Economic justice is a set of principles for which economic infrastructure is developed around, wherein the ultimate goal is to create an environment with equal opportunity for each individual and to establish a material foundation of which people can achieve a creative, dignified, and productive life.
Understanding Economic Justice
Modern economics revolves around the concept of distributing capital and labor in such a way that everyone is better off. Therefore, economic justice is rooted in the idea that an economy will be more successful if all market participants are treated fairly. As such, the goal is to create opportunities for everyone to potentially thrive and prosper, with justice working in lockstep with that concept.
Pure capitalism revolves around allowing the market to decide where labor and capital are distributed. However, if pure capitalism is left without intervention, it will lead to extreme inequality and wealth disparity between the holders of capital and laborers. It goes against the concept of capitalism, which is that it should “make everyone better off.” Although there is more overall wealth, most of the wealth disproportionately ends up in the hands of the capital holders (or capitalists).
In order to address the inequality that stems from pure capitalism, economic justice aims to create equal opportunities for all members of the economy. If all citizens can earn an income for themselves, they will spend more, which will stimulate the economy further.
Why Economic Justice is Important
Economic justice can be applied in many different forms. For example, it can be used to address wage gaps and the exploitation of workers. An example is a worker who is in a position of work in which they are not able to fully utilize their skills given their situation.
For the worker, it leads to earnings that are not at the full potential capacity. For the economy, it creates inefficiency as well – there is a lack of employment in that desired skill, and there is less spending from the worker who earned less.
In terms of the exploitation of workers, if pure capitalism is left without any intervention, those who hire laborers achieve an unfair amount of power over their workers. It can lead to the inhumane treatment of workers and exploitation – paying workers less than the market amount. It also results in inefficiency, as workers feel that they cannot leave their job since they need to provide for their families, but they cannot seek a job where they are paid fairly.
Achieving Economic Justice
Example – Progressive Taxation
In order to provide all citizens with equal opportunity, most market-based economies institute some form of a progressive taxation regime. Progressive taxation is a tax system where the tax percentage that is applied to income earners increases as the earned income increases. Therefore, higher-income earners pay more taxes, while lower-income earners pay fewer taxes. It is the government’s way of addressing income inequality and redistributing wealth.
The tax funds are used by the government to shoulder public services that can benefit the disadvantaged population wealthy. Such services include education, public infrastructure, public housing, social services, and welfare.
Example – Minimum Wage
As mentioned earlier, the exploitation of workers can occur in a purely capitalist society that is left without government intervention. In such a situation, workers may be exploited by employers since there is an imbalance of power. It can lead to inefficient outcomes of the economy since the workers are paid less than the market rate. The employers will hoard the wealth, while there is less spending from the laborers.
The problem can be addressed with the institution of a minimum wage, which sets a standard and requires that workers be paid a certain amount. It can allow workers to earn a sustainable amount to live off of so that they can search for jobs that meet their particular skills, thereby making the economy more efficient.
Example – Diversity Inclusion
Another form of economic justice is provided to those with diverse backgrounds. Racial and gender-driven disparities arise from years of systemic progression. It can be overridden by providing additional opportunities for those who come from a disadvantaged background – coming from a low-income or at-risk segment of the population.
Forms of economic justice regarding diversity can include additional education, more career preparation, addressing salary gaps, and creating certain quotas that can help address the issue.
CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful: