essay on economic inequality

Page One Economics ®

Income and wealth inequality.

"For we, the people, understand that our country cannot succeed when a shrinking few do very well and a growing many barely make it. We believe that America's prosperity must rest upon the broad shoulders of a rising middle class." 

—President Barack Obama 1

Introduction

There are many different types of inequality among people: educational attainment, work experience, and health—to name a few. This essay discusses economic inequality: its causes, measurement, and the potential impact of its growth in the U.S. economy.

Economists directly link differences in educational attainment and work experience, also known as human capital, to differences in economic outcomes. That is, formal education and job skills determine how likely a person is to find and hold a stable job that pays good wages. The flow of money from wages is the most important source of income for most people. Over time, regular income from employment allows people to own assets such as a home or a retirement financial portfolio. That stock of assets is called wealth .

Data collected by federal organizations such as the Census Bureau and the Board of Governors of the Federal Reserve System (BOG) allow us to measure how unequal the distributions of income and wealth are in the United States. Those data show that, since the 1970s, some individuals and families are earning much more income and accumulating much larger amounts of wealth than the typical family does. 

Data reported by the World Bank allow us to compare the distribution of income across countries. As of 2018, the available data show large international differences in income inequality. Although not all countries in the world have data on income inequality, among those that do, the United States ranks among the top 25% most unequal.

What Causes Inequality?

The root cause of differences in income and wealth across individuals and households is a combination of personal and social factors. Personal factors are unique to individuals and include talent, effort, and luck. Such factors can be either nurtured or hindered by the family upbringing of the individual. Social factors affect groups of people and include education policies, labor market laws, tax codes, and financial regulations. At any moment in time, social factors can overpower personal factors to determine individual prosperity and increase inequality among people. 2

For example, as gradually more married women started working outside the home between 1960 and 2000, their family incomes increased and the differences in income between households became larger depending on whether they had one or two people earning wages. At the same time, differences in the types of jobs women and men tend to hold also contribute to income inequality between genders. 3

Because wealth is accumulated over time, older people are generally wealthier than younger people. For that reason, if there are many more young people than old people in the general population and the old hold more wealth than the young, overall wealth inequality will be high. 4

Finally, some people argue that the type of monetary policy used to ensure steady access to credit by households and businesses during recent economic contractions may contribute to higher levels of income inequality. However, that claim is hotly disputed. 5

How Is Income Inequality Measured?

There are different ways to measure how unequal income is in a country. The U.S. Census measures income inequality as the ratio of the mean, or average, income for the highest quintile (top 20 percent) of earners divided by the mean income of the lowest quintile (bottom 20 percent) of earners in a particular area. Let's say a small county has 500 people earning an income. To measure how unequal those incomes are, the Census surveys and sorts each person's income from highest to lowest, calculates the average income of the 100 people earning the most and the average income of the 100 people earning the least, and divides the first figure by the second figure. 

Figure 1 Income Inequality by County 

SOURCE: U.S. Census via FRED ® , Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/graph/?m=QRCJ , accessed June 23, 2021.

Figure 1 shows average county-level income inequality measured between 2016 and 2020. The Census considers the average income over a five-year period to account for the fact that peoples' income changes from year to year. Measured this way, income inequality can be as high as 130 or as low as 5. These measurements mean that the most affluent households in a particular county can earn as much as 130 times or as little as 5 times as much as the least affluent households do.

Another way to measure income inequality in a population is to calculate the Gini index . The World Bank uses that index to measure how much the distribution of income among households deviates from a perfectly equal distribution. The Gini index can take any value between 0 and 100. A value of 0 represents perfect equality: All households earn the same income. A value of 100 indicates perfect inequality: One household earns all the income, and all other households earn nothing.

Figure 2 Gini Index by Nation

SOURCE: World Bank via FRED ® , Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/graph/?m=QRFh , accessed April 6, 2021.

Figure 2 shows country-level income inequality measured with a Gini index in 2018. The highest value is 54, and the lowest value is 25. It is important to note that two countries can have very similar Gini indexes despite having very different distributions of income. For example, in 2018, the Gini index for the United States was 41.4 and for Bulgaria was 41.3, despite the fact that those two countries' economic and social histories are very different.

In the United States, since the 1970s, the Gini index has increased at a steady rate, indicating greater income inequality across families. 6 Some research suggests that this growing difference is related to the increased value of the stock market. Wealthier households hold more stocks than poorer households. So, when stock market prices rise, the income of wealthier households grows relatively more and overall income inequality increases. 7  

How Is Wealth Inequality Measured?

The BOG combines information from two different surveys to measure how wealth is distributed among households: It takes the value of a household's assets (e.g., the current market price of a home) and liabilities (e.g., the unpaid part of a mortgage for a home) and calculates the difference between the two, which is called net worth . Next, the BOG sorts household wealth from highest to lowest and reports the net worth of four different groups: the wealthiest 1% of the population, the next 9%, the next 40%, and the bottom 50%.

Figure 3 Share of Total Net Worth Held by Population Groups

SOURCE: Board of Governors of the Federal Reserve System via FRED ® , Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/graph/?g=O2Kq , accessed April 6, 2021.

Figure 3 shows the share of total net worth held by each of those four groups. In 2021, the wealthiest 1% of the population (about 3.3 million households) held about one-third of total net worth; the next 9% (almost 30 million households) held a little more than one-third; the next 40% (about 133 million households) and the bottom 50% (about 166 million households) together held the rest—less than one-third of total net worth.

The data from the BOG show increasing wealth concentration since 1989, when the data first became available. 8 It is important to note that, over time, some individual households can move up or down between wealth groups, depending on the changing value of their assets. Also, some research suggests the particular nature of some economic fluctuations impacts some households' net worth more than others. For example, the real estate crash associated with the 2007-09 recession resulted in large losses for the poorest 50% of the population. 9

Does Inequality Matter?

The economic impact of growing income and wealth inequality in the United States is an intensely studied question. Economists are debating how to answer that question by analyzing data and creating mathematical models to study it. Because this is ongoing work, there is no single answer.

Some research shows that, in richer countries, more unequal income makes economic fluctuations more pronounced. 10 That finding means that the changes in overall income and employment known as business cycles become more dramatic. Moreover, statistical evidence suggests increased income inequality undermines economic growth due to lower educational achievements (and human capital) among poorer individuals and households. 11 As discussed earlier, education builds a person's human capital and is rewarded with higher income from employment. Finally, research suggests the increasing income and wealth inequality can undermine the use of monetary policy (as we know it) to maximize employment and ensure price stability. 12  

Inequality in individual economic outcomes arises from a combination of personal traits and social conditions. The distributions of income and wealth in a society can be measured in multiple ways: comparing the highest to the lowest earners, calculating an index describing how unequal income is among all individuals, and assessing people's financial wellbeing according to the value of their wealth holdings. Regardless of how we measure income and wealth inequality, their distributions in the United States are becoming more unequal. This trend is likely to impact economic life as we know it. More research is needed to figure out precisely how that may happen.

1 Obama, Barack. "Inaugural Address." January 21, 2013; https://obamawhitehouse.archives.gov/the-press-office/2013/01/21/inaugural-address-president-barack-obama .

2 For an example of how the use of city maps to assess lending risk after the Great Depression influenced homeownership rates across population groups for decades afterward, see the following article: Mendez-Carbajo, Diego. "Neighborhood Redlining, Racial Segregation, and Homeownership." Federal Reserve Bank of St. Louis Page One Economics , September 2021; https://research.stlouisfed.org/publications/page1-econ/2021/09/01/neighborhood-redlining-racial-segregation-and-homeownership .

3 For more on gender and labor markets, see the following article: Mendez-Carbajo, Diego. "Gender and Labor Markets." Federal Reserve Bank of St. Louis Page One Economics , January 2022; https://research.stlouisfed.org/publications/page1-econ/2022/01/03/gender-and-labor-markets .

4 For more on aging and wealth inequality, see the following article: Vandenbroucke, Guillaume and Zhu, Heting. "Aging and Wealth Inequality." Federal Reserve Bank of St. Louis Economic Synopses , 2017, No. 2; https://research.stlouisfed.org/publications/economic-synopses/2017/02/24/aging-and-wealth-inequality/ .

5 For a contribution to the ongoing debate about the relationship between monetary policy and income inequality, see the following article: Bullard, James. "Income Inequality and Monetary Policy: A Framework with Answers to Three Questions." Presented at the C. Peter McColough Series on International Economics, Council on Foreign Relations, New York, June 26, 2014; http://research.stlouisfed.org/econ/bullard/pdf/Bullard_CFR_26June2014_Final.pdf .

6 The following FRED® graph shows the income Gini ratio of all families, reported by the U.S. Census Bureau since 1947: https://fred.stlouisfed.org/graph/?g=MKYg .

7 For more on income inequality and the stock market, see the following articles: 

Bennett, Julie and Chien, YiLi. "The Large Gap in Stock Market Participation Between Black and White Households." Federal Reserve Bank of St. Louis Economic Synopses , 2022, No. 7; https://research.stlouisfed.org/publications/economic-synopses/2022/03/28/the-large-gap-in-stock-market-participation-between-black-and-white-households/ . 

Owyang, Michael T. and Shell, Hannah G. "Taking Stock: Income Inequality and the Stock Market." Federal Reserve Bank of St. Louis Economic Synopses , 2016, No. 7; https://research.stlouisfed.org/publications/economic-synopses/2016/04/29/taking-stock-income-inequality-and-the-stock-market/ .

8 For more about the change in wealth distribution over time, see the following post: Federal Reserve Bank of St. Louis. "Comparing the Assets of the Rich, Poor, and Middle Class." FRED ® Blog , October 21, 2019; https://fredblog.stlouisfed.org/2019/10/comparing-the-assets-of-the-rich-poor-and-middle-class/ .

9 For more on how recessions impact household net worth, see the following article: Mendez-Carbajo, Diego. "How Recessions Have Affected Household Net Worth, 1990-2017: Uneven Experiences by Wealth Quantile." Federal Reserve Bank of St. Louis Economic Synopses , 2020, No. 38; https://research.stlouisfed.org/publications/economic-synopses/2020/08/07/how-recessions-have-affected-household-net-worth-1990-2017-uneven-experiences-by-wealth-quantile .

10 For more on the relationship between inequality and economic fluctuations, see the following article: Iyigun, Murat F. and Owen, Ann L. "Income Inequality and Macroeconomic Fluctuations." Board of Governors of the Federal Reserve System International Finance Discussion Papers , July 1997; https://www.federalreserve.gov/econres/ifdp/income-inequality-and-macroeconomic-fluctuations.htm .

11 For more on the relationship between income inequality and economic growth, see the following article: Cingano, Federico. "Trends in Income Inequality and its Impact on Economic Growth." Organisation for Economic Co-operation and Development OECD Social, Employment, and Migration Working Papers , 2014, No. 163; https://www.oecd.org/els/soc/trends-in-income-inequality-and-its-impact-on-economic-growth-sem-wp163.pdf .

12 For more on the relationship between income inequality and monetary policy, see the following article: Cairo, Isabel and Sim, Jae W. "Income Inequality, Financial Crises, and Monetary Policy." Board of Governors of the Federal Reserve System Finance and Economics Discussion Series , July 2018; https://www.federalreserve.gov/econres/feds/income-inequality-financial-crises-and-monetary-policy.htm .

© 2022, Federal Reserve Bank of St. Louis. The views expressed are those of the author(s) and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System.

Asset: A resource with economic value that an individual, corporation, or country owns with the expectation that it will provide future benefits.

Gini index: A statistical measure of income inequality in a population that ranges from 0 (indicating absolute income equality) to 100 (indicating a perfectly inequal income distribution).

Household: A group of people living in the same home, regardless of their relationship to one another.

Income: The payment people receive for providing resources in the marketplace. When people work, they provide human resources (labor) and in exchange they receive income in the form of wages or salaries. People also earn income in the forms of rent, profit, and interest.

Liability: A legal responsibility to pay back money from a loan or other type of debt.

Net worth: The value of a person's assets minus the value of his or her liabilities.

Quintile: Any of five equal groups into which a population can be divided according to the distribution of values of a particular variable.

Wealth: The value of a person's assets accumulated over time.

Cite this article

Subscribe to Our Newsletter

Stay current with brief essays, scholarly articles, data news, and other information about the economy from the Research Division of the St. Louis Fed.

SUBSCRIBE TO THE RESEARCH DIVISION NEWSLETTER

Research division.

• Legal and Privacy

One Federal Reserve Bank Plaza St. Louis, MO 63102

Information for Visitors

Numbers, Facts and Trends Shaping Your World

Read our research on:

Full Topic List

Regions & Countries

• Publications
• Our Methods
• Short Reads
• Tools & Resources

Read Our Research On:

6 facts about economic inequality in the U.S.

Rising economic inequality in the United States has become a central issue in the race for the Democratic presidential nomination, and discussions about policy interventions that might help address it are likely to remain at the forefront in the 2020 general election .

As these debates continue, here are some basic facts about how economic inequality has changed over time and how the U.S. compares globally.

How we did this

For this analysis, we gathered data from the U.S. Census Bureau, Organization for Economic Cooperation and Development and the World Bank . We also used previously published data points from Pew Research Center surveys and analyses of outside data.

Over the past 50 years, the highest-earning 20% of U.S. households have steadily brought in a larger share of the country’s total income. In 2018, households in the top fifth of earners (with incomes of $130,001 or more that year) brought in 52% of all U.S. income, more than the lower four-fifths combined, according to Census Bureau data.

In 1968, by comparison, the top-earning 20% of households brought in 43% of the nation’s income, while those in the lower four income quintiles accounted for 56%.

Among the top 5% of households – those with incomes of at least $248,729 in 2018 – their share of all U.S. income rose from 16% in 1968 to 23% in 2018.

Income inequality in the U.S. is the highest of all the G7 nations , according to data from the Organization for Economic Cooperation and Development . To compare income inequality across countries, the OECD uses the Gini coefficient , a commonly used measure ranging from 0, or perfect equality, to 1, or complete inequality. In 2017, the U.S. had a Gini coefficient of 0.434. In the other G7 nations, the Gini ranged from 0.326 in France to 0.392 in the UK.

Globally, the Gini ranges from lows of about 0.25 in some Eastern European countries to highs of 0.5 to 0.6 in countries in southern Africa, according to World Bank estimates .

The black-white income gap in the U.S. has persisted over time. The difference in median household incomes between white and black Americans has grown from about $23,800 in 1970 to roughly $33,000 in 2018 (as measured in 2018 dollars). Median black household income was 61% of median white household income in 2018, up modestly from 56% in 1970 – but down slightly from 63% in 2007, before the Great Recession , according to Current Population Survey data.

Overall, 61% of Americans say there is too much economic inequality in the country today, but views differ by political party and household income level. Among Republicans and those who lean toward the GOP, 41% say there is too much inequality in the U.S., compared with 78% of Democrats and Democratic leaners, a Pew Research Center survey conducted in September 2019 found.

Across income groups, U.S. adults are about equally likely to say there is too much economic inequality. But upper- (27%) and middle-income Americans (26%) are more likely than those with lower incomes (17%) to say that there is about the right amount of economic inequality.

These views also vary by income within the two party coalitions. Lower-income Republicans are more likely than upper-income ones to say there’s too much inequality in the country today (48% vs. 34%). Among Democrats, the reverse is true: 93% at upper-income levels say there is too much inequality, compared with 65% of lower-income Democrats.

The wealth gap between America’s richest and poorer families more than doubled from 1989 to 2016, according to a recent analysis by the Center. Another way of measuring inequality is to look at household wealth, also known as net worth, or the value of assets owned by a family, such as a home or a savings account, minus outstanding debt, such as a mortgage or student loan.

In 1989, the richest 5% of families had 114 times as much wealth as families in the second quintile (one tier above the lowest), at the median $2.3 million compared with $20,300. By 2016, the top 5% held 248 times as much wealth at the median. (The median wealth of the poorest 20% is either zero or negative in most years we examined.)

The richest families are also the only ones whose wealth increased in the years after the start of the Great Recession. From 2007 to 2016, the median net worth of the top 20% increased 13%, to $1.2 million. For the top 5%, it increased by 4%, to $4.8 million. In contrast, the median net worth of families in lower tiers of wealth decreased by at least 20%. Families in the second-lowest fifth experienced a 39% loss (from $32,100 in 2007 to $19,500 in 2016).

Middle-class incomes have grown at a slower rate than upper-tier incomes over the past five decades, the same analysis found . From 1970 to 2018, the median middle-class income increased from $58,100 to $86,600, a gain of 49%. By comparison, the median income for upper-tier households grew 64% over that time, from $126,100 to $207,400.

The share of American adults who live in middle-income households has decreased from 61% in 1971 to 51% in 2019. During this time, the share of adults in the upper-income tier increased from 14% to 20%, and the share in the lower-income tier increased from 25% to 29%.

• Economic Inequality
• Economy & Work
• Income & Wages
• Income, Wealth & Poverty
• Personal Finances

Katherine Schaeffer is a research analyst at Pew Research Center .

1 in 10: Redefining the Asian American Dream (Short Film)

The hardships and dreams of asian americans living in poverty, a booming u.s. stock market doesn’t benefit all racial and ethnic groups equally, black americans’ views on success in the u.s., wealth surged in the pandemic, but debt endures for poorer black and hispanic families, most popular.

1615 L St. NW, Suite 800 Washington, DC 20036 USA (+1) 202-419-4300 | Main (+1) 202-857-8562 | Fax (+1) 202-419-4372 |  Media Inquiries

Research Topics

• Age & Generations
• Coronavirus (COVID-19)
• Family & Relationships
• Gender & LGBTQ
• Immigration & Migration
• International Affairs
• Internet & Technology
• Methodological Research
• News Habits & Media
• Non-U.S. Governments
• Other Topics
• Politics & Policy
• Race & Ethnicity
• Email Newsletters

ABOUT PEW RESEARCH CENTER  Pew Research Center is a nonpartisan fact tank that informs the public about the issues, attitudes and trends shaping the world. It conducts public opinion polling, demographic research, media content analysis and other empirical social science research. Pew Research Center does not take policy positions. It is a subsidiary of  The Pew Charitable Trusts .

Copyright 2024 Pew Research Center

Terms & Conditions

Privacy Policy

Cookie Settings

Reprints, Permissions & Use Policy

Economic Inequality Essay

Economic Inequality, Inequality And Inequality

the OECD, the term inequality in the opposite of equity can be defined as evenness or fairness within the social, political, and economic perspectives. Equity forms the core value of both the western democratic tradition and religions. From the concept of equality, inequality can be described as unfair or uneven treatments of the people within the society or unequal distribution of resources, income, and other factors between different sectors in the society. Inequality can be defined as

Economic Inequality

Economic Inequality The sacred American tradition of free public education is in turmoil. The values, knowledge and creativity which forged America into the greatest nation of the world originated in the classroom. Classrooms which thrived in the past, are suffering in the present. Inequalities in the American education system are apparent and vivid; most prominent are those regarding income. Poverty’s relationship with education is parasitic, and the barrier its erecting between the student and

The Real Story Behind of Social Class and Economic Inequality in the United States We live in a day and age that is immensely affected by wealth distribution and the rapid growth of inequality. With the middle class disappearing as we speak and President Obama’s presidency coming to an end, many are curious about where America is headed next. The Center for Research on Globalization reports that “the yearly income of a US household dropped by a massive 12 percent, or $6,400, in the six years

Economic Inequality And Political Inequality

Economic inequality, also known as income inequality, is the interval between the rich and the poor. Economic inequality refers to how the total wealth in the United States is distributed among people in a social class. It is needed and it is important but due to the major gap difference, it affects the Democratic Party and in addition, it also affects Americans because they do not understand the actual wealth distribution. It is a major issue in the United States because it affects other economic

income increases in the United States. Economic inequality and political inequality may have a connection where our democracy could be affected but americans have the ability to solve this problem. Economic inequality refers to wealth or income between different groups or a society as a whole. There have been past social movements that have tried to improve this problem such as women's suffrage and more. We are still trying to resolve this issue of economic inequality. In the United States, high standard

Economic Inequality In America

Economic inequality reigns as a massive divide in the United States of America. Many active policies cause people to occupy an economic level which is meant to benefit those above them. With that said, there have been many efforts taken in hopes of reducing the current levels of economic inequality, but with these efforts, money and wealth will have to be taken from the rich to give to the poorer. This is where the problem lies with wealth inequality – many have to sacrifice for those whom they

Education And Economic Inequality

However, sociologists recognize that social stratification is a society-wide system that makes inequalities apparent” (Griffiths et al., 2016, p.188). There are many factors that drive social inequality; globalization and immigration, technology advances, the family you were born into, and even the education you received in pre-school. I feel the most important contributing factor is economic inequality. I consider this to be true not only for the United States, but globally as well. Both wealthy

The Importance Of Economic Inequality

However, economic inequality is not a new concept. Miles Corak points out in his 2012 essay the importance of understanding the dynamics of inequality over multiple generations and how this shapes current and future inequality. Corak highlights the disconnect in American society between believing one has “equality of opportunity,” and as a result, social mobility and capital, versus actually having access to economic opportunity greater than that of one’s parents. The interactions between the

The Economic Inequality Of Australia

Australia, although being a multicultural country where everyone is equal, there is a severe presence of economic inequality. With millions of people living poverty, Australia’s wealthy continue to accumulate wealth, whereas the poor continue to become poorer. With the economic inequality in Australia rising, the Australian government is contributing to this by creating new policies within the budget, making those who are disadvantaged already worse off. Rather than creating policies that make the

There is a problem plaguing the United States: economic inequality. The financial gap between the rich and poor is widening and it only continues to increase. Not only is the rich becoming richer but the poor is becoming poorer. If some type of change doesn't happen it will cut the middle class. Although this is not a concerning matter to some, to others it's a huge concern and it continues to be a daily problem. Because economic inequality hurts the United States economy, the government should take

Popular Topics

• Economic Policy Essay
• Economic Problems Essay
• Essay on Economic Recession
• Economics Essay
• Economy Essay
• Ecosystem Essay
• Edgar Allan Poe Essay
• Editorial Essay Example
• Educated Essay
• Educating Rita Essay

• Share full article

Advertisement

Supported by

Is Economic Inequality Really a Problem?

Yes, but the answer is less obvious than you might think.

By Samuel Scheffler

Dr. Scheffler is a professor of philosophy.

It is impossible to ignore the stark disparities of income and wealth that prevail in this country, and a great many of us are troubled by this state of affairs.

But is economic inequality really what bothers us? An influential essay published in 1987 by the philosopher Harry Frankfurt suggests that we have misidentified the problem. Professor Frankfurt argued that it does not matter whether some people have less than others. What matters is that some people do not have enough. They lack adequate income, have little or no wealth and do not enjoy decent housing, health care or education. If even the worst-off people had enough resources to lead good and fulfilling lives, then the fact that others had still greater resources would not be troubling.

When some people don’t have enough and others have vastly more than they need, it is easy to conclude that the problem is one of inequality. But this, according to Professor Frankfurt, is a mistake. The problem isn’t inequality as such. It’s the poverty and deprivation suffered by those who have least.

Professor Frankfurt’s essay didn’t persuade all his fellow philosophers, many of whom remained egalitarians. But his challenge continued to resonate and, in 2015, even as concerns about economic inequality were growing in many corners of society, he published a short book in which he reaffirmed his position.

And Professor Frankfurt, it seems, has a point. Those in the top 10 percent of America’s economic distribution are in a very comfortable position. Those in the top 1 percent are in an even more comfortable position than those in the other 9 percent. But few people find this kind of inequality troubling. Inequality bothers us most, it seems, only when some are very rich and others are very poor.

Even when the worst-off people are very poor, moreover, it wouldn’t be an improvement to reduce everyone else to their level. Equality would then prevail, but equal misery is hardly an ideal worth striving for.

So perhaps we shouldn’t object to economic inequality as such. Instead, we should just try to improve the position of those who have least. We should work to eliminate poverty, hunger, bad schools, substandard housing and inadequate medical care. But we shouldn’t make the elimination of inequality our aim.

Is this the correct conclusion? I think not. Economic inequality matters a great deal whether or not it matters “as such.”

Start by considering two points that Professor Frankfurt himself would accept. First, to succeed in eliminating poverty and securing decent conditions of life for all Americans would require raising taxes on the rich significantly. Although the ultimate purpose would not be to reduce inequality, the indirect effect would be to do just that. So even if inequality as such is not the problem, reducing inequality is almost certainly part of the solution.

Second, even if economic inequality is not a problem in and of itself, it can still have bad effects. Great disparities of income and wealth, of the kind we see in the United States today, can have damaging effects even when nobody is badly off in absolute terms. For example, the wealthiest may be able to exert a disproportionate share of political influence and to shape society in conformity with their interests. They may be able to make the law work for them rather than for everyone, and so undermine the rule of law. Enough economic inequality can transform a democracy into a plutocracy, a society ruled by the rich.

Large inequalities of inherited wealth can be particularly damaging, creating, in effect, an economic caste system that inhibits social mobility and undercuts equality of opportunity.

Extreme inequality can also have subtler and more insidious effects, which are especially pronounced when those who have the least are also poor and lack adequate resources, but which may persist even if everyone has enough. The rich may persuade themselves that they fully deserve their enormous wealth and develop attitudes of entitlement and privilege. Those who have less may develop feelings of inferiority and deference, on the one hand, and hostility and resentment on the other. In this way, extreme inequality can distort people’s view of themselves and compromise their relations with one another.

This brings us to a more fundamental point. The great political philosopher John Rawls thought that a liberal society should conceive of itself as a fair system of cooperation among free and equal people. Often, it seems, we do like to think of ourselves that way. We know that our society has always been blighted by grave injustices, beginning with the great moral catastrophe of slavery, but we aspire to create a society of equals, and we are proud of the steps we have taken toward that ideal.

But extreme inequality makes a mockery of our aspiration. In a society marked by the spectacular inequalities of income and wealth that have emerged in the United States in the past few decades, there is no meaningful sense in which all citizens, rich and poor alike, can nevertheless relate to one another on an equal footing. Even if poverty were eliminated and everyone had enough resources to lead a decent life, that would not by itself transform American citizenship into a relationship among equals. There is a limit to the degree of economic inequality that is compatible with the ideal of a society of equals and, although there is room for disagreement about where exactly the limit lies, it is clear that we have long since exceeded it.

If extreme economic inequality undermines the ideal of a society of equals, then is that merely one of its bad effects, like its corrupting influence on the political process? Or, instead, is that simply what it is for economic inequality to matter as such?

For practical purposes, it doesn’t make much difference which answer we give. In either case, the imperative that Professor Frankfurt identified — the imperative to ensure that all citizens have enough resources to lead decent lives — is of the utmost importance. It is appalling that so many people in a society as wealthy as ours continue to lack adequate housing, nutrition, medical care and education, and do not enjoy the full benefits of the rule of law. But addressing Professor Frankfurt’s imperative is not enough. Extreme economic inequality, whether it matters as such or “merely” for its effects, is pernicious. It threatens to transform us from a democracy into a plutocracy, and it makes a mockery of the ideal of equal citizenship.

If, as they say, every crisis is an opportunity, then America today is truly the land of opportunity. Of the many opportunities with which our current crises have presented us, one of the most basic is the opportunity to rethink our conception of ourselves as a society. Going forward, we must decide whether we wish to constitute ourselves as a genuine society of equals or, alternatively, whether we are content to have our relations with one another structured by an increasingly stark and unforgiving economic and social hierarchy.

Samuel Scheffler is a professor of philosophy and law at New York University and the author, most recently, of “Why Worry About Future Generations?”

The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips . And here’s our email: [email protected] .

Follow The New York Times Opinion section on Facebook , Twitter (@NYTopinion) and Instagram .

Economic Inequality

By Joe Hasell, Pablo Arriagada, Esteban Ortiz-Ospina and Max Roser

How are incomes and wealth distributed between people? Both within countries and across the world as a whole?

On this page, you can find all our data, visualizations, and writing relating to economic inequality.

This evidence shows us that inequality in many countries is very high and, in many cases, has been on the rise. Global economic inequality is vast and compounded by overlapping inequalities in health, education, and many other dimensions.

But economic inequality is not rising everywhere. Within many countries, it has fallen or remained stable. And global inequality – after two centuries of increase – is now falling too.

The large differences we see across countries and over time are crucial. They show us that high and rising inequality is not inevitable, and that the extent of inequality today is something that we can change.

Explore Data on Economic Inequality

About this data.

This data explorer provides a range of inequality indicators measured according to two different definitions of income obtained from different sources.

• Data from the World Inequality Database relates to inequality before taxes and benefits.
• Data from the World Bank relates to either income after taxes and benefits or consumption, depending on the country and year.

Further information about the definitions and methods behind this data can be found in the article below, where you can also explore and compare a much broader range of indicators from different sources:

OWID Data Collection: Inequality and Poverty

Explore a wide range of indicators on inequality and poverty and compare sources.

Research & Writing

How has income inequality within countries evolved over the past century?

While the steep rise of inequality in the United States is well-known, long-run data on the incomes of the richest shows countries have followed a variety of trajectories.

Income inequality before and after taxes: How much do countries redistribute income?

The redistribution of income achieved by governments through taxes and benefits varies hugely.

Income Inequality Over the Long-run

How has inequality in the United Kingdom changed over the long run?

How unequal were pre-industrial societies?

Global inequality.

The history of global economic inequality

Global Inequality of Opportunity

Global economic inequality: what matters most for your living conditions is not who you are, but where you are

How is inequality defined and measured.

Joe Hasell and Pablo Arriagada

Measuring inequality: What is the Gini coefficient?

Interactive charts on economic inequality, cite this work.

Our articles and data visualizations rely on work from many different people and organizations. When citing this topic page, please also cite the underlying data sources. This topic page can be cited as:

BibTeX citation

Reuse this work freely

All visualizations, data, and code produced by Our World in Data are completely open access under the Creative Commons BY license . You have the permission to use, distribute, and reproduce these in any medium, provided the source and authors are credited.

