Undercharging Skillfull Workers with Income Inequality

Income Inequality

We often see different variations of inequality around us such as gender inequality, social inequality, income inequality etc. The most commonly observed inequality would be income inequality. Income inequality is the variation of distribution of income among the population in a society. In layman’s language, we could say that too much money is held by too few people and vice versa. According to Lammam (2017) “The top 20 percent of households own about 67 percent of the total wealth and the bottom 20 percent of households own less than 1 percent.” (pg. 84). This statistic illustrates that in Canada, the wealthiest families account for more money in ratio to the population compared to poorer or middle-class families whose proportion in the population is large but their wealth is comparatively low. Income Inequality does not only exist in countries like Canada but also in other developed and developing countries.

Issues and Importance

Issues

There are various issues related to income inequality around the world affecting everybody in this society. According to Keeley (2015), one of the most important and crucial issues affected by income inequality would be the decreasing number of highly skilled and productive labour in the economy (Keeley, 2015, p. 7). This illustrates that people in the labour force are not skilled enough thus not properly qualifying for the job and leading to inefficiency of employment in the overall economy. The reason for decreasing number of skilled and productive labour is mainly because of less investment by poorer people in fields such as education, self-improvement, etc. This is because most of the money they earn by working is all spent on necessities required for sustaining themselves.

Due to inequalities in income, the rich who gets richer and richer may also influence people in power or sometimes decisions taken politically, economically and legally. These rich people often try to pressurize/impact the decisions taken by political figures which are directly or indirectly impacting their business and his/her personal wealth in a positive way. This may not prove to be profitable and beneficial to everyone in the society.

Importance

It is crucial to focus on the matter of income inequality in this era where the rich is getting richer and the poor is getting poorer. The gap between the two extremes in this category of income/wealth status i.e., the rich and poor is ever increasing. According to Keeley (2015), “Rising inequality may also skew an economy in ways that reduce overall middle-class demand for consumer goods or even fuel debt crises” (p. 9). Income inequality can also affect the economy in a negative way by reducing the overall demand for consumer goods in general as the rich who is getting richer tends to spend more on luxury goods rather than spending a big portion of his income/wealth on basic consumption contradictory to the spending pattern of the poor or middle-class.

Role of Businesses

Businesses all around the world also play a part in the issue of income inequality. In recent times, according to Drennan (2015), Globalization has allowed domestic businesses to compete with other foreign businesses with reduction in trade barriers and traffic due to agreements between countries related to trade. Due to this, businesses locate some of their operations outside of their home country, commonly known as outsourcing, resulting in overall decrease in income rise of the working/middle to poor class people in the home country.

Drennan (2015) also states that business tend to discriminate based on salary or compensation paid to their employees. The vast difference in mainly found between the top-level executives and the lower level/unskilled labour in the business. The top executives tend to take much more portion of the income of the firm in terms of salary (mostly in millions for high grossing businesses) compared to unskilled labour whose salary is not so high related to the workload on each level in the organisation. This leads to increasing gap between both the levels of authority or positions as the top-level executives tend to live a lavish lifestyle such as travelling in private jets owned by the company, luxury vacations etc. and the lower level employees tend to live the stagnant lifestyle or maybe even worse than before.

Key Stakeholders

The key stakeholders in the matter of income inequality would be businesses, business owners (shareholders), government, community, and many more. The issue of income inequality is mainly faced by the people of the society in general. The rich person and their families tend to become wealthier as they always have the power of money. The rich tries to influence and make a significance impact on the decisions taken by government regarding issues affecting their business directly or indirectly such as changes in tax structure, rules and regulations regarding environment discrepancy and damage, fines related to committing certain fraud/cheating with customers etc. The rich also takes control of the decisions of people around them in such a way that will always benefit themselves or their business.

The poor tends to become poorer and lose their wealth because they always end up paying more taxes and on the other hand, they always have less money to put into their savings as everything they earn must be used in order to buy goods and services necessary for survival in the society. This leads to less expenditure on beneficial attributes such as education, health services, health food, sanitary practices. The future generation is often forced to work from younger age because they don’t have enough money for their education fees and related expenditure which leads to lack of availability of skills and knowledge required for certain jobs for employment. The poor also does not have access to proper and basic health and sanitary facilities resulting in diagnosis of various life threating diseases.

