Review Article on Determinant of Income Inequality: An Evidence Based Approach

Abstract

Income inequality is a situation in which there are differences in income and wealth within the country, region, small group of society and individuals. According to bigesten the main reason is that the distribution of income is the final result of the entire economic process. The classical period was characterized by focusing only on the functional distribution. For Marx, the distribution between capital and labour and thereby between capitalists and workers played a decisive role: it is the basis of the capitalist system of production. For both Ricardo and Marx, sources of income flows relate exactly to their social classes; i.e. landlords receive rent, capitalists receive profits and workers receive wages. According to Marx (1887), the value of each commodity is determined by the labour contained in it, measured in time. Since labour power is also regarded as a commodity, its value is determined by the time necessary for its reproduction and therefore rests on a subsistence level that enables the worker to maintain his work. Workers only possess their labour power and the capitalists own the means of production. Marx’s conclude that the source of income inequality is capitalist system.