The data produced by third parties and made available by Our World in Data is subject to the license terms from the original third-party authors. We will always indicate the original source of the data in our documentation, so you should always check the license of any such third-party data before use and redistribution.

All of our charts can be embedded in any site.

Our World in Data is free and accessible for everyone.

Help us do this work by making a donation.

• Search Search Please fill out this field.

What Is Economic Inequality?

Understanding economic inequality, is economic equality desirable.

• Exploring the Reasons
• Economic Inequality and COVID-19

Economic Inequality and Health

Fixing economic inequality, the bottom line, what is economic inequality definition, causes, and key statistics.

Amy Fontinelle has more than 15 years of experience covering personal finance, corporate finance and investing.

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Economic inequality refers to disparities among individuals' incomes and wealth. And those differences can be great. Forbes counted a record 2,755 billionaires in the world as of 2021, when it finalized its most recent rankings. Meanwhile, the World Bank estimated that in 2021 more than 711 million people globally were living on less than $1.90 per day. That's actually a big improvement from 1990, when over 1.9 billion people lived in extreme poverty and the world had only 269 billionaires.

Some will look at these numbers as evidence that a rising tide lifts all boats. Over the past 30 years, global wealth has increased; overall, living standards have improved. And others will look at these numbers and think it's inexcusable that anyone lives in poverty when the world's billionaires are worth a combined $13.1 trillion. Of course, both statements can be simultaneously true.

Disparities like these—and the ones many people see in their everyday lives, where people experiencing homelessness or housing insecurity live in tent cities only miles from fancy condos—give rise to questions about economic inequality. What is it? How and why does it happen? Is it the natural order of things, or is the system rigged? Should attempts be made to make things more equal—for instance, by increasing taxes on higher incomes , as Sweden has? And is the pandemic going to make this inequality worse?

We don't have the answers. The causes of economic inequality are multifarious, and our society hasn't reached a consensus on what, if anything, to do about it, with political deadlock keeping things as status quo for the time being. What we can offer is some background and insight on the state of economic inequality in this country.

Key Takeaways

• A basic definition of economic inequality refers to the disparities in incomes and wealth in a society.
• Most Americans believe in meritocracy, the idea that people advance in wealth and status through hard work, not privilege, but inequality of opportunity can limit upward mobility.
• The COVID-19 pandemic has highlighted economic inequalities. Chronically marginalized groups are contracting and dying from the virus at higher rates, and those who can't afford health insurance—as well as workers in demanding and dangerous but low-paid "essential" jobs—are at greater risk.
• Well-educated and well-informed people disagree about whether economic inequality should be reduced, to what extent, and through what means.

The essence of economic equality is how much money the least well off make compared to the most well off—and how wealth is distributed in a society. What assets do people own to tide them over during difficult times and to help them invest in new opportunities? These differences matter for several reasons.

Let's look first at the psychological aspect of economic inequality. We all compare ourselves to others. How satisfied we are with our income or net worth depends not just on how low or high those figures are, nor purely on what we can buy with our incomes or how comfortable our wealth makes us.

Instead, our satisfaction depends, in part, on how our income and wealth compare to that of others: our neighbors, colleagues, friends, siblings, classmates, and bosses. Let's take an accountant we'll call Lorenzo as an example. Lorenzo may be perfectly happy earning $70,000 a year in his accounting job—but only until he learns that his colleague and fellow accountant Sebastian is earning $80,000. The inequality feels unfair. It makes him unhappy; maybe even angry.

Lorenzo confronts Sebastian, asking him what he's doing to earn an extra $10k a year. He points out that they both have the same amount of experience, they started working at the firm at around the same time, and they do the same job.

In response, Sebastian says that it's a bigger deal that their CEO earns $60 million. Plus, their friend Marco, who works in customer service through a contractor their firm hires, only makes $20 an hour and doesn't get the same benefits as they do. No health insurance. No 401(k). Only 10 days of paid time off per year, and he has to choose between using those for vacation, personal time, or sick leave.

A big driver of economic inequality is a persistent wealth and income gap observed between men and women and with whites and non-whites. While these gaps have been closing in recent years, pervasive racism beginning with slavery and continuing through the Jim Crow era has led to enormous inequalities between white and black households that remain to this day.

Lorenzo has an explanation for Marco's position and pay. Marco didn't go to college, whereas Lorenzo and Sebastian worked hard in high school and got into good universities. On top of that, they both became certified public accountants , which meant putting in a lot of extra work, taking extra exams, and spending a lot of money to get their certifications. It wouldn't make sense for Marco to earn $75,000. He didn't do any of that. That's the way the system works.

Most Americans would agree. They would say that even though Lorenzo and Sebastian are both single and Marco is supporting his partner and two children—so, arguably, Marco needs the higher income more than Lorenzo and Sebastian do—they don't like the idea of "from each according to his ability, to each according to his needs." That's the communist credo, and communism, after taking hold in the Soviet Union in 1917, led to millions of government-ordered executions, mass starvation, war, and widespread human misery. (However, there are those who would argue that the problem is not the communist philosophy itself, but its historical implementation under brutal dictators.)

Back to our accountants. Lorenzo doesn't think it's fair to give $15,000 of his $70,000 salary to Marco so they can each earn an equal $55,000 a year. Sebastian doesn't want to give up that kind of money, either. Although he doesn't have a partner or kids, he does have a mortgage to pay, and he wants to go back to school to earn an MBA . That's not cheap. He doesn't want to support someone else's kids. If he were only going to earn $55,000 a year, he wouldn't have bothered to become a CPA.

How Does Economic Inequality Happen?

We've seen that one reason economic inequality is a problem is that we compare ourselves to others. We feel bad when we find out that other people have more than we do, especially when we're similar to those people. People need incentives to work hard, and they feel they deserve to keep what they earn. They also believe in meritocracy, the idea that people advance in wealth and status through hard work, not through privilege. But how would Lorenzo and Sebastian feel if they learned more about Marco's life story?

Marco grew up in a semi-rural community. The schools he attended were slightly below average, and he didn't have any choice about where to get his education. His dad stocked shelves at the local grocery store. His mom was a restaurant server. Neither of his parents finished high school. They couldn't help him with his homework. They often worked nights and weekends. Marco's grandparents watched him during those times, and he played with the neighborhood kids. In high school, he got a job as a busboy at the restaurant where his mom worked. His friends were good kids, but none of them ever talked about going to college. Most adults in their lives were not college graduates. No one expected Marco or his friends to go to college or enter a white-collar profession.

Lorenzo and Sebastian both grew up in cities. Sebastian's parents lived in an upper-middle-class neighborhood with great public schools. Lorenzo's parents took advantage of a school choice program to get him into better schools. Both boys' teachers saw promise in them and encouraged them to take advanced classes. They didn't always get straight As, but they did get good enough grades to get into name-brand colleges. Plus, all their friends were going to college. Their teachers expected them to go and helped them prepare.

For these three men, inequality of opportunity led to where they are today. None of them did anything wrong. Nor did their parents do anything wrong. But Sebastian benefited from the intergenerational wealth that allowed him to grow up in a nice area with quality schools. Lorenzo benefited from having access to those schools and growing up alongside kids like Sebastian whose parents expected their children to attend college and pursue corporate careers with good pay and benefits. Marco had none of these advantages.

This example is just one way economic inequality can happen. However, it happens, the life consequences are substantial.

Source: Board of Governors of the Federal Reserve System.

How the COVID-19 Pandemic Has Exposed Economic Inequality

The everyday threat of COVID-19—a highly contagious, sometimes deadly virus that no one is known to have lasting immunity to—has made more people aware of the economic inequalities in our society. Examples are accumulating: There's the legacy of abuse and marginalization of Latinx Americans, black Americans, and Native Americans, all groups getting infected and dying from the virus at rates far higher than whites. And there's the low pay received by workers in demanding and dangerous jobs. Meat processors and slaughterers, who earn a mean hourly wage of $15.00 as of May 2020 ($31,210 annually), according to the U.S. Bureau of Labor Statistics, have been disproportionately infected by COVID-19 outbreaks at work.

On March 19, 2020, Christopher Krebs, director of the U.S. Department of Homeland Security's Cybersecurity and Infrastructure Security Agency, issued a memorandum identifying the "essential critical infrastructure workers," commonly referred to as "essential workers," whose jobs are key for protecting public health and safety and economic and national security. "The industries they support represent, but are not necessarily limited to, medical and healthcare, telecommunications, information technology systems, defense, food and agriculture, transportation and logistics, energy, water and wastewater, law enforcement, and public works," the memo states.

This list is not a mandate, but it provides advice to the states on who should keep going to work and who should stay home to help prevent the spread of the disease. The goal? To "flatten the curve," to avoid overwhelming the healthcare system such that sick people cannot receive potentially life-saving treatment. The memo also encourages remote work where possible and provides strategies to reduce the spread of disease among those who cannot work remotely.

Following the release of a memo from Homeland Security regarding essential workers and COVID, there's been evidence that many employers have not provided adequate protection to keep essential workers from catching and spreading COVID-19. In part, the problem can be attributed to the global lack of pandemic preparedness and, according to national press reports, massive shortages in personal protective equipment, even for medical providers. But what is also evident is that economic inequality has made a bad situation much worse for many workers.

Some have continued going to their high-risk jobs because they feel they have no choice: Their families rely on their wages. A 62-year-old California woman told the Los Angeles Times how she kept going to her $13.58-an-hour job washing laundry at a nursing home even though her husband, who has underlying heart problems, didn't want her to. She said she had to support her family; they all got the virus.

Situations like these have led some to say that those deemed essential workers are really being treated as expendable workers. Hazard pay, where it's been offered, has been deemed insufficient; it may also soon prove temporary. Some employers, perhaps most notoriously airlines, have even forbidden their workers to wear face masks and kept them in the dark about on-the-job exposure to the virus.

Some people have gone to work with COVID-19 symptoms because their employers don't provide the pay, benefits, or sick leave they need to take time off and get healthcare. Millions have been forced into unemployment by stay-at-home orders, so while they may be safer from the coronavirus, they don't have money to pay their bills unless they have robust emergency savings, and most people don't . The unemployed also may not have health insurance to get treatment if they get sick, since affordable, high-quality health insurance in the United States is often tied to employment, even with the Affordable Care Act (ACA).

Let's return to the story of our fictional workers. Marco, a customer service representative at an office that has closed down due to the pandemic, is technically able to work from home. But the company doesn't have enough work for all its reps because business has slowed so much. So he has been let go and is struggling to collect unemployment compensation from an overloaded system. Meanwhile, Lorenzo and Sebastian have continued to perform their well-paid accounting jobs from home. They also still have the health insurance that their employer never offered Marco because he works through a contractor and is not an employee of the firm. He does have an Affordable Care Act exchange plan, but he's not sure how he'll keep paying the premiums.

Going without health insurance is a huge risk for anyone, but it's an extra risk for Marco, who suffers from asthma. In fact, so do lots of the people he grew up with, maybe because many of their parents smoked, maybe because the outdoor air quality downwind of the chemical plant near their neighborhood was poor. Lorenzo and Sebastian didn't have these disadvantages. They've also got some luck on their side, and they don't have underlying health conditions.

This is yet another aspect of economic inequality that's become starker due to the pandemic: the higher prevalence of underlying health conditions such as asthma and high blood pressure in lower-income individuals and people of color because they are marginalized their entire lives. These populations are at an even more elevated risk of dying in the pandemic because their underlying health conditions predispose them to adverse outcomes from COVID-19 and they're also more likely to be exposed to it at work.

Is economic inequality something we should try to fix? In the United States, this question has become a heated political issue. It encompasses issues such as progressive taxation , universal healthcare coverage , unemployment insurance , basic income , Medicaid , and COBRA health insurance . Some people think the United States should adopt more elements of the Nordic model and strengthen its social safety net. Others feel this model is too socialist and prefer a more capitalist model . They don't want to pay the higher taxes that would be required to fund more social programs, and they argue that filling the gaps through the work of private charities is a better solution.

A 2018 academic study found that a combination of both taxes and charitable giving is necessary to meet a community's needs. It also found that Republicans and Democrats differ in the total amount of income redistribution they think society needs and the amount they're willing to allocate to taxes versus donations.

Most people are willing to pay taxes, but they differ in how much they're willing to pay to reduce economic inequality. Lorenzo and Sebastian like to think that the taxes they're paying on the money they are still earning are helping people like Marco right now through federal and state income security programs. Some of their tax dollars also help support their grandparents through Social Security and Medicare .

In addition, Lorenzo and Sebastian are each currently donating 10% of their pay to local nonprofits that are helping people who are unemployed get through the pandemic. They feel a need to contribute to their local community since part of the reason they're able to keep working comes down to luck, and they don't think others who are out of work should suffer because of bad luck.

Economic inequality is a tricky issue. Some level of inequality may be natural. Marco didn't choose the circumstances he was born into any more than Lorenzo and Sebastian did. But societal forces may have determined the circumstances they were born into, then perpetuated their unequal circumstances, even as other forces also helped Marco get a job that pays relatively well for someone without a college degree. But then, why shouldn't Marco have had access to the same opportunities his coworkers did? The issues of fairness and equality of opportunity lie beneath the issue of economic inequality and the degree to which it's natural, inevitable, acceptable, or even desirable. It's up to each of us to decide what we want economic equality or inequality to look like, then vote and spend our dollars accordingly.

Forbes. " World's Billionaires List: The Richest in 2021 ." Accessed Nov. 19, 2021.

World Bank. " Updated Estimates of the Impact of COVID-19 on Global Poverty: Turning the Corner on the Pandemic in 2021? " Accessed Nov. 19, 2021.

Forbes. " The World's Billionaires: 25th Anniversary Timeline ." Accessed Nov. 19, 2021.

World Bank Group. " Piecing Together the Poverty Puzzle ," Page 2. Accessed Nov. 19, 2021.

Karl Marx. " Critique of the Gotha Program ." Progress Publishers, 1970.

Centers for Disease Control and Prevention. " Introduction to COVID-19 Racial and Economic Disparities ." Accessed Nov. 19, 2021.

Centers for Disease Control and Prevention. " COVID-19 Among Workers in Meat and Poultry Processing Facilities—19 States, April 2020 ." Accessed Nov. 19, 2021.

U.S. Bureau of Labor Statistics. " 51-3023, Slaughterers and Meat Packers ." Accessed Nov. 19, 2021.

U.S. Department of Homeland Security. " Memorandum on Identification of Essential Critical Infrastructure Workers During COVID-19 Response ." Accessed Nov. 19, 2021.

Vox. " 'I Did Not Sign Up for the Military. I Signed Up for Walmart' ." Accessed Nov. 19, 2021.

New York Times. " 'At War With No Ammo’: Doctors Say Shortage of Protective Gear Is Dire ." Accessed Nov. 19, 2021.

Los Angeles Times. " The Price of Being 'Essential': Latino Workers Bear Brunt of Coronavirus ." Accessed Nov. 19, 2021.

Milwaukee Independent. " Expendable Workers: Being Called 'Essential' Only Describes the Work and Not the People Doing It ." Accessed Nov. 19, 2021.

Los Angeles Times. " 15 Deaths in the Airline Industry in 9 Days Linked to Coronavirus. Why Are Planes Still Flying? " Accessed Nov. 19, 2021.

