In economic policy, the challenging dilemma of increasing inequality due to global growth and development calls for attentive assessment. Pivoting on this discussion are minimum wage laws, progressive taxation, and Universal Basic Income (UBI), usually viewed as tools to contain poverty and achieve economic equality (Bossler and Gerner, 2020). However, the question persists: Should we be willing to come to terms with the rise of the wealth gap if that is the price to pay for economic advancement? This analysis requires an exhaustive study of the global economic relationship between various economic policies. The present paper argues that although the growing inequality is frequently considered as a price for economic growth and development, there are no reasons to pay it, and the evidence is the effective minimum wage laws, progressive taxation, and Universal Basic Income (UBI), which help the creation of new jobs, the economic growth and the income inequality reduction in different parts of the word.
Minimum wage laws have traditionally been viewed as a tool for poverty alleviation and economic equality. Modern economic theories posit that minimum wage regulation can serve as a demand-stimulating instrument and a partial solution to income inequality, thereby aligning with the argument that rising inequality is not a price worth paying for global growth and development (Gilpin, 2001; Cohn, 2012). In the view of institutional economists, minimum wage laws can play a role in eliminating market failures through equitable income distribution and establishing social cohesion, ultimately leading to sustainable economic growth (Appelbaum, 2023). Theories such as Efficiency Wage Theory and Segmented labour market Theory can be valuable in analyzing the gains from Minimum wage legislation in terms of raising labour productivity, reducing employee attrition rate, and improving general economic efficiency. This confirms that labour law regulations can be fulfilling as they promote growth and share prosperity (Appelbaum, 2023; Manning, 2021). Classical economic theories, represented by the views of Adam Smith and David Ricardo, argue that a minimum wage will discourage employment and prevent economic growth, being concerned about market distortions and inefficiency of the labour markets, also about the downsizing of the jobs belonging to the less qualified (O’Brien, 2017). In the United States, the United Kingdom, and Germany, the study of minimal wages shows a complex effect on GDP, employment rates, and income inequalities. In the view of the United States, the United Kingdom, and Germany, the previous history shows that no matter the initial concerns of job losses, minimum wage legislation has contributed to a continuous increase in employment over the long term and a positive trend in GDP fluctuations (Stubbs and Underhill, 2006). These case studies’ analyses demonstrate the efficiency of minimum wage law in creating jobs, growth of economies and governance of income disparity in different socio-economic contexts. Raising the minimum wage fairly rewards workers and helps in the equitation of wages. It balances society and supports a stable economic system (Oatley, 2012). This negates the argument that global inequality is a reasonable price to pay for the growth and development of communities.
Progressive taxation is the bedrock of fiscal policy, which is used to decrease income inequality by requiring a bigger share of income from people in a better economic position to pay government revenue. This approach is based on the principles of fairness, and therefore, wealthy individuals are supposed to pay a higher proportion of taxes to support social welfare programs and public common resources (Piketty and Cantante, 2018). While progressive taxation has attracted diverse political spectrums’ approval as it is seen as a means of inequality reduction and promotion of economic growth, its implementation and effectiveness is based on many factors. A well-functioning progressive taxation has been the primary tool in reducing income disparities and favouring inclusive growth along the mid-20th century in developing countries, mainly in the West (Duncan and Sabirianova, 2016). By imposing a higher rate of taxes on the top income earners, the government had the power to generate much needed revenue to undertake capital investment, education, healthcare and welfare. Besides the basic facts, it stimulates social mobility and human capital, improving standards of living and financial productivity and generating good development and sustained prosperity for the community. Redistribution of wealth through progressive taxation, such as welfare through benefits and subsidies and government-operated social services, could be mentioned as one of the positive outcomes of this system (Koyuncu and Turnovsky, 2016). Distribution of taxation results in a smoothening of income and consumption trends, which in turn aids in providing economic parity and more equitable levels of wealth. While progressive taxation has several problems and reproaches, they should be seriously considered. One issue is that some wealthy people and companies will arguably resort to tax evasion and avoidance to undermine the effectiveness of progressive tax systems thereby, exacerbating the gap between the rich and the poor (Piketty and Cantante, 2018). Furthermore, a very high tax rate on professionals may discourage wealth creation, entrepreneurship and investment, resulting in economic growth and technological development being cut short. Furthermore, in a progressive tax system, the complex structure brings about the additional administrative load and unexpected compliance costs, which become the main problem for small businesses and low-income taxpayers, as shown in the research by Rybakov et al. (2022).
