![GINI index World Bank up to 2018](https://upload.wikimedia.org/wikipedia/commons/d/dc/GINI_index_World_Bank_up_to_2018.png)
There are wide varieties of economic inequality, most notably income inequality measured using the
distribution of income
In economics, income distribution covers how a country's total GDP is distributed amongst its population. Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes ec ...
(the amount of money people are paid) and
wealth inequality
The distribution of wealth is a comparison of the wealth of various members or groups in a society. It shows one aspect of economic inequality or economic heterogeneity.
The distribution of wealth differs from the income distribution in that ...
measured using the
distribution of wealth
The distribution of wealth is a comparison of the wealth of various members or groups in a society. It shows one aspect of economic inequality or economic heterogeneity.
The distribution of wealth differs from the income distribution in th ...
(the amount of wealth people own). Besides economic inequality between countries or states, there are important types of economic inequality between different groups of people.
Important types of economic measurements focus on
wealth
Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an I ...
,
income
Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...
, and
consumption
Consumption may refer to:
*Resource consumption
*Tuberculosis, an infectious disease, historically
* Consumption (ecology), receipt of energy by consuming other organisms
* Consumption (economics), the purchasing of newly produced goods for curren ...
. There are
many methods for measuring economic inequality, the
Gini coefficient being a widely used one. Another type of measure is the
Inequality-adjusted Human Development Index, which is a statistic composite index that takes inequality into account. Important concepts of equality include
equity
Equity may refer to:
Finance, accounting and ownership
*Equity (finance), ownership of assets that have liabilities attached to them
** Stock, equity based on original contributions of cash or other value to a business
** Home equity, the diff ...
,
equality of outcome
Equality of outcome, equality of condition, or equality of results is a political concept which is central to some political ideologies and is used in some political discourse, often in contrast to the term equality of opportunity. It describes a ...
, and
equality of opportunity
Equal opportunity is a state of fairness in which individuals are treated similarly, unhampered by artificial barriers, prejudices, or preferences, except when particular distinctions can be explicitly justified. The intent is that the important ...
.
Whereas globalization has reduced global inequality (between nations), it has increased inequality within nations.
Income inequality between nations peaked in the 1970s, when world income was
distributed bimodally into "rich" and "poor" countries. Since then, income levels across countries have been converging, with most people now living in
middle-income countries.
However, inequality within most nations has risen significantly in the last 30 years, particularly among
advanced countries.
In this period, close to 90 percent of advanced economies have seen an increase in income inequality, with over 70% recording an increase in their
Gini coefficients exceeding two points.
Research has generally linked economic inequality to political and social instability, including
revolution
In political science, a revolution (Latin: ''revolutio'', "a turn around") is a fundamental and relatively sudden change in political power and political organization which occurs when the population revolts against the government, typically due ...
, democratic breakdown and
civil conflict
A civil war or intrastate war is a war between organized groups within the same state (or country).
The aim of one side may be to take control of the country or a region, to achieve independence for a region, or to change government policie ...
.
Research suggests that greater inequality hinders economic growth and macroeconomic stability, and that
land
Land, also known as dry land, ground, or earth, is the solid terrestrial surface of the planet Earth that is not submerged by the ocean or other bodies of water. It makes up 29% of Earth's surface and includes the continents and various isla ...
and
human capital
Human capital is a concept used by social scientists to designate personal attributes considered useful in the production process. It encompasses employee knowledge, skills, know-how, good health, and education. Human capital has a substantial ...
inequality reduce growth more than inequality of income.
Inequality is at the center stage of economic policy debate across the globe, as government tax and spending policies have significant effects on income distribution.
In advanced economies, taxes and transfers decrease income inequality by one-third, with most of this being achieved via public social spending (such as
pensions
A pension (, from Latin ''pensiō'', "payment") is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the form of periodic payments ...
and family benefits).
Measurements
![Income inequality - share of income earned by top 1% 1975 to 2015](https://upload.wikimedia.org/wikipedia/commons/f/f6/Income_inequality_-_share_of_income_earned_by_top_1%25_1975_to_2015.png)
In 1820, the ratio between the income of the top and bottom 20 percent of the world's population was three to one. By 1991, it was eighty-six to one. A 2011 study titled "Divided we Stand: Why Inequality Keeps Rising" by the
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate ...
(OECD) sought to explain the causes for this rising inequality by investigating economic inequality in OECD countries; it concluded that the following factors played a role:
* Changes in the structure of households can play an important role. Single-headed households in OECD countries have risen from an average of 15% in the late 1980s to 20% in the mid-2000s, resulting in higher inequality.
*
Assortative mating
Assortative mating (also referred to as positive assortative mating or homogamy) is a mating pattern and a form of sexual selection in which individuals with similar phenotypes or genotypes mate with one another more frequently than would be ...
refers to the phenomenon of people marrying people with similar background, for example doctors marrying other doctors rather than nurses. OECD found out that 40% of couples where both partners work belonged to the same or neighbouring earnings deciles compared with 33% some 20 years before.
* In the bottom percentiles, number of hours worked has decreased.
* The main reason for increasing inequality seems to be the difference between the demand for and supply of skills.
The study made the following conclusions about the level of economic inequality:
* Income inequality in OECD countries is at its highest level for the past half century. The ratio between the bottom 10% and the top 10% has increased from 1:7 to 1:9 in 25 years.
* There are tentative signs of a possible convergence of inequality levels towards a common and higher average level across OECD countries.
* With very few exceptions (
France
France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...