Current Opinion in Allergy and Clinical Immunology. " Asthma and Ethnic Minorities: Socioeconomic Status and Beyond ." Accessed Nov. 19, 2021.

The American Journal of the Medical Sciences. " Racial Differences in Hypertension: Implications for High Blood Pressure Management ." Accessed Nov. 19, 2021.

Economic Policy Institute. " Not Everybody Can Work From Home ." Accessed Nov. 19, 2021.

Sage Journals. " The Politics of Donations: Are Red Counties More Donative Than Blue Counties? " Accessed Nov. 19, 2021.

The New York Times. " How Political Ideology Influences Charitable Giving ." Accessed Nov. 19, 2021.

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

• Architecture and Design
• Asian and Pacific Studies
• Business and Economics
• Classical and Ancient Near Eastern Studies
• Computer Sciences
• Cultural Studies
• Engineering
• General Interest
• Geosciences
• Industrial Chemistry
• Islamic and Middle Eastern Studies
• Jewish Studies
• Library and Information Science, Book Studies
• Life Sciences
• Linguistics and Semiotics
• Literary Studies
• Materials Sciences
• Mathematics
• Social Sciences
• Sports and Recreation
• Theology and Religion
• Publish your article
• The role of authors
• Promoting your article
• Abstracting & indexing
• Publishing Ethics
• Why publish with De Gruyter
• How to publish with De Gruyter
• Our book series
• Our subject areas
• Your digital product at De Gruyter
• Contribute to our reference works
• Product information
• Tools & resources
• Product Information
• Promotional Materials
• Orders and Inquiries
• FAQ for Library Suppliers and Book Sellers
• Repository Policy
• Free access policy
• Open Access agreements
• Database portals
• For Authors
• Customer service
• People + Culture
• Journal Management
• How to join us
• Working at De Gruyter
• Mission & Vision
• De Gruyter Foundation
• De Gruyter Ebound
• Our Responsibility
• Partner publishers

Your purchase has been completed. Your documents are now available to view.

Causes and Consequences of Income Inequality – An Overview

Rising income inequality is one of the greatest challenges facing advanced economies today. Income inequality is multifaceted and is not the inevitable outcome of irresistible structural forces such as globalisation or technological development. Instead, this review shows that inequality has largely been driven by a multitude of political choices. The embrace of neoliberalism since the 1980s has provided the key catalyst for political and policy changes in the realms of union regulation, executive pay, the welfare state and tax progressivity, which have been the key drivers of inequality. These preventable causes have led to demonstrable harmful outcomes that are not explicable solely by material deprivation. This review also shows that inequality has been linked on the economic front with reduced growth, investment and innovation, and on the social front with reduced health and social mobility, and greater violent crime.

1 Introduction

Income inequality has recently come to be viewed as one of the greatest challenges facing the world today. In recent years, the topic has dominated the agenda of the World Economic Forum (WEF), where the world’s top political and business leaders attend. Their global risks report, drawn from over 700 experts in attendance, pronounced inequality to be the greatest threat to the world economy in 2017 ( Elliott 2017 ). Likewise, the past decade has seen leading global figures such as former American President Barack Obama, Pope Francis, Chinese President Xi Jinping, and the former head of the International Monetary Fund (IMF), Christine Lagarde, all undertake speeches on the gravity of income inequality and the need to address its rise. This is because, as this research note shows, income inequality engenders harmful consequences that are not explicable solely by material deprivation.

The general dynamics of income inequality include a tendency to rise slowly and fluctuate over time. For instance, Japan had one of the highest rates in the world prior to the Second World War and the United States (US) one of the lowest, which has since completely reversed for both. The United Kingdom (UK) was also the second most equitable large European country in the 1970s but is now the most inequitable ( Dorling 2018 : 27–28).

High rates of inequality are rarely sustained for long periods because they tend to lead to or become punctuated by man-made disasters that lead to a levelling out. Scheidel (2017) posits that there in fact exists a violent ‘Four Horseman of Leveling’ (mass mobilisation warfare, transformation revolutions, state collapse, and lethal pandemics) for inequality, which have at times dramatically reduced inequalities because they can lead to the alteration of existing power structures or wipe out the wealth of elites and redistribute their resources. For instance, the pronounced shocks of the two world wars led to the ‘Great Compression’ of income throughout the West in the post-war years. There is already some evidence that the current global pandemic caused by the novel Coronavirus, has led to greater aversion to income inequality ( Asaria, Costa-Font, and Cowell 2021 ; Wiwad et al. 2021 ).

Thus, greater aversion to inequality has been able to reduce inequality in the past, this is because, as this review also shows, income inequality does not result exclusively from efficient market forces but arises out of a set of rules that is shaped by those with political power. Inequality’s rise is not inevitable, nor beyond the control of governments and policymakers, as they can affect distributional outcomes and inequality through public policy.

It is the purpose of this review to outline the causes and consequences of income inequality. The paper begins with an analysis of the key structural and institutional determinants of inequality, followed by an examination into the harmful outcomes of inequality. It then concludes with a discussion of what policymakers can do to arrest the rise of inequality.

2 Causes of Income Inequality

Broadly speaking, explanations for the increase in income inequality have largely been classified as either structural or institutional. Historically, economists emphasised structural causes of increasing income inequality, with globalisation and technological change at the forefront. However, in recent years opinion has shifted to emphasise more institutional political factors to do with the adoption of neoliberal reforms such as privatisation, deregulation and tax and welfare reductions since the early 1980s. They were first embraced and most heavily championed by the UK and US, spreading globally later, and which provide the crucial catalysts of rising income inequality ( Atkinson 2015 ; Brown 2017 ; Piketty 2020 ; Stiglitz 2013 ). I discuss each of these key factors in turn.

2.1 Globalisation

One of the earliest, and most prominent explanations for the rise of income inequality emphasised the role of globalisation ( Borjas, Freeman, and Katz 1992 ; Revenga 1992 ). Globalisation has led to the offshoring of many goods and services that used to be produced or completed domestically in the West, which has created downward pressures on the wages of lower skilled workers. According to the ‘market forces hypothesis,’ increasing inequality is a response to the rising demand for skills at the top, in which the spread of globalisation and technological progress have been facilitated through reduced barriers to trade and movement.

Proponents of globalisation as the leading cause of inequality have argued that globalisation has constrained domestic state choices and left governments collectively powerless to address inequality. Detractors admit that globalisation has indeed had deep structural effects on Western economies but its impact on the degree of agency available to domestic governments has been mediated by individual policy choices ( Thomas 2016 : 346). A key problem with attributing the cause of inequality to globalisation, is that the extent of the inequality increase has varied considerably across countries, even though they have all been exposed to the same effects of globalisation. The US also has the highest inequality amongst rich countries, but it is less reliant on international trade than most other developed countries ( Brown 2017 : 56). Moreover, a recent meta-analysis by Heimberger (2020) found that globalisation has a “small-to-moderate” inequality-increasing effect, with financial globalisation displaying the largest impact.

2.2 Technology

A related explanation for inequality draws attention to the impact of technology specifically. The advent of the digital age has placed a higher premium on the skills needed for non-routine work and reduced the value placed on lower skilled routine work, as it has enabled machines to replace jobs that could be routinised. This skill-biased technological change (SBTC) has led to major changes in the organisation of work, as many full-time permanent jobs with benefits have given way to part-time flexible work without benefits, that are often centred around the completion of short ‘gigs’ such as a car journey or food delivery. For instance, the Organisation for Economic Co-operation and Development (OECD) estimated in 2015 that since the 1990s, roughly 60% of all job creation has been in the form of non-standard work due to technological changes and that those employed in such jobs are more likely to be poor ( Brown 2017 : 60).

Relatedly, a prevailing doctrine in economics is ‘marginal productivity theory,’ which holds that people with greater productivity levels will earn higher incomes. This is due to the belief that a person’s productivity is equated to their societal contribution ( Stiglitz 2013 : 37). Since technology is a leading determinant in the productivity of different skills and SBTC has led to increased productivity, it has also become a justification for inequality. However, it is very difficult to separate any one person’s contribution to society from that of others, as even the most successful businessperson owes their success to the rule of law, good infrastructure, and a state educated workforce ( Stiglitz 2013 : 97–98).

Further criticisms of the SBTC explanation, are that there was still substantial SBTC when inequality first fell dramatically and then stabilised in the period from 1930 to 1980, and it has failed to explain the perpetuation of both the gender and racial wage gap, “or the dramatic rise in education-related wage gaps for younger versus older workers” ( Brown 2017 : 67). Although it is difficult to decouple globalisation and technology, as they each have compounding tendencies, it is most likely that globalisation and technology are important explanatory factors for inequality, but predominantly facilitate and underlie the following more determinant institutional factors that happen to be already present, such as reduced tax progressivity, rising executive pay, and union decline. It is to these factors that I now turn.

2.3 Tax Policy

Taxes overwhelmingly comprise the primary source of revenue that governments can use for redistribution, which is fundamental to alleviating income inequality. Redistribution is defended on economic grounds because the marginal utility of money declines as income rises, meaning that the benefit derived from extra income is much higher for the poor than the rich. However, since the late 1970s, a major rethinking surrounding redistributive policy occurred. This precipitated ‘trickle-down economics’ theory achieving prominence amongst American and British policymakers, whereby the benefits from tax cuts on the wealthy would trickle-down to everyone. Subsequently, expert opinion has determined that tax cuts do not actually spur economic growth ( CBPP 2017 ).

Personal income tax progressivity has declined sharply in the West, as the average top income tax rate for OECD members fell from 62% in 1981 to 35% in 2015 ( IMF 2017 : 11). However, the decline has been most pronounced in the UK and the US, which had top rates of around 90% in the 1960s and 1970s. Corporate tax rates have also plummeted by roughly one half across the OECD since 1980 ( Shaxson 2015 : 4). Recent International Monetary Fund (IMF) research found that between 1985 and 1995, redistribution through the tax system had offset 60% of the increase in market inequality but has since failed to respond to the continuing increase in inequality ( IMF 2017 ). Moreover, in a sample of 18 OECD countries encompassing 50 years, Hope and Limberg (2020) found that tax reforms even significantly increased pre-tax income inequality, while having no significant effect on economic growth.

This decline in tax progressivity has been a leading cause of rising income inequality, which has been compounded by the growing problem of tax avoidance. A complex global web of shell corporations has been constructed by international brokers in offshore tax havens that is able to keep wealth hidden from tax collectors. The total hidden amount in tax havens is estimated to be $7.6 trillion US dollars and rising, or roughly 8% of total global household wealth ( Zucman 2015 : 36). Recent research has revealed that tax havens are overwhelmingly used by the immensely rich ( Alstadsæter, Johannesen, and Zucman 2019 ), thus taxing this wealth would substantially reduce income inequality and increase revenue available for redistribution. The massive reduction in income tax progressivity in the Anglo world, after it had been amongst its leaders in the post-war years, also “probably explains much of the increase in the very highest earned incomes” since 1980 ( Piketty 2014 : 495–496).

2.4 Executive Pay

The enormous rising pay of executives since the 1980s, has also fuelled income inequality and more specifically the gap between executives and their employees. For example, the gap between Chief Executive Officers (CEO) and their workers at the 500 leading US companies in 2016, was 335 times, which is nearly 10 times larger than in 1980. It is a similar story in the UK, with a pay ratio of 131 for large British firms, which has also risen markedly since 1980 ( Dorling 2017 ).

Piketty (2014 : 335) posits that the dramatic reduction in top income tax has had an amplifying effect on top executives pay since it provides them with much greater incentive to seek larger remuneration, as far less is then taken in tax. It is difficult to objectively measure an individual’s contribution to a company and with the onset of trickle-down economics and accompanying business-friendly climate since the 1980s, top executives have found it relatively easy to convince boards of their monetary worth ( Gabaix and Landier 2008 ).

The rise in executive pay in both the UK and US, is far larger than the rest of the OECD. This may partially be explained by the English-speaking ‘superstar’ theory, whereby the global market demand for top CEOs is much higher for native English speakers due to English being the prime language of the global economy ( Deaton 2013 : 210). Saez and Veall (2005) provide support for the theory in a study of the top 1% of earners from the Canadian province of Quebec, which showed that English speakers were able to increase their income share over twice as much as their French-speaking counterparts from 1980 to 2000. This upsurge of income at the top of the labour market has been accompanied by stagnation or diminishing returns for the middle and lower parts of the labour market, which has been affected by the dramatic decline of union influence throughout the West.

2.5 Union Decline

Trade unions have typically been viewed as an important force for moderating income inequality. They “contribute to wage compression by restricting wage decline among low-wage earners” and restrain wage surges among high-wage earners ( Checchi and Visser 2009 : 249). The mere presence of unions can also drive up the wages of non-union employees in similar industries, as employers tend to give in to wage demands to keep unions out. Union density has also been proven to be strongly associated with higher redistribution both directly and indirectly, through its influence on left party governments ( Haddow 2013 : 403).

There had broadly existed a ‘social contract’ between labour and business, whereby collective bargaining establishes a wage structure in many industries. However, this contract was abandoned by corporate America in the mid-1970s when large-scale corporate donations influenced policymakers to oppose pro-union reform of labour law, leading to political defeats for unions ( Hacker and Pierson 2010 : 58–59). The crackdown of strikes culminating in the momentous Air Traffic Controllers’ strike (1981) in the US and coal miner’s strike (1984–85) in the UK, caused labour to become de-politicised, which was self-reinforcing, because as their political power dispersed, policymakers had fewer incentives to protect or strengthen union regulations ( Rosenfeld and Western 2011 ). Consequently, US union density has plummeted from around a third of the workforce in 1960, down to 11.9% last decade, with the steepest decline occurring in the 1980s ( Stiglitz 2013 : 81).

Although the decline in union density is not as steep cross-nationally, the pattern is still similar. Baccaro and Howell (2011 : 529) found that on average the unionisation rate decreased by 0.39% a year since 1974 for the 15 OECD members they surveyed. Increasingly, the decline in the fortunes of labour is being linked with the increase in inequality and the sharpest increases in income inequality have occurred in the two countries with the largest falls in union density – the UK and US. Recent studies have found that the weakening of organised unions accounts for between a third and a fifth of the total rise in income inequality in the US ( Rosenfeld and Western 2011 ), and nearly one half of the increase in both the Gini rate and the top 10%’s income share amongst OECD members ( Jaumotte and Buitron 2015 ).

To illustrate the changing relationship between inequality and unionisation, Figure 1 displays a local polynomial smoother scatter plot of union density by income inequality, for 23 OECD countries, 1980–2018. They are negatively correlated, as countries with higher union density have much lower levels of income inequality. Figure 2 further plots the time trends of both. Income inequality (as measured via the Gini coefficient) has climbed over 0.02 percentage points on average in these countries since 1980, which is roughly a one-tenth rise. Whereas union density has fallen on average from 44 to 35 percentage points, which is over one-fifth.

Gini coefficient by union density, OECD 1980–2018. Data on Gini coefficients from SWIID ( Solt 2020 ); data on union density from ICTWSS Database ( Visser 2019 ).