Big corporations and business are also a part of stakeholders for income inequality. These giant companies are seen giving huge number of remunerations/paychecks to their senior executives such as CEOs, CFOs, Board of Directors etc. as compared to that of the paycheck of a normal employee working for the corporation. The top-level executives are also given special facilities and amenities aside from their paycheck which includes vacations, private jets and more. This creates partialities between people inside the organisation. There also prevails racial discrimination in the business firms related to treatment of themselves in the organisation, their power in the decision-making process, less and mere little opportunities for career development for the future. This might possibly result in inefficient utilisation of resources and manpower and degrading the trust and charm of the organisation.

Debates

Corporate Social Responsibility

There are various debates revolving around income inequality. Corporate Social Responsibility or CSR is one of those issues. CSR refers to the actions taken by the business for the welfare of the society affecting shareholder, stakeholders and the environment overall. CSR is an issue which was gained attention in the recent time in the corporate world. This concept is new to businesses. Before the introduction of CSR into this corporate world, business never really thought of the welfare of the society in general. For example, businesses located near the river banks or the ocean use to pour their chemical and liquid waste into the river bodies and oceans without considering the results of their actions. Other businesses related to production use to dump their solid waste somewhere outside the residential area for their ease.

The main motive of any business is to maximize their profit. These businesses have a fixed amount of funds available to them and they want the money to be properly allocated so that their motive of profit maximization is achieved. Salaries are a part of their expense list which takes a significant amount of money from their total budget for expenses. Because of which, these big companies always try to cut back on the wages and salaries given to their employees in order to reduce the expenditure of the business firm. This leads to discrimination among the employees in relation to their salaries because not everyone in the business firm is getting the same salary compared with their colleague on the same position. These big corporations often tend to ‘reason’ this gap in salaries and wages as a part of the individual skills and knowledge that an employee has. On the other hand, the top-level executives are enjoying a lifestyle, thanks to their ‘unrealistic’ amount of salaries and compensation by the firms. The top-level executives tend to enjoy the luxurious facilities such as travelling in charter plane, living in expensive hotels on their business trips, expensive cars gifted by the company as bonuses etc. Due to all these compensations given by the corporation, these top-level executives focus on the short-term results and taking their part of salary and bonus and not equally/fairly paying the low-level employees.

The gap between the top-level executives and the lower level employees has been at an increasing trend now-a-day. Comparatively, the low-level employees are always forced to work on the minimum wage rate set by the government. These employees barely meet with all their expenses and necessities required for their survival. This leads to increase in income inequality.

Solution

In today’s era of corporate world, businesses are very careful and strategic about their actions impacting the environment and the people living in the society because the customers of this era are very likely to buy a product which has been associated with a social cause done by the business firm. For example, Apple Inc. started to sell its new product line of RED iPhone. The concept behind this idea is that with every iPhone sold, the money collected by Apple Inc. will be contributed toward the research and development of AIDS. The consumers in the society found Apple Inc. to be contributing into social cause of research and development of AIDS in this case. Another example would be Walmart’s active participation in disaster relief and awareness for the Canada Red Cross society in which Walmart is collecting donations that goes to the Canada Red Cross for disaster relief and awareness.

Consumers find it more attractive and are more likely to buy the products of the company which is associated with social cause and giving back to the society. CSR is also used as a tool to fight against some direct or indirect allegations on the company by some other rival or customers in order to improve the image of the business in the eyes of the people in the society. CSR has laid its importance and gained attention in the eyes of businesses and in the eyes of the customers. Businesses now are abided by legal rules and regulation to follow the laws related to CSR by the government. Companies also have their own subsidiary firm related to CSR. For example, a company may have a school under its branch so that poor kids in the society can have proper and enough education for their better future. This also helps businesses to retain employees and gain reputation in the eyes of their employees. Workers always prefer to work for an organisation which follows CSR and contributes to the welfare of the society for a better future.

