Income imbalances occur whenever there's a clear, long-term trend of one group of people earning a disproportionate share of income compared to another group. Income diversity, which refers to the small differences in income among a population, is a natural part of an economy, but imbalances can represent alarming trends and have widespread effects on economies and individuals.
Gender Imbalance
One form of income imbalance occurs when members of one gender earn significantly more or less than their counterparts in similar roles. Laws in the United States, such as the Equal Pay Act, require employers to pay women wages commensurate with what men earn in the same positions. Ongoing imbalances can make it difficult for women to support themselves or their families on their own. In addition, a gender imbalance of income within a relationship challenges traditional roles and may create social tension if one partner earns significantly more than the other.
Regional Imbalance
Regional income imbalances have a number of major effects. When workers in a given area earn significantly more than those who live and work elsewhere, labor displacement can occur as workers flood into the high-income region, reducing the populations and tax bases of the regions they leave behind. This can prompt changes in national immigration policies if workers are crossing borders to pursue higher-income work. It can also cause regions where incomes are lower to enact fiscal policies to stimulate job and income growth, such as changing the corporate and personal income tax structures.
Income Inequality
Income inequality refers to an income imbalance between high wage earners and low wage earners in the same region or country. For example, in the United States, the percentage of the income share that went to the top 10 percent of all wage earners rose steadily during most of the 1980s and '90s, widening the gap between rich and poor. This type of imbalance has the effect of consolidating wealth within an upper class. It also causes governments to enact fiscal policies, such as progressive income taxes that assign a higher tax rate to the wealthiest taxpayers.
Considerations
Each type of income imbalance has its own causes and potential effects. Governments are among the organizations able to take action to help reduce an income imbalance. However, fiscal policy doesn't necessarily have the desired effect. For example, the decision to raise the tax rate for wealthy taxpayers and businesses as a means of eliminating income inequality could also force business owners to lay off middle- and lower-class workers to keep profits steady, thereby worsening the earning power of many low wage earners.
Other actions, such as mandating equal pay for women, address income imbalances more directly. In each case, the debates between economists and policymakers are complex discussions that have wide-reaching implications beyond the scope of the income imbalances they address.