Gini coefficient by union density, 1980–2018. Data on Gini coefficients from SWIID ( Solt 2020 ); data on union density from ICTWSS Database ( Visser 2019 ).

In sum, income inequality is multifaceted and is not the inevitable outcome of irresistible structural forces such as globalisation or technological development. Instead, it has largely been driven by a multitude of political choices. Tridico (2018) finds that the increases in inequality from 1990 to 2013 in 26 OECD countries, was largely owing to increased financialisation, deepening labour flexibility, the weakening of trade unions and welfare state retrenchment. While Huber, Huo, and Stephens (2019) recently reveals that top income shares are unrelated to economic growth and knowledge-intensive production but is closely related to political and policy changes surrounding union density, government partisanship, top income tax rates, and educational investment. Lastly, Hager’s (2020) recent meta-analysis concludes that the “empirical record consistently shows that government policy plays a pivotal role” in shaping income inequality.

These preventable causes that have given rise to inequality have created socio-economic challenges, due to the demonstrably negative outcomes that inequality engenders. What follows is a detailed analysis of the significant mechanisms that income inequality induces, which lead to harmful outcomes.

3 Consequences of Income Inequality

Escalating income inequality has been linked with numerous negative outcomes. On the economic front, negative results transpire beyond the obvious poverty and material deprivation that is often associated with low incomes. Income inequality has also been shown to reduce growth, innovation, and investment. On the social front, Wilkinson and Pickett’s ground-breaking The Spirit Level ( 2009 ), found that societies that are more unequal have worse social outcomes on average than more egalitarian societies. They summarised an extensive body of research from the previous 30 years to create an Index of Health and Social Problems, which revealed a host of different health and social problems (measuring life expectancy, infant mortality, obesity, trust, imprisonment, homicide, drug abuse, mental health, social mobility, childhood education, and teenage pregnancy) as being positively correlated with the level of income inequality across rich nations and across states within the US. Figure 3 displays the cross-national findings via a sample of 21 OECD countries.

Index of health and social problems by Gini coefficient. Data on health and social problems index from The Equality Trust (2018) ; data on Gini coefficients from OECD (2020) .

3.1 Economic

Income inequality is predominantly an economic subject. Therefore, it is understandable that it can engender pervasive economic outcomes. Foremost economically speaking, it has been linked with reduced growth, investment and innovation. Leading international organisations such as the IMF, World Bank and OECD, pushed for neoliberal reforms beginning in the 1980s, although they have recently started to substantially temper their views due to their own research into inequality. A 2016 study by IMF economists, noted that neoliberal policies have delivered benefits through the expansion of global trade and transfers of technology, but the resulting increases in inequality “itself undercut growth, the very thing that the neo-liberal agenda is intent on boosting” ( Ostry, Loungani, and Furceri 2016 : 41). Cingano’s (2014) OECD cross-national study, found that once a country’s income inequality reaches a certain level it reduces growth. The growth rate in these countries would have been one-fifth higher had income inequality not increased, while the greater equality of the other countries included in the study helped to increase their growth rates.

Consumer spending is good for economic growth but rising income inequality shifts more money to the top of the income distribution, where higher income individuals have a much smaller propensity to consume than lower-income individuals. The wealthy save roughly 15–25% of their income, whereas low income individuals spend their entire income on consumer goods and services ( Stiglitz 2013 : 106). Therefore, greater inequality reduces demand in an economy and is a major contributor to the ‘secular stagnation’ (persistent insufficient demand relative to aggregate private savings) that the largest Western economies have been experiencing since the financial crisis. Inequality also increases the level of debt, as lower-income individuals borrow more to maintain their standard of living, especially in a climate of low interest rates. Combined with deregulation, greater debt increases instability and “was a major contributor to, if not the underlying cause of, the 2008 financial crash” ( Brown 2017 : 35–36).

Another key economic effect of income inequality is that it leads to reduced welfare spending and public investment. Since a greater share of the income distribution is earned by the very wealthy, governments have less income available to fund education, public amenities, and other services that the poor rely heavily on. This creates social separation, whereby the wealthy opt out in publicly funding services because their private equivalents are of better quality. This causes a cycle of increasing income inequality that is likely to eventually lead to a situation of “private affluence and public squalor” ( Marmot 2015 : 39).

Lastly, it has been proven that economic instability is a by-product of increasing inequality, which harms innovation. Both countries and American states with the highest inequality have been found to be the least innovative in terms of the amount of Intellectual Property (IP) patents they produce ( Dorling 2018 : 129–130). Although income inequality is predominantly an economic subject, its effects are so pervasive that it has also been linked to a host of negative health and societal outcomes.

Wilkinson and Pickett found key associations between income inequality for both physical and mental health. For example, they discovered that on average the life expectancy gap is more than four years between the least and most equitable richest nations (Japan and the US). Since their revelations, overall life expectancy has been reported to be declining in the US ( Case and Deaton 2020 ). It has held or declined every year since 2014, which has led to a cumulative drop of 1.13 years ( Andrasfay and Goldman 2021 ). Marmot (2015) has provided evidence that there exists a social gradient whereby differences in affluence translate into increasing health inequalities, which can be shown even down to the neighbourhood level, as more affluent areas have higher life expectancy on average than deprived areas, and a clear gradient appears where life expectancy increases in line with affluence.

Moreover, Marmot’s famous Whitehall studies, which are large-scale longitudinal studies of Whitehall employees of UK central government, found an inverse-relationship between salary grade and ill-health, whereby low-grade workers were four times as likely as high-grade workers to suffer from ill-health ( 2015 : 11). Health steadily improves with rank and the correlation is little affected by lifestyle controls such as tobacco and alcohol usage. However, the leading factor that seems to make the most difference in ill-health is job stress and a person’s sense of control over their work, including the variety of work and the use and development of skills ( Schrecker and Bambra 2015 : 54–55).

‘Psychosocial stresses,’ like those appearing in the Whitehall studies, have been found to be more common and frequent amongst low-income individuals, beyond just the workplace ( Jensen and van Kersbergen 2017 : 24). Wilkinson and Pickett (2019) posit that greater income inequality engenders low self-esteem, chronic stress and depression, stemming from status anxiety. This occurs because more importance is placed on where people fit in a hierarchy with greater inequality. For evidence, they outline a clear relationship of a much higher percentage of the population suffering from mental illness in more unequal countries. Meticulous research has shown that huge inequalities in income result in the poor having feelings of shame across a range of environments. Furthermore, Dickerson and Kemeny’s (2004) meta-analysis of 208 studies found that stress-hormone (cortisol) levels were raised particularly “when people felt that others were making negative judgements about them” ( Rowlingson 2011 : 24).

These effects on both mental and physical health can be best illustrated via the ‘absolute income’ and ‘relative income’ hypotheses ( Daly, Boyce, and Wood 2015 ). The relative income hypothesis posits that when an individual’s income is held constant, the relative income of others can affect a person’s health depending on how they view themselves in comparison to those above them ( Wilkinson 1996 ). This pattern also holds when income inequality increases at the societal level, because if such changes lead to increases in chronic stress, it can increase ill-health nationally. Whereas the absolute income hypothesis predicts that health gains from an extra unit of income diminish as an individual’s income rises ( Kawachi, Adler, and Dow 2010 ). A mean preserving transfer from a richer to poorer individual raises the health of the poorer individual more than it lowers the health of the richer person. This occurs because there is an optimum threshold of income required to maintain good health. Thus, when holding total income constant, a more equal distribution of income should improve overall population health. This pattern also applies at the country-wide level, as the “effect of income on health appears substantial as countries move from about $15,000 to 25,000 US dollars per capita,” but appears non-existent beyond that point ( Leigh, Jencks, and Smeeding 2009 : 386–387).

Income inequality also impacts happiness and wellbeing, as the happiest nations are routinely the ones with low inequality, such as Denmark and Norway. Happiness has been proven to be affected by the law of diminishing returns in economics. It states that higher income incrementally improves happiness but only up to a certain point, as any individual income earned beyond roughly $70,000 US dollars, does not bring about greater happiness ( Deaton 2013 : 53). The negative physical and mental health outcomes that income inequality provoke, also impact key societal areas such as crime, social mobility and education.

Rates of violent crime are lower in more equal countries ( Hsieh and Pugh 1993 ; Whitworth 2012 ). This is largely because more equal countries have less poverty, which leads to less people being desperate about their situation, as lower-income individuals have been shown to commit more crime. Relatedly, according to strain theory, more unequal societies place higher social value in achieving economic success, while providing lower means to achieve it ( Merton 1938 ). This generates strain, which may lead more individuals to pursue crime as a means of attaining financial success. At the opposite end of the income spectrum, the wealthy in more equal countries are also less likely to exploit others and commit fraud or exhibit other anti-social behaviour, partly because they feel less of a need to cut corners to get ahead, or to make money ( Dorling 2017 : 152–153). Homicides also tend to rise with inequality. Daly (2016) reveals that inequality predicts homicide rates better than any other variable and accounts for around half of the variance in murder rates between countries and American states. Roughly 90% of American homicides are committed by men, and since the majority of homicides occur over status, inequality raises the stakes of disputes over status amongst men.

Studies have also shown that there is a marked negative relationship between income inequality and social mobility. Utilising Intergenerational Earnings Elasticity data from Blanden, Gregg, and Machin (2005) , Wilkinson and Pickett (2009) first outline this relationship cross-nationally for eight OECD countries. Corak (2013) famously expanded on this with his ‘Great Gatsby Curve’ for 22 countries using the same measure. I update and expand on these studies in Figure 4 to include all 36 OECD members, utilising the WEF’s inaugural 2020 Social Mobility Index. It clearly shows that social mobility is much lower on average in more unequal countries across the entire OECD.

Index of social mobility by Gini coefficient. Data on social mobility index from World Economic Forum (2020) ; data on Gini coefficients from SWIID ( Solt 2020 ).

A primary driver for the negative relationship between inequality and social mobility, derives from the availability of resources during early childhood. Life chances have been shown to be determined in early childhood to a disproportionately large extent ( Jensen and van Kersbergen 2017 : 29). Children in more equitable regions such as Scandinavia, have better access to resources, as they go to similar schools, receive similar educational opportunities, and have access to a wider range of career options. Whereas in the UK and US, a greater number of jobs at the top are closed off to those at the bottom and affluent parents are far more likely to send their children to private schools and fund other ‘child enrichment’ goods and services ( Dorling 2017 : 26). Therefore, as income inequality rises, there is a greater disparity in the resources that rich and poor parents can invest in their children’s education, which has been shown to substantially affect “cognitive development and school achievement” ( Brown 2017 : 33–34).

4 Conclusions

The causes and consequences of income inequality are multifaceted. Income inequality is not the inevitable outcome of irresistible structural forces such as globalisation or technological development. Instead, it has largely been driven by a multitude of institutional political choices. These preventable causes that have given rise to inequality have created socio-economic challenges, due to the demonstrably negative outcomes that inequality engenders.

The neoliberal political consensus poses challenges for policymakers to arrest the rise of income inequality. However, there are many proven solutions that policymakers can enact if the appropriate will can be summoned. Restoring higher levels of labour protections would aid in reversing the declining trend of labour wage share. Similarly, government promotion and support for new corporate governance models that give trade unions and workers a seat at the table in ownership decisions through board memberships, would somewhat redress the increasing power imbalance between capital and labour that is generating more inequality. Greater regulation aimed at limiting the now dominant shareholder principle of maximising value through share buy-backs and instead offering greater incentives to pursue maximisation of stakeholder value, long-term financial stability and investment, can reduce inequality. Most importantly, tax policy can be harnessed to redress income inequality. Such policies include restoring higher marginal income and corporate tax rates, setting higher corporate tax rates for firms with higher ratios of CEO-to-worker pay, and establishing luxury taxes on spiralling compensation packages. Finally, a move away from austerity, which has gripped the West since the financial crisis, and a move towards much greater government investment and welfare state spending, would also lift growth and low-wages.

Alstadsæter, A., N. Johannesen, and G. Zucman. 2019. “Tax Evasion and Inequality.” American Economic Review 109 (6): 2073–103. 10.3386/w23772 Search in Google Scholar

Andrasfay, T., and N. Goldman. 2021. “Reductions in 2020 US Life Expectancy Due to COVID-19 and the Disproportionate Impact on the Black and Latino Populations.” Proceedings of the National Academy of Sciences 118 (5), https://doi.org/10.1073/pnas.2014746118 . Search in Google Scholar

Asaria, M., J. Costa-Font, and F. A. Cowell. 2021. “How Does Exposure to Covid-19 Influence Health and Income Inequality Aversion.” IZA Discussion Paper. no. 14103. Also available at https://ssrn.com/abstract=3785067 . 10.2139/ssrn.3907733 Search in Google Scholar

Atkinson, A. B. 2015. Inequality: What Can Be Done? London: Harvard University Press. 10.4159/9780674287013 Search in Google Scholar

Baccaro, L., and C. Howell. 2011. “A Common Neoliberal Trajectory: The Transformation of Industrial Relations in Advanced Capitalism.” Politics & Society 39 (4): 521–63, https://doi.org/10.1177/0032329211420082 . Search in Google Scholar

Blanden, J., P. Gregg, and S. Machin. 2005. Intergenerational Mobility in Europe and North America . London: Centre for Economic Performance. 10.1017/CBO9780511492549.007 Search in Google Scholar

Borjas, G. J., R. B. Freeman, and L. F. Katz. 1992. “On the Labor Market Effects of Immigration and Trade.” In Immigration and the Workforce , edited by G. J. Borjas, and R. B. Freeman, 213–44. Chicago: University of Chicago Press. 10.3386/w3761 Search in Google Scholar

Brown, R. 2017. The Inequality Crisis: The Facts and What We Can Do About It . Bristol: Polity Press. 10.2307/j.ctt22p7kb5 Search in Google Scholar

Case, A., and A. Deaton. 2020. Deaths of Despair and the Future of Capitalism . Princeton: Princeton University Press. 10.1515/9780691217062 Search in Google Scholar

Center on Budget and Policy Priorities (CBPP) . 2017. Tax Cuts for the Rich Aren’t an Economic Panacea – and Could Hurt Growth. Also available at https://www.cbpp.org/research/federal-tax/tax-cuts-for-the-rich-arent-an-economic-panacea-and-could-hurt-growth . Search in Google Scholar

Checchi, D., and J. Visser. 2009. “Inequality and the Labor Market: Unions.” In The Oxford Handbook of Economic Inequality , edited by B. Nolan, W. Salverda, and T. M. Smeeding, 230–56. Oxford: Oxford University Press. Search in Google Scholar

Cingano, F. 2014. Trends in Income Inequality and its Impact on Economic Growth . OECD Social, Employment and Migration Working Papers, No. 163. Paris: OECD Publishing. Search in Google Scholar

Corak, M. 2013. “Income Inequality, Equality of Opportunity, and Intergenerational Mobility.” Journal of Economic Perspectives 27 (3): 79–102, https://doi.org/10.1257/jep.27.3.79 . Search in Google Scholar

Daly, M. 2016. Killing the Competition: Economic Inequality and Homicide . Oxford: Routledge. 10.4324/9780203787748 Search in Google Scholar

