NAME: NALUBEGA SHAKIRA

RE.NO. 19/U/BDS/1439/K/D

COURSE UNIT: WEALTH CREATION

Qn.

What is wealth creation?

What are the causes of income inequality in Uganda?

What are the possible solutions to income inequality?

Income inequality, in economics, significant disparity in the distribution of income between

individuals, groups, populations, social classes, or countries. Income inequality is a major
dimension of social stratification and social class. It affects and is affected by many other forms
of inequality, such as inequalities of wealth, political power, and social status. Income is a major
determinant of quality of life, affecting the health and well-being of individuals and families, and
varies by social factors such as sex, age, and race or ethnicity

The following are the causes of income inequality in Uganda.

Global trends: the good side of the story. Over the past four decades, technology has reduced
the costs of transportation, improved automation, and communication dramatically. New markets
have opened, bringing growth opportunities in countries rich and poor alike, and hundreds of
millions of people have been lifted out of poverty. However, inequality has also risen, possibly
reflecting the fact that growth has been accompanied by skill-biased technological change, or
because other aspects of the growth process have generated higher inequality. In this section, we
discuss potential global and country-specific drivers of income inequality across countries

Technological change. New information technology has led to improvements in productivity

and well-being by leaps and bounds, but has also played a central role in driving up the skill
premium, resulting in increased labor income inequality. This is because technological changes
can disproportionately raise the demand for capital and skilled labor over low-skilled and
unskilled labor by eliminating many jobs through automation or upgrading the skill level
required to attain or keep those jobs (Card and Dinardo 2002; Acemoglu 1998).

Trade globalization: two sides of a coin. Trade has been an engine for growth in many countries
by promoting competitiveness and enhancing efficiency. Nonetheless, high trade and financial
flows in a country, partly enabled by technological advances, are commonly cited as driving
income inequality, In advanced economies, the ability of firms to adopt laborsaving technologies
and offshoring has been cited as an important driver of the decline in manufacturing and rising
skill premium (Fenestra and Hanson 1996, 1999, 2003). Trade openness could potentially have
mixed effects on the wages of unskilled labor in advanced countries. It raises the skill premium,
but could also increase real wages by lowering (import) prices. At the same time, increased trade
flows could lower income inequality in EMDCs by increasing demand and wages for abundant
lower-skilled workers. Thus, disentangling the impact of trade on inequality is challenging as it
depends on relative factor abundance and productivity differences across countries, and the
extent to which individuals obtain income from wages or capital.

Financial globalization. Financial globalization can facilitate efficient international allocation of

capital and promote international risk sharing. At the same time, increased financial flows,
particularly foreign direct investment (FDI) and portfolio flows have been shown to increase
income inequality in both advanced and emerging market economies .One potential explanation
is the concentration of foreign assets and liabilities in relatively higher skill- and technology-
intensive sectors, which pushes up the demand for and wages of higher skilled workers. In
addition, FDI could induce skill-specific technological change, be associated with skill-specific
wage bargaining, and result in more training for skilled than unskilled workers. Moreover, low-
skill, outward FDI from advanced economies may in effect be relatively high skilled, inward FDI
in developing economies. Thus exacerbating the demand for high-skilled workers in the country.

Changes in labor market institutions. More flexible labor market institutions can foster
economic dynamism by reallocating resources to more productive firms and enabling firm
restructuring. However, greater flexibility can pose challenges for workers, especially those with
low skills, and hence play an important role in explaining inequality developments

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.(
https://sevenpillarsinstitute.org/causes-economic-inequality/)

Difference in Level of employment

The difference between people where by some people in Uganda are employed while others
unemployed and this puts a gap for income where by the employed ones are paid hence
increasing their income levels while the unemployed stay not paid hence income inequality
among people .

Difference in skills

People with high skills or difference skills got many access to different employment
opportunities due to their ability of producing high quality products and this increases his income
levels while people with no skills have no chances of earning incomes due to inability to produce
quality products hence this causes income inequality amongst people in Uganda.

Difference in education levels.

Highly educated people are given higher wages for their knowledge and skills than those with
low education levels and this creates a gap for their income levels hence income inequality in
Uganda.

Racism in Genda and culture in labor market

The existence of racism in labor market where by bosses chose their employees according to
their gender and races which favors certain groups only and this leaves many people with no jobs
hence low income levels hence inequality in income between people in Uganda

Luck and opportunities.