Universal Basic Income (UBI) has emerged as a compelling policy proposal amidst growing concerns about income inequality and economic insecurity. At the core of the UBI proposal is the idea of providing a guaranteed and regular stipend from the government to every citizen, irrespective of whether they are employed (Lacey, 2017). This idea has given rise to a continual platform of debate among economists, policymakers, and activists who aim at using UBI as an alternative way to tackle the issues of income disparity and poverty. Proponents emphasized that the current economic circumstances, including technology and globalization, have led to broader income disparities and job losses (Suzuki, 2021). UBI is often portrayed as a tool to ensure some financial support for people undergoing job automation or whose work might be affected by the changing labour market. UBI’s main target is to offer a minimum income level to every citizen, utterly free from being employed. This, in turn, helps reduce poverty and unemployment issues and could contribute to social harmony (Lacey, 2017). Through a consistent income distribution system, UBI can offer great opportunities for people to be more innovation-oriented, creative, and fulfilled, hence improving people’s general life quality and well-being. As a result, the supporters of UBI consider that the simplification of social assistance administration through a single-flow payment system could reduce red tape and bureaucracy costs and, consequently, better resource allocation and service delivery (Ruckert et al., 2018). On the other hand, UBI implementation issues are comprised of different problems and reasons that need thorough investigation. One of the main risks is related to the fiscal sustainability of this kind of program, especially considering the necessity to choose between available budgetary priorities and existing revenue constraints. Opponents suggest that given that a universal basic income will entail tax increases and deep cuts to current welfare programs, economic disparities may get the upper hand (Santos and Rauh, 2022). Also, the UBI may weaken the market dynamics by affecting the degree to which people work due to productivity and salaries, among other factors. However, some claim that such a system could lead to decreased work initiative and creativity, which would fail in the economy and innovation (Suzuki, 2021).
In Western countries, including the U.S., the UK, and Germany, inequality fluctuated during the 20th century primarily due to the alterations in economic policy. One notable example is the United States’ experience during the post-World War II era. To respond to the economic multifaceted challenges of Great Depression, the US government adopted a toolkit of progressive policy actions, including inequality reduction and creating a more stable economic environment. A progressive taxation system was introduced, which imposed higher tax rates on top-income earners (Office of The Historian, 2019). This method raised enough revenues for the regime to issue generous social benefits, and it also placed major investments into crucial infrastructures. For instance, Social Security programs provided financial assistance to the veterans, and GI Bill’s programs supported the veterans returning from the wars by making education and housing accessible to them (Dortch, 2017). In addition, the United Kingdom and Germany followed a redistributive pattern of policies during this time. Britain’s post-war Labour government introduced the National Health Service (NHS) in 1948, a universal healthcare system that offered coverage to all its citizen regardless of their income (Bivins, 2017).
Furthermore, the progression of taxation and social housing programs were among the democratic responsibilities that were employed to soften the tension on inequality and improve the lower-end households’ living standards. On the contrary, the deregulation and austerity measures during the same era not so rarely made the inequality and economic instability worse. The financial crises of the 1980s, such as the Savings and Loan Crisis in the USA and the government’s economic reforms in the UK, resulted in much job loss, social chaos, and the mass movement of people (Federal Reserve History, 2013). Moreover, the 2008 financial crisis showed up the fragilities in the financial markets that went deregulated and highlighted at the same time that solid rules are necessary to prevent an economic meltdown.
Conclusion and Policy Recommendations
In conclusion, the debate surrounding whether rising inequality is worth paying for global growth and development remains complex and multifaceted. Though critics state that inevitably equality would arise from development of economy, underlying facts of the case shows that it is not valid. Minimum wages, progressive taxes, and Universal Basic Incomes (UBIs) have been shown to be effective in decreasing inequality alongside promoting economic growth and social cohesion in different contexts. Historical examples like that of the mid-20th century should be used to highlight the transformative potential of redistributive policies for creating an inclusive society. Nevertheless, these policies bring the implementation challenges for example fiscal sustainability, labor market dynamics and potential effects which may be unplanned. Hence, policymakers must scrutinize the program designs and implement them appropriately if the desired results are to be achieved with minimal negative consequences. Furthermore, policy implementation and continuous adjustments is essential to enable the policy’s ability to cope with the changing social-economic situations and its applicability and success.
In this context, it is recommended that policymakers make a move to provide remedies to inequality growth and urban sustainability. This includes increasing the power and implementation of minimum wage laws to ensure workers are paid sufficiently, designing tax systems for progressive taxation to create more social equity, and looking at options for studies through Universal Basic Income (UBI) that can solve poverty. Furthermore, education, skills training, and workforce development are vital mechanisms that help empower individuals and improve the work opportunities. Lastly, legislation must be strengthened to tackle systemic risks in financial markets and stabilize the markets even in the times of economic shocks.
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