Role of stakeholders

The roles of stakeholders in the issue of CSR and in reduction of income inequality has been significant. The government has always tried to reduce the income inequality gap between people in a nation by imposing strict laws on the giant corporations. Government always tries to pressurize the businesses to act according the laws and follow CSR. Government also tries to encourage businesses to follow CSR by giving tax subsidies and other benefits. For example, government may allow a business’s firm to locate a production plant in a rural area which will result in job creation leading to more employment for the rural people by giving tax subsidies or by giving other benefits such as reduction in monthly bill payment for electricity used in the plant or free electricity for 2 months etc. These initiatives will lead to widespread use of CSR and resulting in the welfare of the society. The government might also plan to reduce taxes on the business which will help in businesses to retain more profits and distribute it to with the employees or maybe increasing the wages for the employees. Government may also regulate the firms to work for not only the benefits of people and customers but also their employees. For example, government may encourage the firms to build a resting and activity area for employees where the employees can rest and do some activities or play sports such as soccer etc. this will let the employees to be more productive and efficient in their work and also having positive image of the corporation resulting in attraction of new talent for the firm.

The government has also worked to resolve the issue of income inequality. It has taken various steps looking forward the benefits of reduction in income inequality. The government with other NGOs and labour unions now impose various restrictions on the corporations. The government helps in reduction of income inequality by changing the tax structure and reducing the tax bracket for the lower income people due to which they must pay less taxes in respect to what they earn and have more money left for consumption of their needs and wants. The labour unions also help in pressurizing the companies and giant firms to re-negotiate the salaries and wages with the increase in inflation in the economy. This leads to overall increase in the standard of living of the employees of the corporation and the people in the society.

The Future

In future, the companies should focus more on the issue of income inequality and steps in resolving this issue. Businesses should be more flexible in the way their employees work and earn. Their methods of evaluating their employees for perks and increment in their salaries should change. Their employees should be encouraged to bring more innovative idea for the betterment of the organisation through monetary compensation and recognition in the organisation. Businesses are encouraged to open their production factories in rural areas which could result in more employment in the rural areas and increase the standard of living of rural people. This might lead to reduction in the gap of income inequality.

The government should also reward businesses that give more and more equities to their employees or share more profits with their employees in terms of bonus and compensations. This will lead to employees earning more than what they are really paid for before. The government is encouraged to increase the minimum wage of the employees with relation to the increasing rate of inflation. Government can also introduce private-public partnership in which both the joining parties can keep a ratio/level of minimum income inequality that should exist in the economy. It can also incentivize the businesses that focus and take beneficial steps towards reduction of income inequality. NGOs ad labour unions can be given more power to negotiate with the corporations. The government can also create an individual body which regulates and creates standards for income equality and rewards for businesses following them properly.

Obstacles

The obstacles in implementing these ideas can be difficult in terms of real-life situations. For example, the expenditure on implementing such actions can be very high and unrealistic which can demotivate the businesses in taking the steps forward. Time is also an important factor to consider when implementing these steps for the reduction of income inequality. Many steps take longer time in taking effect and some maybe quick enough. Another obstacle could be following up or measuring the results of these suggested steps which can prove to be very hard for the business and the government in general. There needs to be addition people hired in order to take these actions which will increase the expenditure done by the business which may sometimes go out of budget. Resistance from people in the society can also be an obstacle for the government and businesses as people are not ready to change their habits and the environment, they live in. Some corporations may not find the rewards/compensation from the government to reduce income inequality attractive and motivating which may lead to demotivation in taking further steps. People in the society including these organisations need to be informed and aware about the issue of income inequality and how to resolve them properly and efficiently. Companies may find it hard to reimburse their employees with bonuses and compensation because of the competition in the market. The shareholders may also not like the idea of increasing the expenditure of the business via giving away bonuses and awards to employees resulting in cut in their share of profit.

There are many ways in resolving these obstacles. Shareholders and investors need to be more understanding in terms of giving away their part of profit to the lower level employees for reduction in the income gap. They should not be pressurizing the top-level executives to take decision which may only benefit the shareholders and investors. The top-level executives must take long term actions rather than focusing more on short term actions which can have better impact on the society and reduce the income gap significantly. People and the companies should be introduced to the changes in a peaceful and slower rate which gives them time to accept the change and eliminate the problem of resistance. Companies should be given more incentive and subsidies in order to implement the steps in reducing the income inequality. Corporations should have more flexibility in the way they work and operate allowing new idea to emerge. Better taxation system should be incorporated by the government so that the rich pays higher taxes and the poor pays less taxes reducing the income inequality. Banks should give more loans and credit to poorer people which can help them in increasing their income and standard of living.