Thoughts on Income Inequality

Placements at IIT got me started thinking about the ramifications of running after that high-salary job and how it relates to income inequality.

This topic has been on my mind for quite a while now and I’ve tried to make sense of a lot of seemingly incoherent thoughts that I’ve had related to the topic of placements, income and the disparity associated with it. I’ll try to relate that to the bigger picture of income and wealth inequality in the world.

The thought of reading up more on income inequality came to me when the placement bug bit me and I started thinking about the options that I have and what my priorities should be while choosing a particular job.

The first pre-placement talk at IIT today gave me the impetus to start writing on this topic; I’m a lazy writer, partly because I have too many thoughts to coalesce.

It has been well-documented and observed that even freshmen who join IIT have this as one of the first, if not the first question: “What is the package in this department?” or a similar version.

IITs were set up as institutions to cater to the technical demands of industry in a growing nation with the secondary aim of doing research. I think they find themselves lost in today’s world. The fact that we have a committee to prepare a charter that will have our mission and vision for the next decade or so is a step in the right direction. I think I’m digressing so I’ll go back to my theme.

Talking about placements; the average person looks at the intersection of high(decent)-salary and things-he-can-do while selecting a job. Running after the highest paid job instead of a job that will bring satisfaction has become a norm (to a great extent) but there are various socio-economic factors responsible for that and I won’t go into the details. Bottom line is that the average person’s mentality is to go after a high paying job even if that means long hours, improper work-life balance and a discounted amount of job satisfaction. (Again, I’m talking averages and not trying to generalize it to include the entire student community.)

What can be observed is that the companies that can afford to pay the most are the ones that are making the most money/profit whether it is FMCGs, Banks, PE, etc. when compared to core companies, public sector enterprises or NGOs. They are making somewhere in the order of 10x or more using the work that you’ve done, meaning that they have an ROI of 10+ on every employee making them a “bit” richer than they originally were.

Now one can argue that all corporations/companies make similar returns on the work done by employees, which might be true but the magnitude is different, which is a key driver of inequality. Another likely explanation, income inequality is a by-product of the current version of capitalism/corporationism in today’s world.

A fascinating read, Capital in the 21st Century, by Thomas Piketty sheds light on the origins of this inequality. Although I’ve yet to finish reading the book, the crux of his argument can be summarized as follows:

r > g

The rate of return for owned capital (r) exceeds the overall rate of economic growth (g). Thus, families and individuals who control wealth will accumulate it at a faster rate than the economy can produce it and so will control a much larger portion of the economic pie. The rich get proportionally richer, and the poor get proportionally poorer. And unless something happens to alter the status quo, this trend will continue.

The only times in history when income inequality has decreased are the world wars and recession.

I’ve included a summary of the book at the bottom for anyone who’s interested. Although the book faced a lot of heat for certain assumptions (a debate still ensues), it does give a good explanation of why leaving capitalism alone can lead to a snowballing effect. More links on the criticism of his book have been included at the bottom.

So in essence, are we playing a part in perpetuating this loop by working for huge-ass corporations owned by super-rich people.?

The advent of technology and rise in entrepreneurship look promising as countermeasures to this widening gap. The scale at which it can be effective although, remains to be seen.

We can safely assume that the average student at IIT is from a middle-class family and is therefore affected by income disparity. Coming to IIT has become a way to escape poverty for the poor and to level up for the middle-class. Nothing wrong with that I suppose. Funny how this affects the huge set of people who aren’t so fortunate to attend IITs or other premier institutions. We are, in effect, subjecting them further to the consequences of this growing disparity.

While I don’t necessarily want to conclude anything (since I am far from being an expert on a complex topic like this), I just wanted to put forth my views on an issue that we experience on a regular basis. I also felt like it sort of explained why big firms are ready to shell out so much cash (high ROI is a simple enough explanation).

I just found it very interesting how this relates to the creation of income inequality.

I’m still unsure whether I was clear enough in expressing my train of thought and whether this looks coherent; anyhoo, enough for today.

Note: All views expressed are personal. As is with humans, I might also have certain biases and/or might have overlooked certain pieces of information; although I have tried to present a very fact-based opinion piece, any comments to ensure correctness are appreciated.

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