
To get a proper understanding of this, let me give you an example.
Let’s say you earn £30,353 (median salary for full-time employees in the UK) a year, the calculation for your income here will be your average salary subtracted by associated taxes. What this means is that you are left with about £24,000 before other expenses.
The ONS pointed out that the normal household in the UK had a disposable income of £28,400 in 2018 which was unchanged when compared with 2017.
2019 saw a stagnation of income rise of the typical household after a period of consistent increase for almost 6 years while there was a rise for the top earners.
However, let’s say you have a wealth accumulation of £1,000,000 and it’s put into a savings account paying 2% interest. You will receive about £20,000, which later becomes about £18,000 after taxes.
It is important to note that this is the money you earned by just saving your wealth and doing nothing else.
It is also important to know that this growing trend of inequality is a reversal of the trend experienced in the past decade when income inequality reduced.
This is also backed up by reports published by the ONS that the richest fifth saw their incomes rise by 4.7% in 2018 while the poorest fifth saw a shrink in their income by 1.6% during the same period.
The ONS blamed benefits freeze for the rise in inequality and it makes sense too. They explained that although there is a rise in earnings which is due to an increase in employment, the loss of value for benefits might be responsible for a falling income for the poorest.
The income gap between the rich and the poor has been growing for a while now. But it seems a lot of people either do not notice or just do not see this as a problem.
This growing disparity between the rich and the poor has some consequences. It is not uncommon for the haves to live in locations of considerable social distance to the have nots. What this causes is social divide into the rich communities and the poor communities.
Thinking about this further, you will see that this divide affects more than just workers and employers alike. It goes as deep as children in schools. Very rarely do you see a poor man’s child in a rich man’s school and vice-versa.
Even in situations where both manage to attend the same school, it is often observed that they are still divided into rich and poor social classes.
It’s almost like there is an unspoken mutual understanding between the individuals of both parties that each has its own position and must stick with it.
The same segregation can be seen in the highly competitive job market. It is almost like some job positions are reserved for the rich and some for the poor. What the rich get with minimal effort and connections the poor must work extra hard to attain.
The same realisation is also evident in our social circles. The rich befriend the rich and the poor befriend the poor. The rich marry and grow family trees with the rich and the poor do the same with their social class.
I am not trying to fault anyone for being rich or poor but instead trying to point out the consequences of this growing inequality. But the truth is that it has always been this way and it takes great mental fortitude, planning and hardwork to break into the circle of the rich.
It also takes your belief that no matter your background, race, or social class you can become successful and rich. You can beat the odds of the growing divide between the rich and the poor. Your poor can become richer.