Daly, M., C. Boyce, and A. Wood. 2015. “A Social Rank Explanation of How Money Influences Health.” Health Psychology 34 (3): 222–30, https://doi.org/10.1037/hea0000098 . Search in Google Scholar

Deaton, A. 2013. The Great Escape: Health, Wealth, and the Origins of Inequality . Princeton: Princeton University Press. 10.1515/9781400847969 Search in Google Scholar

Dickerson, S. S., and M. Kemeny. 2004. “Acute Stressors and Cortisol Responses: A Theoretical Integration and Synthesis of Laboratory Research.” Psychological Bulletin 130 (3): 355–91, https://doi.org/10.1037/0033-2909.130.3.355 . Search in Google Scholar

Dorling, D. 2017. The Equality Effect: Improving Life for Everyone . Oxford: New Internationalist Publications Ltd. Search in Google Scholar

Dorling, D. 2018. Do We Need Economic Inequality? Cambridge: Polity Press. Search in Google Scholar

Elliott, L. 2017. “Rising Inequality Threatens World Economy, Says WEF.” The Guardian. Also available at https://www.theguardian.com/business/2017/jan/11/inequality-world-economy-wef-brexit-donald-trump-world-economic-forum-risk-report . Search in Google Scholar

Gabaix, X., and A. Landier. 2008. “Why Has CEO Pay Increased So Much?” Quarterly Journal of Economics 123 (1): 49–100, https://doi.org/10.1162/qjec.2008.123.1.49 . Search in Google Scholar

Hacker, J. S., and P. Pierson. 2010. Winner-Take-All Politics: How Washington Made the Rich Richer – And Turned Its Back on the Middle Class . New York: Simon & Schuster. Search in Google Scholar

Haddow, R. 2013. “Labour Market Income Transfers and Redistribution.” In Inequality and the Fading of Redistributive Politics , edited by K. Banting, and J. Myles, 381–412. Vancouver: UBC Press. Search in Google Scholar

Hager, S. 2020. “Varieties of Top Incomes?” Socio-Economic Review 18 (4): 1175–98. 10.1093/ser/mwy036 Search in Google Scholar

Heimberger, P. 2020. “Does Economic Globalisation Affect Income Inequality? A Meta‐analysis.” The World Economy 43 (11): 2960–82, https://doi.org/10.1111/twec.13007 . Search in Google Scholar

Hope, D., and J. Limberg. 2020. The Economic Consequences of Major Tax Cuts for the Rich . London: London School of Economics and Political Science. Also available at http://eprints.lse.ac.uk/107919/ . Search in Google Scholar

Hsieh, C.-C., and M. D. Pugh. 1993. “Poverty, Inequality and Violent Crime: a Meta-Analysis of Recent Aggregate Data Studies.” Criminal Justice Review 18 (2): 182–202, https://doi.org/10.1177/073401689301800203 . Search in Google Scholar

Huber, E., J. Huo, and J. D. Stephens. 2019. “Power, Policy, and Top Income Shares.” Socio-Economic Review 17 (2): 231–53, https://doi.org/10.1093/ser/mwx027 . Search in Google Scholar

International Monetary Fund (IMF). 2017. Fiscal Monitor: Tackling Inequality . Washington: IMF. Search in Google Scholar

Jaumotte, F., and C. O. Buitron. 2015. “Power from the People.” Finance & Development 52 (1): 29–31. Search in Google Scholar

Jensen, C., and K. Van Kersbergen. 2017. The Politics of Inequality . London: Palgrave. 10.1057/978-1-137-42702-1 Search in Google Scholar

Kawachi, I., N. E. Adler, and W. H. Dow. 2010. “Money, Schooling, and Health: Mechanisms and Causal Evidence.” Annals of the New York Academy of Sciences 1186 (1): 56–68, https://doi.org/10.1111/j.1749-6632.2009.05340.x . Search in Google Scholar

Leigh, A., C. Jencks, and T. Smeeding. 2009. “Health and Economic Inequality.” In The Oxford Book of Economic Equality , edited by W. Salverda, B. Nolan, and T. Smeeding, 384–405. Oxford: Oxford University Press. 10.1093/oxfordhb/9780199606061.013.0016 Search in Google Scholar

Marmot, M. 2015. The Health Gap: The Challenge of an Unequal World . London: Bloomsbury. 10.1016/S0140-6736(15)00150-6 Search in Google Scholar

Merton, R. 1938. “Social Structure and Anomie.” American Sociological Review 3 (5): 672–82, https://doi.org/10.2307/2084686 . Search in Google Scholar

Organisation for Economic Co-operation and Development (OECD) . 2020. “Income Inequality” (Indicator) . Paris: OECD Publishing. Also available at https://data.oecd.org/inequality/income-inequality.htm . Search in Google Scholar

Ostry, J. D., P. Loungani, and D. Furceri. 2016. “ Neoliberalism: Oversold? ” Finance and Development 532: 38–41. Also available at https://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm . Search in Google Scholar

Piketty, T. 2014. Capital in the Twenty-First Century . Cambridge: Harvard University Press. 10.4159/9780674369542 Search in Google Scholar

Piketty, T. 2020. Capital and Ideology . Cambridge: Harvard University Press. 10.4159/9780674245075 Search in Google Scholar

Revenga, A. 1992. “Exporting Jobs? The Impact of Import Competition on Employment and Wages in U.S. Manufacturing.” Quarterly Journal of Economics 107 (1): 255–84, https://doi.org/10.2307/2118329 . Search in Google Scholar

Rosenfeld, J., and B. Western. 2011. “Unions, Norms, and the Rise in U.S. Wage Inequality.” American Sociological Review 78 (4): 513–37. 10.1177/0003122411414817 Search in Google Scholar

Rowlingson, K. 2011. Does Income Inequality Cause Health and Social Problems? York: Joseph Rowntree Foundation. Search in Google Scholar

Saez, E., and M. Veall. 2005. “The Evolution of High Incomes in Northern America: Lessons from Canadian Evidence.” American Economic Review 95 (3): 831–49, https://doi.org/10.1257/0002828054201404 . Search in Google Scholar

Scheidel, W. 2017. The Great Leveller: Violence and the History of Inequality from the Stone Age to the Twenty-First Century . Princeton: Princeton University Press. 10.1515/9781400884605 Search in Google Scholar

Schrecker, T., and C. Bambra. 2015. How Politics Makes Us Sick: Neoliberal Epidemics . New York: Palgrave Macmillan. 10.1057/9781137463074 Search in Google Scholar

Shaxson, N. 2015. Ten Reasons to Defend the Corporation Tax . London: Tax Justice Network. Also available at http://www.taxjustice.net/wp-content/uploads/2013/04/Ten_Reasons_Full_Report.pdf . Search in Google Scholar

Solt, F. 2020. “Measuring Income Inequality across Countries and over Time: The Standardized World Income Inequality Database.” Social Science Quarterly 101 (3): 1183–99. Version 9.0, https://doi.org/10.1111/ssqu.12795 . Search in Google Scholar

Stiglitz, J. 2013. The Price of Inequality . London: Penguin Books. 10.1111/npqu.11358 Search in Google Scholar

The Equality Trust . 2018. “The Spirit Level Data.” London. Also available at https://www.equalitytrust.org.uk/civicrm/contribute/transact?reset=1&id=5 . Search in Google Scholar

Thomas, A. 2016. Republic of Equals: Predistribution and Property-Owning Democracy . Oxford: Oxford University Press. 10.1093/acprof:oso/9780190602116.001.0001 Search in Google Scholar

Tridico, P. 2018. “The Determinants of Income Inequality in OECD Countries.” Cambridge Journal of Economics 42 (4): 1009–42, https://doi.org/10.1093/cje/bex069 . Search in Google Scholar

Visser, J. 2019. ICTWSS Database . Version 6.1. Amsterdam: Amsterdam Institute for Advanced Labour Studies (AIAS), University of Amsterdam. Search in Google Scholar

Whitworth, A. 2012. “Inequality and Crime across England: A Multilevel Modelling Approach.” Social Policy and Society 11 (1): 27–40, https://doi.org/10.1017/s1474746411000388 . Search in Google Scholar

Wilkinson, R. 1996. Unhealthy Societies: The Afflictions of Inequality . London: Routledge. Search in Google Scholar

Wilkinson, R., and K. Pickett. 2009. The Spirit Level: Why Equality is Better for Everyone . London: Penguin Books. Search in Google Scholar

Wilkinson, R., and K. Pickett. 2019. The Inner Level: How More Equal Societies Reduce Stress, Restore Sanity and Improve Everyone’s Well-Being . London: Penguin Books. Search in Google Scholar

Wiwad, D., B. Mercier, P. K. Piff, A. Shariff, and L. B. Aknin. 2021. “Recognizing the Impact of COVID-19 on the Poor Alters Attitudes towards Poverty and Inequality.” Journal of Experimental Social Psychology , https://doi.org/10.1016/j.jesp.2020.104083 . Search in Google Scholar

World Economic Forum. 2020. The Global Social Mobility Report 2020 . Geneva: World Economic Forum. Also available at https://www3.weforum.org/docs/Global_Social_Mobility_Report.pdf . Search in Google Scholar

Zucman, G. 2015. The Hidden Wealth of Nations: The Scourge of Tax Havens . Chicago: University of Chicago Press. 10.7208/chicago/9780226245560.001.0001 Search in Google Scholar

© 2021 Walter de Gruyter GmbH, Berlin/Boston

• X / Twitter

Supplementary Materials

Please login or register with De Gruyter to order this product.

Journal and Issue

Articles in the same issue.

This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy .

• Journal of Economic Literature

Inequality and Globalization: A Review Essay

• Martin Ravallion
• Article Information

Additional Materials

• Author Disclosure Statement(s) (26.59 KB)

JEL Classification

• F63 Economic Impacts of Globalization: Economic Development

2014 Theses Doctoral

Essays on Economic Inequality

Prados, María José

This dissertation consists of three chapters on different aspects of economic inequality. In the first chapter, I study the aggregate implications of health risk and access to health care. At the individual level, health influences earnings potential, while income affects access to medical care. I investigate how this interaction shapes the joint dynamics of inequality in health and earnings over the life cycle, and I measure the redistributive impact of policies that improve access to health care. For that, I introduce health shocks and health care spending in an incomplete markets model with heterogeneous agents. Earnings risk is partially determined within the model due to the health-income feedback, and negative shocks may drive agents into a low income-low health trap, thus magnifying inequality along the life cycle. I estimate the process for health shocks and I calibrate the key parameters of the model using survey data. The calibrated model successfully reproduces the joint dynamics in health and earnings inequality in the life cycle. Like in the data, it predicts that life cycle inequality in health is driven by a sharp decline in health status for the lowest percentiles of the health distribution. I find that the health-income feedback accounts for 9 percent of total earnings inequality at retirement age as measured by the coefficient of variation of earnings, and that it increases by almost seven times the persistence of shocks to productivity. I also find that health care policies that facilitate access to health care have redistributive effects, mostly through earnings improvements for those at the bottom of the earnings distribution. The second chapter, joint with Stefania Albanesi, studies the connection between recent trends in earnings inequality and the behavior of labor supply of married women in the U.S. The entry of married women into the labor force and the rise in women's relative wages are amongst the most notable economic developments of the twentieth century. These phenomena were particularly pronounced in the 1970s and 1980s, when participation of married women grew from 38\% in 1975 to a peak of 60\% in 1996 and the male to female ratio in hourly wages dropped from 1.60 to 1.34. Since the early 1990s, the growth in these indicators has stalled, especially for college graduates. This development is puzzling in light of the continued rise in women's educational investments relative to men and their entry into professional occupations. In this paper, we link the decline in married women's participation and wages relative to trend since the early 1990s to the growth of the skill premium, which substantially accelerated in those years. Our hypothesis is that the growth in wages for highly educated men generated a negative wealth effect on the labor supply of their female spouses, reducing their labor supply and their wages relative to men. Disaggregated evidence on skill premia by gender, gender wage gaps by education and labor force participation of wives provides descriptive support for this mechanism. Specifically, starting in the early 1990s, the growth in the skill premium was lower for women, while convergence in wages across gender slowed more for college graduates. Finally, participation of married women declined starting in the early 1990s especially for college women, women married to men with a college degree or to men in the top percentiles of the earnings distribution. We develop a model of household labor supply which can qualitatively reproduce a negative effect on wives' participation of a rise in husbands' earnings. We show that a calibrated version of the model can account for more than half the decline relative to trend in married women's participation in 1995-2005, and more than two thirds for college women. The model can also account for one third of the rise in the gender wage gap for college graduates relative to trend in the same period. In the third chapter I study the dynamics of earnings risk and inequality over the life cycle for women, and document the gender differences in earnings stochastic processes faced by workers. Female workers have a weaker average attachment to the labor force than their male counterparts, and career interruptions have an impact on earnings. Therefore, it is to be expected that the average earnings process differ by gender, and in this paper I study if this is the case. The main empirical gender asymmetries I find in the profiles of earnings are: i) inequality is lower amongst women than amongst men, ii) inequality peaks twice over the life cycle for women: once during the fertile years, and the again later at retirement age, iii) the differences in inequality evolution between educational groups are larger for men than for women. I estimate the statistical properties of the earnings process, with and without heterogeneity in age profiles, and find that the specification without profile heterogeneity seems to fit the female workers dynamics better.

More About This Work

• DOI Copy DOI to clipboard

Essays and revision notes on inequality

• Minimum wage in UK
• Distribution of income in UK
• Policies to reduce inequality
• Causes of poverty
• Tax system in UK
• Inequality in the UK
• Why is there so much global inequality?
• Wealth inequality in the UK
• Factors that explain wage inequality
• Pros and cons of Inequality
• Poverty, income inequality and economic growth
• Effect of tax on Inequality
• Measuring inequality – The Lorenz Curve
• Should welfare benefits be increased to reduce inequality?
• Inequality and capitalism
• Pros and cons of socialism
• Growth of inequality in US
• Unemployment Revision Notes
• Labour Market Notes

Social and Economic Inequality Essay

Introduction.

The word is an extremely unequal place, and this is evidenced by the latest trends in social and economic inequality. Today, the richest part of the world’s population own approximately 40 percent of the total global assets, and this is just a top of the iceberg.

The richest 10 percent own more than 85 percent of the world’s wealth while the poorest 50 percent own just about 1 percent of the global wealth. This implies that the world’s top richest 150 persons possess more than what 50 percent of the world’s poorest, which are approximately 3.3 billion people, have.

The greatest source of this global inequality has been attributed to the huge gap among countries in levels of economic development. Disparities between developed and developing nations are enormous: the mean per capita income in developed nations is seven times more than it is in developed countries.

Growing levels of global economic inequality in the world has led to another form of inequality which is called social inequality. Today, societies and/or nations that are ranked low on economic aspects continue to face a number of social problems; millions of the world’s poorest people live without access to clean water, electricity, adequate housing, education and healthcare.

This implies that their ability to contribute productively to their nation/societies’ prosperity is limited. It worsens economic inequality among countries. Besides, social inequality has been linked with major political conflicts as it is seen in many countries, such as Sri Lanka, Uganda, the Congo Basin, and so on.

