Difference in income plays a roleOne important factor contributing to different levels of wealth is people are paid different wages. There are several reasons why some people are paid millions while some merely earn minimum wage.

(i) Wages are determined by labor market

Wages are a function of the market price of skills required for a job [1]. In a free market, the “market price of a skill” is determined by market demand and market supply. The market price of a skill, and hence the wage for the job that requires the skill, is low if a large number of workers (high supply) are willing and able to offer that skill but only a few employers need it (low demand). On the contrary, when there is low supply but high demand for a skill, the wage for a job requiring the skill goes up.

(ii) Education affects wages

Individuals with different levels of education often earn different wages [2]. This is probably related to reason one: the level of education is often proportional to the level of skill. With a higher level of education, a person often has more advanced skills that few workers are able to offer, justifying a higher wage.

The impact of education on economic inequality is still profound in developed countries and cities [3]. Although there are usually policies of free education in developed nations, levels of education received by each individual still differ, not because of financial ability but innate qualities like intelligence, drive and personal ability. For example, in Hong Kong, 12 years of free education are provided for each citizen, not covering tertiary education, offered only when students receive certain results on public exams.

Moreover, receiving the same level of education does not mean receiving education of the same quality. This accounts for the difference in abilities and hence wages for individuals all receiving, for example, 12 years of education. Therefore, it seems no matter how good the social welfare policy of a country is at preventing denial of education due to financial difficulties, differences in education, in terms of levels and quality, still play a prominent role in economic inequality.

(iii) Growth in technology widens income gap

Growth in technology arguably renders joblessness at all skill levels [3]. For unskilled workers, computers and machinery perform a lot of tasks these workers used to be do. In many jobs, such as packaging and manufacturing, machinery works even more effectively and efficiently. Hence, jobs involving repetitive tasks have largely been eliminated. Skilled workers are not immune to the nightmare of losing jobs. The rapid development in artificial intelligence may ultimately allow computers and robots to perform knowledge-based jobs [3].

The impact of increasing unemployment is stagnant or decreasing wages for most workers, as there is a low demand for but high supply of labor. A small portion of society, usually the owners of capital, controls an ever-increasing fraction of the economy [3]. The income gap between workers who earn by their skills and owners who earn by investing in capital has widened.

Although both skilled and unskilled workers are adversely affected by the technological advance, it seems unskilled workers are subject to worse outcomes [3]. This is because the labor market may still need skilled workers to use computers and operate the advanced machines. The rightward shift in the demand for skilled labor creates an increase in the relative wages of the skilled compared to the unskilled workers. Hence, the income gap among workers also has widened.

(iv) Gender does matter

In many countries, there is a gender income gap in the labor market [3]. For example, in America, the median full-time salary for women is 77 percent of that of men [4]. However, women who work part time make more on average than men who work part-time [4]. Additionally, among people who never marry or have children, women make more than men [4].

It may be difficult to justify such differences. According to a U.S. Census report [4], the wage gap is not fully explained even after accounting for key factors that affect earnings, such as discrimination and the tendency of women to consider factors other than pay when looking for work. The only thing we know for sure is that gender does contribute to a difference in wages in society and hence economic inequality.

(v) Personal factors

It is generally believed that innate abilities play a part in determining the wealth of an individual. Hence, individuals possessing different sets of abilities may have different levels of wealth, leading to economic inequality [3]. For example, more determined individuals may keep improving themselves and striving for better achievements, which justifies a higher wage.

Another example is intelligence [3]. A lot of people believe that smarter people tend to have higher income and hence more wealth. This is debatable. In the book IQ and the Wealth of Nations, Dr. Richard Lynn opined that there is a correlation of 0.82 between average IQ and GDP. However, Stephen Jay Gould, in the book The Mismeasure of Man, criticized it for employing the wrong methods of evaluation.

In addition to innate abilities, diversity of preferences, within a society or among different societies, contributes to the difference in wealth [3]. When it comes to working harder or having fun, equally capable individuals may have totally different priorities, resulting in a difference in their incomes. Their saving patterns may also differ, leading to different levels of accumulated wealth.

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