1. Executive SummaryIncome inequality has become a popular topic that people like to debate in the modern world. It is believed that with the development of globalization, income gaps are becoming larger and larger. Income inequality also grows larger. A lot of people urge that poor people are the only victims of income inequality and the rich people are always favoured. However, Robert Peston argues in his news article Why extreme inequality hurts the rich that the inequality hurts the rich too. This assignment is going to continue with Roberts opinion in income inequality. Previous research opinions are presented to support the statement that income inequality hurts poor only. However, opposite opinions are argued and provided to attempt to show this assignments agreed opinion that income inequality is bad for the rich too.

2. IntroductionGlobalisation has become a way to describe changes in international economy and in world politics. It is defined as the free movement of goods, services, labour and capital across borders. Globalisation is a result of reduced transportation and communication costs, lower trade barriers, faster communication, rising capital flows, increased competition, standardization, and migration to mention a few key causal factors. In recent years, researcher find out that globalisation leads to unfavourable side effects in income inequality. Widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades. Inequality trends have been more mixed in emerging markets and developing countries (EMDCs), with some countries experiencing declining inequality, but pervasive inequities in access to education, health care, and finance remain. Not surprisingly then, the extent of inequality, its drivers, and what to do about it have become some of the most hotly debated issues by policymakers and researchers alike. Different opinions exist in the current world by researchers, economists, governments and normal people. Some believe that income inequality is bad for the poor only, some believe that income inequality is bad for all. There are also people agree on income inequality may not be a bad thing. In this assignment, whether income inequality is bad for the poor or all will be examined. The arguments attempts to show that income inequality is bad for the rich too.

3. ContextBefore the assessment, it is important to understand the context of income inequality. The discourse on inequality often makes a distinction between inequality of outcomes (as measured by income, wealth, or expenditure) and inequality of opportunitiesattributed to differences in circumstances beyond the individuals control, such as gender, ethnicity, location of birth, or family background. Inequality of outcomes arises from a combination of differences in opportunities and individuals efforts and talent. At the same time, it is not easy to separate effort from opportunity, especially in an intergenerational context. For instance, parental income, resulting from their own effort, determines the opportunity of their children to obtain an education. It is in this spirit that Rawls argued that the distribution of opportunities and of outcomes is equally important and informative to understand the nature and extent of inequality around the world.

4. Income Inequality is bad for the poor and favour for the rich4.1 Growth rate of the poor is held back by income inequalityResearchers claim that the income inequality holds back the growth of the poor. Experiment and surveys conducted in the US can be used to support this statement. In van der Weide and Molanovic, large US micro-censuses that sample 1% (and more recently 5%) of households in each state is used, conducted every ten years since 1960, to answer the following question: How does state-level inequality among the poor and the rich in a given year affect state-wide growth rates of disposable income of the poor, middle class and the rich over the next ten years? The half-century (1960-2010) which the data cover has been a period of substantial transformation of Americas economy and society. During the period, labour participation rates among women half of those of men in 1960 became almost equal by 2010. The demographic structure changed. Non-Hispanic whites who accounted for 85% of the population in 1960 were only 65% in 2010. Education levels increased. The percentage of adults with bachelor or higher degree increased from 10% to 33%. When researchers look at how state-level inequality is correlated with future growth rates at different percentiles of the income distribution across 49 states (leaving Alaska and DC, clear outliers, out of the analysis), they find a strong negative effect on the growth rate of the poor and an almost equally strong positive effect on the growth rate of the rich. It is found that overall inequality has almost no effect on the growth rate of the middle deciles a finding which resonates with Palmas argument that in both equal and unequal countries, the shares of the middle deciles (in Palmas case, deciles five through nine) are almost the same. Unpack inequality into inequality among the poor (bottom inequality) and inequality among the rich (top inequality, researchers find that it is mostly top inequality that is holding back growth at the bottom. Bottom inequality (when significant) also tends to lower growth among the poor, while it tends to help the growth rate of the rich.4.2 Inequality causes povertySmall changes in income distribution can have a large effect on poverty. A simple arithmetical example can help visualise this. Imagine a country where the share of national income that goes to the poorest 20% of the population increases from 6% to 6.25%. A change in income distribution of one quarter of one percent would barely affect the Gini coefficient, but for the poor this represents a 4% increase in their total income. Such a small redistribution would have the same effect on poverty as doubling the annual growth of national income from 4%, which is the projected growth rate of many African countries, to 8%, which is necessary to achieve the income poverty Millenium Development Goal (MDG) example from White and Anderson. Changes in income distribution have even larger effects on measures of the depth and severity of poverty, as confirmed by evidence from Cote d'Ivoire and Bangladesh.