It is important to note that countries that rank low on economic indices also have the highest levels economic and social inequalities. Although nearly all the systems of moral belief challenge those of us who live in comfortable apartments to devote at least some resources to improve the conditions of those who live in poverty. Thus, economic and social inequality still remains high globally.

Although there is no universal accord on the causes of social and economic inequalities, many studies have pointed to societal structural changes as the main cause of the problem.

Loosely defined, structural changes refer to a long-term and extensive change of basic structures that have drastic effects on societal norms. Structural change can work to both reducing or increasing inequality levels as it is seen in the China and India case study. In 1981, nearly 64 percent of the Chinese population lived in absolute poverty, today, the figure has dropped to 15 percent.

In India, the drop was less significant, but still a noteworthy because the level reduced from 55 percent to 35 percent. Economic growth in China and India was the result of structural changes in the respective nations’ economies. China effected these changes by undertaking reforms in its economic policies to give greater power to market forces and the private sector.

The changes began in the agricultural sector more than 20 years ago and have been extended steadily to other sectors of the economy including service and industry sectors. These changes threw out price control mechanisms and gave more power to the private sectors. Today, China’s economic growth rate is averaged at 9.5 percent while national income has been doubling every 8 years due to these changes.

Although inequality still exists, similar to all the Western countries, China’s story of success and progress shows the extent to which structural changes can help in reducing inequality levels within its population and with other countries. Indeed, studies by the UN and other organizations show that there is a significant correlation between poverty and inequality.

While structural changes have reduced economic and social inequalities in some areas, the concept has led to a worsening of conditions in some countries. For instance, mechanization of agricultural processes has led to unemployment in some developing countries, increasing incomeinequality.

Although the structural change theory has gained widespread acceptance, a second theory that views inequality in the light of individualism has found application in some areas. For instance, Americans believe that the main cause of poverty (and hence inequality) is personal failure and moral turpitude of the poor.

This theory’s acceptance has caused an unnecessary strain between structural change and popular opinion in some areas since studies seem to suggest that both environmental and non-environmental factors including structural change affect a person’s likelihood of success in life. For instance, during the Communist control of China, the economy was regulated by a central power, and with concerted efforts to succeed, most citizens grew poor as state resources were controlled by the government.

The fall of the Communist government ushered in a new era that had seen the Chinese prosper and reduce of the inequality gap. Hence, the individualistic view of poverty and inequality does not effectively explain why some people live in poverty. The government and other structures must support its citizens so that prosperity at individual and national levels can be realized.

Social and economic inequality is likely to reduce in most countries in future. This forecast is based on current trends that show a drop in various types of inequalities in a number of nations. Besides, the world’s economy is becoming globalized, and in the future, the gap in income distribution will most likely reduce declining social and economic inequality.

• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2018, October 23). Social and Economic Inequality. https://ivypanda.com/essays/social-and-economic-inequality/

"Social and Economic Inequality." IvyPanda , 23 Oct. 2018, ivypanda.com/essays/social-and-economic-inequality/.

IvyPanda . (2018) 'Social and Economic Inequality'. 23 October.

IvyPanda . 2018. "Social and Economic Inequality." October 23, 2018. https://ivypanda.com/essays/social-and-economic-inequality/.

1. IvyPanda . "Social and Economic Inequality." October 23, 2018. https://ivypanda.com/essays/social-and-economic-inequality/.

Bibliography

IvyPanda . "Social and Economic Inequality." October 23, 2018. https://ivypanda.com/essays/social-and-economic-inequality/.

• Wealth and Poverty: The Christian Teaching on Wealth and Poverty
• Louisiana as One of the Richest States in 1812
• Income Inequality Issue in the United States
• Family as an Agent of Socialization Essay
• Definition of Sociology and Its Main Research Methods
• Introduction to Contemporary Society
• Impact of the Media on Society
• The Significance of Social Networks on Young People’s Lives

Economic Inequality: What It Is and How It Impacts You

There are steps Americans can take to fight economic inequality in their personal lives and communities.

What to Know About Economic Inequality

Getty Images

Wealth and income inequality have increased over the previous half-century.

It's nearly impossible to read the news these days without running across mentions of economic inequality.

In recent months, politicians have debated the merits of raising marginal tax rates on the wealthy, a move proponents say could reduce economic inequalities. Likewise, economic inequality takes center stage when columnists discuss the extreme riches of some of today's business owners, like Jeff Bezos, who could purchase every home in Austin, Texas, according to real estate brokerage Redfin . The concept of economic inequality was even discussed during the recent college admissions scandal in which celebrities and other wealthy parents allegedly paid bribes to secure college acceptance letters for their children.

So what is economic inequality, and how does it impact you? Here's what to know about this important social and financial concept.

What Is Economic Inequality?

Economic inequality is a broad term that encapsulates the gap between the income and wealth amassed by different groups in a society. Americans reference it when questioning why CEOs earn so much more than their employees or how historical and current policies have barred families of color from accumulating wealth. "Economic inequality is the more generic name and within that you could talk about income inequality and wealth inequality," says Jim Freeland, professor of business administration at Darden School of Business at the University of Virginia.

Understanding economic inequality can be complex, Freeland says. "It's not, by itself, bad," he says. "A lot of people would say, when you see (economic inequality), it's a measure that capitalism is working." But, he adds, "It's a question of: How unequal should it be? A lot of people are concerned we've gone beyond where it should be."

Indeed, wealth and income inequality have increased over the previous half-century. According to the Urban Institute , in 1963, a family in the 90th wealth percentile had about six times the wealth owned by the typical American family. This gap was relatively stable until about 1983, when it quickly widened. By 2016, a family at the 90th percentile had almost $1.2 million in wealth, more than 12 times the amount owned by the typical family.

(Courtesy of the Urban Institute)

Similarly, income inequality has risen over the past 50 years, according to the Urban Institute . The income for families near the top of the income spectrum increased by about 90 percent from 1963 to 2016. Meanwhile, the income of families at the bottom increased less than 10 percent.

While income inequality is worth considering, wealth inequality is a more revealing and comprehensive metric to understand, says Signe-Mary McKernan, co-director of the Opportunity and Ownership initiative and an economist at the Urban Institute. Income can have a powerful impact on a person's financial health and status, but the passing down of wealth through generations is a more powerful measure of opportunity and prosperity. "Wealth is important because it's where economic opportunity lies," McKernan says.

How Does Economic Inequality Impact You?

You may not be thinking about the wealth gap when buying your first home or applying for a credit card , but these economic structures have real-world impacts on your daily life.

"There's a strong correlation between economic inequality and opportunity inequality," Freeland says. An economic imbalance impacts people's abilities to climb the wealth ladder and to get ahead by working hard, he says. It can lead to geographic segregation, gaps in educational attainment and cycles of poverty. "If you can't move, it really makes you feel kind of helpless and you give up hope," he says.

Economic inequality can leave families financially vulnerable, unable to weather small financial setbacks or begin to build wealth. It can put families in financial jeopardy when a crisis such as a job loss arises, Freeland says. On a political level, he says, it can threaten democracy as a small group of elite amass political influence and control.

(Courtesy of Fabian T. Pfeffer (Inequality Lab, University of Michigan and Alexandra Killewald (Harvard University) )

How Can I Fight Back Against Economic Inequality?

It isn't easy, but there are individual and community-focused moves Americans can make to battle economic inequality in their lives and in their localities. "I think the thing that helps people do that is to reconcile that, yes, what we do personally matters, and we are within a larger construct," says Saundra Davis, a financial coach and financial behavior specialist at Sage Financial Solutions in San Francisco.

On the personal level, families at all income levels can take steps to shore up their financial stability and ability to survive financial setbacks, including taking advantage of employer-sponsored or public savings programs and safety nets.

Urban Institute's McKernan suggests funneling money into automatic savings vehicles, such as employee retirement accounts , IRAs or via automatic transfers from a checking to a savings account. "Low-income families with savings are more financially resilient than middle-income families without savings," she says.

Prioritizing access to health insurance, either through an employer or a government program, is another key way to avoid medical debt , which can be crippling for many families. While economic inequality is a broad topic, it can be helpful to tackle it head-on in your financial life. "Even if you are poor or low-income, research has shown you can build wealth," McKernan says. "It's not easy, but it's possible."

To combat economic inequality from a community-wide perspective, consider supporting policy ideas that tackle wealth inequality. Policies that improve schools, provide parenting resources and desegregate housing can combat economic inequality, Freeland says. Join programs that improve mobility and help people in need, such as tutoring disadvantaged students or coaching a community sports team. Business owners can close economic gaps when they offer support to their employees, such as paid sick leave , child care resources and paid time off, Freeland says.

McKernan points to recent policies in states such as New York and Oregon, where officials are working to launch automatic retirement plans for workers who don't have access to employer-sponsored 401(k)s. Another policy suggestion that addresses economic inequality: opportunity bonds. One proposal would give newborns a $1,000 savings account at birth, which could accrue additional deposits and interest until that child turns 18.

There may be other kinds of programs specific to your region that aim to close the wealth and income gap and limit economic inequality. Select what coincides with your values and the needs of your community. When it comes to solving economic inequality, "this is a complicated and difficult problem, so there's no one solution," Freeland says. "A whole bunch of people need to do a whole bunch of different things."

8 Ways to Tell If You're in the Middle Class

Tags: personal finance , personal budgets , wealth , inequality , money , The Racial Divide

The Best Financial Tools for You

Credit Cards

Find the Best Loan for You

Popular Stories

Saving and Budgeting

Real Estate

Family Finance

Personal Loans

Comparative assessments and other editorial opinions are those of U.S. News and have not been previously reviewed, approved or endorsed by any other entities, such as banks, credit card issuers or travel companies. The content on this page is accurate as of the posting date; however, some of our partner offers may have expired.

You May Also Like

12 ways to build a passive income stream.

Geoff Williams May 8, 2024

12 Small Business Apps to Try This Year

Maryalene LaPonsie April 30, 2024

The 2 Months in 2024 for 3 Paychecks

Jessica Walrack April 29, 2024

TikTok's 6-to-1 Grocery Method

Erica Sandberg April 24, 2024

Personal Finance Ratios to Track

Jessica Walrack April 23, 2024

7 Tips for Starting a Side Hustle

Jessica Walrack April 18, 2024

Smart Ways to Gift Money to Children

Jessica Walrack April 8, 2024

How to File a Claim After a Disaster

Geoff Williams April 5, 2024

What Is a Personal Asset?

Erica Lamberg April 5, 2024

Am I Middle Class?

Jessica Walrack March 29, 2024

Ask a Pro: Do I Need an Estate Plan?

Brandon Renfro March 27, 2024

Boost Your Financial Literacy

Erica Sandberg March 14, 2024

March Madness Costs

Jessica Walrack March 14, 2024

Best Apps for Selling Used Stuff

Emily Sherman March 4, 2024

Legit Ways to Get Free Money 

Erica Sandberg Feb. 29, 2024

Start a Small Business 

Erica Sandberg Feb. 23, 2024

8 Business Books for Entrepreneurs

Jessica Walrack Feb. 22, 2024

Winning Strategies for Small Businesses

Erica Lamberg Feb. 22, 2024

National Issues That Impact Your Money

Erica Sandberg Feb. 21, 2024

Financial Check-ins for Couples

Jessica Walrack Feb. 21, 2024

Beyond income: A multidimensional approach to tackling inequality

James foster, michael m. lokshin.

Rising income inequality in many developed and developing countries captures the attention of social activists and policy makers alike. Yet income is just one dimension of inequality. It exists in health, education, and social services, whose dimension-specific inequalities may reinforce or dampen the impact of income inequality. Focusing solely on income inequality offers only a partial view of what Amartya Sen has termed “ economic inequality ” limiting the scope and accuracy of a country’s policy responses.

Imagine a country or a region where the rich live in areas with the best public schools and the best publicly funded hospitals while the poor live where the schools and hospitals are of poor quality. Now, consider a counterfactual where the poor have access to top-quality public education and healthcare. The government implements a program to improve the quality of education in the lagging regions.

The impact of such an intervention can be assessed in two ways. In the first scenario, the poor will have access to better quality schooling, resulting in higher test scores for their children, while in the second scenario, the schools will be improved for the rich. Under some innocuous assumptions, we conclude that economic inequality would decline in the first case and rise in the second. But income and health inequalities are unchanged in both scenarios, while education inequality will be lower compared to the pre-policy situation. The so-called “dashboard” approach of measuring each dimension-specific inequality level separately (or taking a weighted average) ignores potential interactions across dimensions. However, such effects could be of critical importance as they convey valuable information on how people and societies experience inequality. Improving the quality of education for the poor will increase social mobility and allow many families to escape poverty, thus reducing income inequality. Investing in education in affluent areas might result in heightened political tensions and could stunt economic growth.

To account for these interactions and better gauge the extent of economic inequality, measures of multidimensional inequality have been developed. Despite significant advances in the range of tools available for measuring inequality across multiple dimensions, the policy impact of these measures has been muted.   

In our recent paper , we propose new multidimensional inequality measures that are easily implementable and transparent and overcome many deficiencies of existing measures. The paper aims to identify axiomatically sound multidimensional inequality measures with attributes well-suited for policy. The measures follow a traditional two-stage format, suggested by  Maasoumi (1986) , which aggregates dimensions first and then applies a unidimensional measure like the Gini coefficient to the distribution of aggregates.

We show that only a linear form can be used for aggregation of the individual-level components. Previous studies have considered linear aggregation, but this is the first paper to select this structure based on the axiomatic properties of its associated measures. We demonstrate that multidimensional inequality can be expressed as a weighted average of specific inequalities and a non-negative term reflecting the relevant aspects of the joint distribution across dimensions.

We also develop a calibration approach based on data in an initial period and normative policy weights. Once the multidimensional inequality measure has been calibrated, it can be used to gauge the multidimensional inequality through time and, with additional assumptions, through space.  

Application and Impact in Developing Countries

We illustrate the application of our methodology by analyzing changes in multidimensional inequality in Azerbaijan from 2016 to 2023. We use data from the second (2016) and the fourth (2023) rounds of the Life in Transition Survey ( LITS ). We construct the multidimensional inequality index based on three dimensions captured by the monthly per capita income, years of education, and respondent’s subjective health assessment. The measure is calibrated for 2016 using normative weights of ½ for income and ¼ for the education and health dimensions.

Table 1 presents the specific and multidimensional inequality levels for Azerbaijan. The mean monthly per capita income increased by almost 59 percent from about 852 PPP dollars in 2016 to 1350 PPP dollars in 2023. Income growth was accompanied by an increase in income inequality, from a Gini of 0.253 in 2016 to 0.339 in 2023. The average years of education and health self-assessment remained relatively stable. The inequality in years of education grew while the inequality in health assessment slightly declined.

Table 1: Specific and multidimensional inequalities in Azerbaijan, 2016–2023.

Multidimensional inequality M(x)   as measured by Gini, increased between 2016 and 2023, from 0.144 to 0.230. This increase is due to (i) changes in the specific inequalities, (ii) changes in the effective weights as dimensional means change, and (iii) changes in the rearrangement term R(x) . The rearrangement term fell slightly from 0.037 to 0.029, reflecting greater alignment of dimensions in the second year, meaning that people with higher incomes also got better education and health. To reduce economic inequality in the country, the government of Azerbaijan might invest in improving the quality of education in the country’s poorest regions.