Some people are lucky enough to get good chance and they may make the most of it.it
sometimes happens that a person comes to know of a vacancy and gets it because of lucky and
other people may not get that job because he didn’t know about the job hence this causes
inequality in income amongst them.

In conclusion income inequality is causes by many more causes due to difference or gaps in
people’s wellbeing like difference in talents, difference in regional developments, difference in
family background and inheritances in Uganda and we are hopping the government to find
possible solutions about it for the development of the country.
B) Inequality being one of the core problems today the government and its people are coming up
with the possible solutions to fight income inequality and they are as follows.

1. Increase the minimum wage.

Research shows that higher wages for the lowest-paid workers has the potential to help nearly
4.6 million people out of poverty and add approximately $2 billion to the nation's overall real
income. Additionally, increasing the minimum wage does not hurt employment nor does it retard
economic growth (https://belonging.berkeley.edu/six-policies-reduce-economic-inequality)

2. Expand the Earned Income Tax.

In recent years, the EITC has been shown to have a positive impact on families, lifting roughly
4.7 million children above the poverty line on an annual basis. Increases in the EITC can pull
more children out of poverty while providing more economic support for the working poor,
especially single parents entering the workforce. (https://belonging.berkeley.edu/six-policies-
reduce-economic-inequality)

3. Build assets for working families.

Policies that encourage higher savings rates and lower the cost of building assets for working and
middle class households can provide better economic security for struggling families. New
programs that automatically enroll workers in retirement plans and provide a savings credit or a
federal match for retirement savings accounts could help lower-income households build wealth.
Access to fair, low-cost financial services and home ownership are also important pathways to
wealth (https://belonging.berkeley.edu/six-policies-reduce-economic-inequality)

4. Invest in education.

Differences in early education and school quality are the most important components
contributing to persistent inequality across generations. Investments in education, beginning in
early childhood with programs like Head Start and Universal Pre-K, can increase economic
mobility, contribute to increased productivity and decrease inequality
(https://belonging.berkeley.edu/six-policies-reduce-economic-inequality)

5. Make the tax code more progressive.

It is a great irony that tax rates for those at the top have been declining even as their share of
income and wealth has increased dramatically. The data show we have created bad tax policy by
giving capital gains -- profits from the sale of property or investments -- special privileges in our
country's tax code; privileges that give investment income more value than actual work. Capital
gains tax rates must be adjusted so that they are in line with income tax rates. Savings incentives
structured as refundable tax credits, which treat every dollar saved equally, can provide equal
benefits for lower-income families

6. Income inequality can be reduced directly by decreasing the incomes of the richest or by
increasing the incomes of the poorest. Policies focusing on the latter include increasing
employment or wages and transferring income

7. The unfavorable income distribution should be rectified by implementing appropriate

legislation, policies and practices that are universal in principle. These guidelines should
consider the needs of the disadvantaged and marginalized through fiscal, wage and social
protection policies. If a person, no matter their background, were just as likely to have any job, a
millionaire’s child would be just as likely to work at the Parliament as someone born in poverty.
()

8. Income inequality can be reduced directly by decreasing the incomes of the richest or by
increasing the incomes of the poorest. Policies focusing on the latter include increasing
employment or wages and transferring income. The range of employment-related policies
includes strengthening collective-bargaining rights, full-employment schemes, living-wage
policies, stronger minimum-wage laws, and wage subsidies. Direct income-transfer policies
include traditional means-tested and conditional cash welfare payments. There is also renewed
interest in unconditional transfers such as a negative income tax and non-means-tested universal
basic income.
9 Equality of opportunities.

The government should devise means and set up some sort of machinery which may provide
equal opportunities to all reach and poor in getting employment or getting getting employment or
getting a start in trade and industry. And also the government can ensure equal advertisement of
job opportunities to people so as to ensure equal opportunities to all people and this will help
solve income inequality in people.

10.Empowering and promote the social, economic and political inclusion of all irrespective of
age,sex,disabilities,race culture among others and this will reduce on the income gaps between
people.

In conclusion, there are so many more solutions and policies being raised by different people in
the way of fighting income inequalities and as it is hopped by 2030 to end in the sustainable
development goals.

References

1. https://sevenpillarsinstitute.org/causes-economic-inequality/
2. https://www.britannica.com/topic/income-inequality#ref334633)
3. (https://belonging.berkeley.edu/six-policies-reduce-economic-inequality)