5. Income Inequality is bad for everyone, including the rich peopleOpposite opinions in against the statement that income inequality is bad for the poor only are attempted to show in this assignment. There are also many researchers have performed extensive researches and surveys in arguing that income inequality is bad for the rich too. The fundamental basis for such arguments is to view and think the people as a whole society, not separate groups according to their income level. As talked about in the BBC news article Why extreme inequality hurts the rich, Robert Peston emphasizes that income inequality is bad for the rich too because very often both the poor and rich have the same interests in fighting Ebola, however because the business world does not realise this and do not want to serve the poor due to income inequality, Ebola vaccines were not developed in advance and the disease became a global threat. His article assesses the impact of income inequality to the rich from a healthcare perspective. Similarly in the following section, the arguments can be carried out from several aspects. For example, the negative impacts of inequality on the overall economy growth, financial recessions, global imbalances and so on.5.1 Inequality affects growth drivers.Widening of income disparities affect a countrys economic and overall growth and this causes negative impacts on the rich people too. Higher inequality lowers growth by depriving the ability of lower-income households to stay healthy and accumulate physical and human capital For instance, it can lead to underinvestment in education as poor children end up in lower-quality schools and are less able to go on to college. As a result, labour productivity could be lower than it would have been in a more equitable world. In the same vein, Corak finds that countries with higher levels of income inequality tend to have lower levels of mobility between generations, with parents earnings being a more important determinant of childrens earnings. Increasing concentration of incomes could also reduce aggregate demand and undermine growth, because the wealthy spend a lower fraction of their incomes than middle- and lower-income groups. Inequality dampens investment, and hence growth, by fueling economic, financial, and political instability. When the overall growth in the macro scale in a country is hindered by the inequality, the rich people are affected too. Their wealth normally come from high salary if they are the high management level in big companies, or from investments in business activities. When the growth of the nation slows down and labour productivity drops, the rich people businesses are also impacted greatly and earned profits decline too. Thus, the rich people will also be earning less as a result of inequality.5.2 Financial recessions and crises. A growing body of evidence suggests that rising influence of the rich and stagnant incomes of the poor and middle class have a causal effect on crises, and thus directly hurt short- and long-term growth. In particular, studies have argued that a prolonged period of higher inequality in advanced economies was associated with the global financial crisis by intensifying leverage , overextension of credit, and a relaxation in mortgage-underwriting standards and allowing lobbyists to push for financial deregulation . During recessions, the biggest party that is affected is not the poor, but rather the rich. This is because they possess the majority of wealth in the market and once financial crises happen, their asset values sunk the most. Many large companies can even go bankrupt when hit by the crises.5.3 Global imbalances. Higher top income shares coupled with financial liberalization, which itself could be a policy response to rising income inequality, are associated with substantially larger external deficits. Such large global imbalances can be challenging for macroeconomic and/or financial stability, and thus growth and affect the rich people.

5.4 Conflicts. Extreme inequality may damage trust and social cohesion and thus is also associated with conflicts, which discourage investment. Conflicts are particularly prevalent in the management of common resources where, for example, inequality makes resolving disputes more difficult. More broadly, inequality affects the economics of conflict, as it may intensify the grievances felt by certain groups or can reduce the opportunity costs of initiating and joining a violent conflict. The conflicts may affect the rich in various ways. For example, the poor or lower income people will easily form a hatred attitude towards the rich because they are wealthy. As a result, the business that the rich is holding may be affected in sales performance. Safety of the rich people may be threatened too because there will be more arrows pointing to them and dangerous attacks or kidnaps may happen on them.

6. Is inequality a necessary evil? Some degree of inequality may not be a problem insofar as it provides the incentives for people to excel, compete, save, and invest to move ahead in life. For example, returns to education and differentiation in labour earnings can spur human capital accumulation and economic growth, despite being associated with higher income inequality.Inequality can also influence growth positively by providing incentives for innovation and entrepreneurship and, perhaps especially relevant for developing countries, by allowing at least a few individuals to accumulate the minimum needed to start businesses and get a good education

7. ConclusionIn conclusion, it is agreed as discussed that income inequality brings unavoidable negative impacts on both the poor and the rich. Despite many researches on proving the inequality is bad only for the poor, the opposite opinion that the inequality is bad for the rich too is presented when the society is assessed as a whole. However, there are still different voices in viewing the income inequality and think that the inequality may not be a bad thing for everyone because it can influence growth positively too.

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