PDF Ebook How Workers Get Poor Because Capitalists Get Rich
Inequality in earnings has increased significantly in any countries over the last two decades or so. 1 One aspect of this is the increase in the earnings gap between workers and those who own capital assets. Another aspect is the increase in the earnings gap between workers belonging to different religious, ethnic or language groups. 2 Both aspects have been documented and debated at length. Our paper contributes to this literature by providing one explanation of how an initial increase in the incomes of capital owners, regardless of its cause, can feed back into the economy to: (a) reduce the earnings of workers of all communities, (b) increase the earnings gap between workers belonging to different communities even when there is no segmentation or discrimination in the labor market, and (c) increase the incomes of capital owners even further.
Two strands of thought motivate our analysis—the first emanating from a social observation, and the second from a question. The social observation is that “vertical” ties of community cut across “horizontal” class difference between poor and rich individuals. These community ties can be of different types—ethnic, religious, clan, etc—but they exert a pull and affect behavior over and above class position. This is the observation. The question is as follows: can the poor become poorer because the rich become richer? Or, to put the question differently, if the rich become richer for whatever reason, could this event, simply by itself, generate forces that would subsequently reduce the welfare of the poor? Both the observation and the question need elaboration. We start with the question.
The claim that prior wealth gains by the rich can somehow be causally responsible for subsequently aggravating poverty may appear perplexing in the light of standard economic theory. Typically, rich individuals are those who own significant amounts of non-labor factors of production, in particular, land or physical capital, and derive their incomes mainly from such ownership. Thus, by and large, rich individuals are capitalists, whether industrial or agrarian. Conversely, poor individuals are mostly workers, i.e., those who do not own significant amounts of non-labor assets, and are primarily dependent on the labor market for their incomes.
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PDF Ebook How Workers Get Poor Because Capitalists Get Rich
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