Income Inequalities:
Total national income divided by the number of persons in a country gives the per capita income, which is an average figure of the total income of a country. This measure does not tell us about how the income is distributed amongst people. It is generally accepted that increase in productive capacity increases the wealth of a country. This wealth may not be equitably accessible to the entire population. Hence, an increase in national income or per capita income does not tell us the real condition of an average person in society. In other words, policies geared toward economic growth should enable efficient use of factor inputs so as to increase productivity and supply of goods and services in the economy. At the same time, there is a need to follow policies that lead to increase in effective demand which will further stimulate investment. The pattern of demand determines the pattern and magnitude of goods and services produced in the economy.
The pattern of distribution of income in an economy informs us of the likely pattern of consumption.'Hence, the study of consumption pattern is linked to the study of incomes and savings. Long term trends in income influence the expenditure pattern. Extreme inequality in incomes leads to a shift in'the investment behaviour in an economy. It is interesting to find out how luxury hotels, expensive hospitals and housing and other such investments have been increasing globally over the years while investments in primary health care, low cost hotels and housing have been neglected.
Income inequalities are also further accentuated by other social deprivations that low income earners experience. They have low level of skills and end up getting employment in low productivity jobs with low wages. This reduces their chances of skill up-gradation thereby keeping them in low wage jobs. Low income means bad housing, negligible health care and bad nutrition. This is then the vicious circle in which the poor are compelled to live.