Expanding Understanding of Inequality

By adopting such a multidimensional approach, developing countries, with their limited resources and high inequality rates, can better address their policy challenges. Tackling income inequality is notoriously difficult, and such policies often generate undesirable second-order effects. Our framework allows countries to reduce economic inequality by providing public goods to people experiencing poverty, which is straightforward from the implementation perspective and much more palatable politically. By recognizing the interconnectedness of various life dimensions, policy makers can devise more effective strategies to promote equitable growth and ensure that no one is left behind.

• Inequality and Shared Prosperity

Guest blogger

Lead Economist, Office of the Regional Chief Economist, Europe and Central Asia

Join the Conversation

• Share on mail
• comments added

The Journal of Economic Inequality

The Journal of Economic Inequality provides a forum for analysis and measurement of economic and social inequalities, using theoretical and empirical approaches. Among the topics considered are: differences within and between countries, and globally; inequalities of outcome and of opportunity, poverty, and mobility; univariate and multivariate approaches; differences between socioeconomic groups; the factor distribution of income; related statistical and data issues, and policy analysis.

Officially cited as: J Econ Inequal

• Elena Bárcena-Martín,
• Ingrid Woolard,
• Alessandra Casarico,
• Cecilia García-Peñalosa,
• Markus Jäntti,
• Emmanuel Flachaire,
• Koen Decancq,
• Paul Makdissi,
• Andreas Peichl,
• Daniel Waldenström,
• Phillippe Van Kerm,
• Martyna Kobus
• Frank Cowell
• Jacques Silber

Societies and partnerships

• Society for the Study of Economic Inequality  (opens in a new tab)

Latest issue

Volume 22, Issue 1

Latest articles

Uncovering gatsby curves.

• Pier-André Bouchard St-Amant
• Nicolas Marceau
• Jean-Denis Garon

Missing Poor in the U.S.

• Mathieu Lefebvre
• Pierre Pestieau
• Gregory Ponthiere

Top-end inequality and growth: empirical exploration of nonlinearities and the time dimension

• Elina Tuominen

Job polarisation and household borrowing

• Michele Cantarella
• Ilja Kristian Kavonius

The sources and structure of wage inequality changes in the selected Central-Eastern European Countries

• Byambasuren Dorjnyambuu
• Mónika Galambosné Tiszberger

Journal updates

Journal of economic inequality: free access to special issue.

The editors of Journal of Economic Inequality invite you to enjoy free access to Volume 20, Issue 1 of the journal, a special issue on "Finding the Upper Tail." All articles available without a subscription through the month of May.

Open Access Articles

Read recently published open access articles in The Journal of Economic Inequality.  

Journal information

• ABS Academic Journal Quality Guide
• Australian Business Deans Council (ABDC) Journal Quality List
• Current Contents/Social & Behavioral Sciences
• Google Scholar
• Norwegian Register for Scientific Journals and Series
• OCLC WorldCat Discovery Service
• Research Papers in Economics (RePEc)
• Social Science Citation Index
• TD Net Discovery Service
• UGC-CARE List (India)

Rights and permissions

Springer policies

© Springer Science+Business Media, LLC, part of Springer Nature

• Find a journal
• Publish with us
• Track your research

Essay On Economic Inequality

How has the gap in economic inequality changed between countries in recent years? Introduction In recent years, one of the most popular global issues which raise concerns among people from all over the world is the gap in inequality between the rich and poor countries. This inequality has existed for decades. Today we are living in the same world, but the social and financial differences still exist and are in a process of increasing rapidly. As with all social problems, there are many possible causes for economic inequality , such as differences in education, technology and capitalism, etc. In this essay, I will take a closer look and analyze several critical factors and introduce a few solutions to adjust this gap inequality within societies. …show more content…

However, there are policies for free education in developed societies, although levels of education can greatly differ between each individual because of their financial and innate ability. A good example of this is Hong Kong. Here, 12 years of free education is provided for each citizen. This is only offered when students receive certain results in public examinations. Receiving the same level of education does not mean each individual receive the same quality of education. In education, both levels and quality play an important role in economic inequality within a …show more content…

The trend where only the rich become richer can be solved by putting more attention on education and investing in human capital. This may not be effected within the next decade because of the growing divide between the poor and the rich in most countries, for example the United States and even Hong Kong. Often, the manner in which resources are being allocated is an obstacle to solving the problem. The problem is a vicious cycle and it will need the joint efforts of governments and all stakeholders to reduce the gap in economic

Income Inequality In America Essay

Based on freedom and equality, America is today the country the most unequal amongst developed countries. Today there is a very big difference between the ideal, what Americans think and the reality of the income distribution. There is only a very small share in the middle class. This is a major crisis in the United States indeed, 1 per cent of the rich have 40 per cent of the country’s wealth.

Richard Valdmanis 'America's Wealth Gap' Unsustainable

(1) In “America’s Wealth Gap ‘Unsustainable’ According to Harvard Study” (September 8th, 2014), Richard Valdmanis acknowledges THAT the economic gap between the richest and its middle and lower classes is accumulating and numerous people are affected by this dilemma. (2) Valdmanis supports his acknowledgement by referring to the study done by Harvard Business School on surveying the effects of the gap on people, economy, and institutions; moreover on how it affects the hope of thriving citizens and struggling citizens to their extremes. (3) Valdmanis’s motive is to present and describe the dilemmas and effects the economic gap has caused on the society and economy IN ORDER for the readers to recognize the crisis and get an idea of what is

Analysis Of Wealth Inequality In America

The wealthy continue to grow as they get more of everything and the lower class continue to get less. The average wealth has increased over the last 50 years, but it has not grown equally for all. “ Families near the bottom of the wealth distribution (those at the 10th percentile) went from having no wealth on average to being

Wealth Gap Analysis

Without a doubt the wealth gap between the rich and the poor has continue to widen. In an article called “Fueled by Recession, U.S. Wealth Gap Is Widest in Decades, Study Finds” written by Patricia Cohen, point out the widening wealth gap between the upper-income compared to the middle-income and low-income. Essentially, upper income wealth has increased 101 percent; it was $318,000 in 1983 and increased to $639,400 in 2013. While low income has decreased 18.4 percent; it was $11,400 in 1983 and decreased to 9,300 in 2013. I think that the government should implement policies to reduce the inequality because it’s becoming an issue.

Income Inequality In The 1920s Essay

The distribution of incomes and wealth in the 1920s and now are diverse but similar in several ways (Ucsc.edu). A person’s wealth is determined by what they own, not including any debts. A person’s income is how much money one may make on a job or money someone obtain. Income inequality is real and has affected people for many years, and it is still occurring currently. The distribution of wealth in the 1920s earned the name roaring twenties due to the sustained prosperity, new technology advancements, and exciting culture (Shmoop.com).

Guiding College Gap

In ”Guiding a First Generation to College”, Tina Rosenberg discussed that how to help high-achieving poor students to get into College. In the paper, “About 30,000 students from poor families score in the top 10 percent on the SAT or ACT college entrance exams and yet don’t go to selective schools. And nearly a quarter of low-income students who score in the top 25 percent on standardized tests never go to any college.” In fact, there are many resources can help reduce the yawning dimensions of the college gap. Tina Rosenberg points out one big part of the divide is the information disconnect.

Wealth Inequality Essay

Inequality in the accumulation of wealth in the U.S.’s black population stretches back to times of slavery and lack of reparations for their group’s enslavement to the Social Security Act and the Federal Housing Act (GIB 1). Racial discrimination lurks in the U.S.’s housing market from its very conception after WWII, when GIs began to return home in search of a new home (RTPI). Although, the Federal Housing Administration by no means a starting point for the cause of wealth inequality, it certainly exacerbated the gap. White suburbs like “Levittown” created a white exclusive ideal neighborhood which devalued black and other nonwhite homeowners. Housing discrimination prevented blacks and nonwhites from accumulating wealth like whites would

Wealth Inequality In The United States

Nowadays, there is a huge gap of income and wealth inequality in the U.S. and that means the richer people are super rich while bottom people are struggling for basic living standard. There are some direct and explicit statistics from Inequality for All graphic package from which we can tell the phenomenon. In 2010, the typical 1% people earn 33 times of typical male workers but in 1978 the ratio is tenth comparing the male workers with the “1%” people. Also, it says “Today, the top 400 richest people have more wealth than the bottom 150 million Americans put together” (Inequality for All). This shows considerable wealth of the U.S. is controlled in the minority people, which is totally unlike the period of 1950s through 1980s.

The Role Of Income Inequality In The United States

The American public school system is arguably weak when compared to other countries, but it still functions to educate the public. The issue of inequality arises when it comes to higher education and who has access to it. Due to higher education costing anywhere from tens to hundreds of thousands of dollars in the United States, it is easy to see why there is an unequal level of access to higher education. Some might argue that higher education is not necessary and that the poor can find a living without it. This is not only restricting the poor to the lower class, but is simply not true.

Effects Of Income Inequality In The United States

1. Introduction Income inequality has grown significantly during this past decades and this phenomenon continues to increase over the years. This problem is constantly discussed in the daily news all around the world. Several consequences of this increase of inequality between people leads to economic problems such as high unemployment rates, lack of work for young people, fall of demand for certain product. The gap between rich and poor is increasing, the rich are richer and the poor are poorer as a result politicians and economists try to adopt certain policies in order to reduce this gap.

Essay On Inequality In America

Wealth and Inequality in America Inequality The inequality in America has increased over time; the gap between the rich and the poor has become a problem that many Americans don’t see. Inequality is the extent of income which is distributed unequally among the citizenry. The inequality of the United has a large gap between the poor and the rich making it unfair to the population, the rich are becoming wealthier and the poor remain poor. The article “Of the 1%, By the 1%, For the 1%”, authored by Joseph E. Stiglitz describes that there is a 1 percent amount of American’s who are consuming about a quarter of the United States income in a year.

The Upside Of Income Inequality Summary

Income inequality acts as a means to “wake people up” and make clear to them their need for higher education and more hard work to obtain more money, and thus, more success. As income inequality increased in China and America, there arose a correlation to the increase among men and women of all races and ethnic backgrounds. Despite the fact that income inequality could cause people to make poor decisions and make them insecure in society, income inequality improves the economic systems in America and other parts of the world by serving as a motivation for people to achieve much greater things in the desires of changing their station in life for a happier

3.1 How income inequality affect on people live in America. The income gap in America affects people, who live in this country. The issue has a strong impact in America’s society; in particular, the nutritional disparity between rich and poor people. In USA, the food gap becomes the top signal for the class distinction, but it used to be clothing or fashion. The food inequality in America is not only influencing the poverty, it is also cost hundreds of billions of dollar per year because of Non Communicable Diseases (NDCs) (Ferdman, 2014).

Economic Inequality In America Essay

The problem with the widened wealth gap is that the inequality may harm the quality. Meaning that those in the higher classes see it as you can use the money with no restrictions. However, economist believe that the “relationship between inequality and economic freedom, with the possibility that policies that are meant to reduce inequality will reduce economic freedom, which will then only make inequality worse.”

Essay On Wealth Inequality

Introduction All over the world, there is an obvious contrast between the living standards and lifestyle of the rich and the poor. Moreover, there is a large gap between the populations of poor and wealthy. This is known as the Wealth Gap, and it is caused by Wealth Inequality. Wealth Income/Inequality is defined as “The unequal distribution of assets within a population.” Wealth is defined as more than just the amount of income a person has, but instead the value of a person’s assets.

More about Essay On Economic Inequality

Related topics.

• United States
• Economic inequality
• Distribution of wealth

Opinion: Income inequality is gutting the middle class

I care about economic inequality. I teach a class on it. I wrote  a book  about it. Yet, recently, two different arguments have popped up with a seemingly similar conclusion: economic inequality hasn’t risen as much as conventional wisdom would suggest.

While these two arguments have the same implication, they look at vastly different ends of the income distribution. 

The first  focuses on the bottom 20 percent of households by income and suggests an actual  reduction  in inequality. The point is that through increased government transfers, the bottom has actually caught up to the middle over the last 40 years. The  second argument  focuses on the top 1 percent of the income distribution. It argues that estimates of the top 1 percent’s share of income make assumptions that may overstate that share’s growth and thus the growth of inequality.

I don’t necessarily disagree with either of these arguments. Over the last 50 years, the social safety net has expanded in ways that  reduce poverty  and benefit the bottom 20 percent relative to the middle. And, because most surveys of household finances miss out on the top 1 percent, calculating their share of income is hard. It  requires assumptions , and those assumptions will yield different estimates of growth. While I don’t profess to know which group is right — the one saying  lots  of growth or the one saying  less  — I know enough to admit that I don’t know.

So, if I don’t disagree with these arguments, then why am I writing this? Because I think a focus on the poles of income distribution distracts from the real story: the stagnation of the middle over the last 50 years. Sure, the bottom has caught up to the middle partially because of government programs. But the other part of the story is that the bottom has also caught up because the middle hasn’t seen much income growth at all.

The figure below illustrates this point. It shows how GDP per capita, the median earnings of female versus male full-time workers and the median income of Black versus white households have grown since 1975. While per capita income in the U.S. nearly doubled over this period, the same can’t be said for anyone in the middle. 

The median working man saw his real income  decline . And, while the median working women saw increases, this is largely because their education and work experience expanded rapidly. In any case, despite these gains, they still couldn’t keep up with the economy’s growth nor catch up completely to men — the gender wage gap today sits around  83 percent .

At the household level, things aren’t great either. Median income for white households grew about 25 percent. Black households saw even less growth. That’s right, since 1975, the Black-white household income gap  has grown . And while those making the first argument above could fairly point out that my numbers do not account for non-cash safety net programs like food stamps or Medicaid, the median household isn’t getting these programs anyway.

These data contain questions about the economy that demand answers. Why aren’t labor markets providing any economic growth for middle-earning men? Why haven’t middle-earning women — despite massive increases in human capital — been able to outpace the economy? Why are households not seeing much growth despite large increases in women’s earnings and labor force participation? And why did Black households actually  lose  ground?

Economists know the answers to some of these questions.  Technology ,  trade  and the  increased power  of large businesses all likely play some role in holding down median wages. Women have to trade pay for  flexibility  due to caregiving responsibilities. The  decline of marriage  in the middle — at least partially fueled by the economic performance of men — means fewer two-income households than would have occurred otherwise. And Black households still face  discrimination , a damaging  human capital gap  and economic conditions that can make marriage  tougher  than it is for white households.

These issues demand some consideration. Should we plan for the impact of AI to prevent another four decades lost for middle earners? Would universal pre-K help kids do better and help moms work and earn more if they want? Do we want to change housing policy to improve opportunities for Black households to unstick the racial income gap? 

These conversations are worth having, but they won’t be had if people think incorrectly that the issue is settled.

Geoffrey Sanzenbache r is an associate professor of the practice at Boston College, where he teaches a class called The Economics of Inequality. He is also a research fellow at The Center for Retirement Research at Boston College.

For the latest news, weather, sports, and streaming video, head to The Hill.