,
Japan
Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the n ...
, and
Spain
, image_flag = Bandera de España.svg
, image_coat = Escudo de España (mazonado).svg
, national_motto = '' Plus ultra'' (Latin)(English: "Further Beyond")
, national_anthem = (English: "Royal March")
, ...
), the wages of the 10% best-paid workers have risen relative to those of the 10% lowest paid.
A 2011 OECD study investigated economic inequality in
Argentina
Argentina (), officially the Argentine Republic ( es, link=no, República Argentina), is a country in the southern half of South America. Argentina covers an area of , making it the List of South American countries by area, second-largest ...
,
Brazil
Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...
,
China
China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...
,
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
,
Indonesia
Indonesia, officially the Republic of Indonesia, is a country in Southeast Asia and Oceania between the Indian and Pacific oceans. It consists of over 17,000 islands, including Sumatra, Java, Sulawesi, and parts of Borneo and New Gui ...
,
Russia
Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-ei ...
, and
South Africa
South Africa, officially the Republic of South Africa (RSA), is the southernmost country in Africa. It is bounded to the south by of coastline that stretch along the South Atlantic and Indian Oceans; to the north by the neighbouring coun ...
. It concluded that key sources of inequality in these countries include "a large, persistent
informal sector
An informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government.
Although the informal sector makes up a significant portion of the economies in developing countrie ...
, widespread regional divides (e.g.
urban-rural), gaps in access to education, and barriers to employment and career progression for women."
![2018 Inequality-Adjusted Human Development INdex](https://upload.wikimedia.org/wikipedia/commons/2/2a/2018_Inequality-Adjusted_Human_Development_INdex.svg)
A study by the World Institute for Development Economics Research at
United Nations University
The (UNU) is the think tank and academic arm of the United Nations. Headquartered in Shibuya, Tokyo, Japan, with diplomatic status as a UN institution, its mission is to help resolve global issues related to human development and welfare thr ...
reported that the richest 1% of adults alone owned 40% of global assets in the year 2000. The
''three'' richest people in the world possess more financial assets than the lowest 48 nations combined. The combined wealth of the "10 million dollar millionaires" grew to nearly $41 trillion in 2008.
Oxfam
Oxfam is a British-founded confederation of 21 independent charitable organizations focusing on the alleviation of global poverty, founded in 1942 and led by Oxfam International.
History
Founded at 17 Broad Street, Oxford, as the Oxford Co ...
's 2021 report on global inequality said that the
COVID-19 pandemic
The COVID-19 pandemic, also known as the coronavirus pandemic, is an ongoing global pandemic of coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The novel virus was first identi ...
has increased economic inequality substantially; the wealthiest people across the globe were impacted the least by the pandemic and their fortunes recovered quickest, with billionaires seeing their wealth increase by $3.9 trillion, while at the same time those living on less than $5.50 a day likely increased by 500 million. The report also emphasized that the wealthiest 1% are by far the biggest polluters and main drivers of
climate change
In common usage, climate change describes global warming—the ongoing increase in global average temperature—and its effects on Earth's climate system. Climate change in a broader sense also includes previous long-term changes to ...
, and said that government policy should focus on fighting both inequality and
climate change
In common usage, climate change describes global warming—the ongoing increase in global average temperature—and its effects on Earth's climate system. Climate change in a broader sense also includes previous long-term changes to ...
simultaneously. The 2022 Oxfam report said that growing economic inequality has been a factor in increased mortality rates during the pandemic, contributing to the deaths of 21,000 people on a daily basis, while the wealth of the world's 10 richest billionaires doubled, and advocated a tax on the ultra rich to ameliorate these deadly inequalities. According to economist
Joseph Stiglitz
Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the J ...
, the pandemic's "most significant outcome" will be rising economic inequality in the United States and between the developed and developing world.
![US Wealth Inequality - v2](https://upload.wikimedia.org/wikipedia/commons/e/ea/US_Wealth_Inequality_-_v2.png)
According to
PolitiFact
PolitiFact.com is an American nonprofit project operated by the Poynter Institute in St. Petersburg, Florida, with offices there and in Washington, D.C. It began in 2007 as a project of the ''Tampa Bay Times'' (then the ''St. Petersburg Times ...
, the top 400 richest Americans "have more wealth than half of all Americans combined."
According to ''
The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'' on July 22, 2014, the "richest 1 percent in the United States now own more wealth than the bottom 90 percent".
Inherited wealth may help explain why many Americans who have become rich may have had a "substantial head start".
A 2017 report by the IPS said that three individuals,
Jeff Bezos
Jeffrey Preston Bezos ( ;; and Robinson (2010), p. 7. ''né'' Jorgensen; born January 12, 1964) is an American entrepreneur, media proprietor, investor, and commercial astronaut. He is the founder, executive chairman, and former presi ...
,
Bill Gates
William Henry Gates III (born October 28, 1955) is an American business magnate and philanthropist. He is a co-founder of Microsoft, along with his late childhood friend Paul Allen. During his career at Microsoft, Gates held the positions ...
and
Warren Buffett
Warren Edward Buffett ( ; born August 30, 1930) is an American business magnate, investor, and philanthropist. He is currently the chairman and CEO of Berkshire Hathaway. He is one of the most successful investors in the world and has a net ...
, own as much wealth as the bottom half of the population, or 160 million people, and that the growing disparity between the wealthy and the poor has created a "moral crisis", noting that "we have not witnessed such extreme levels of concentrated wealth and power since the first
gilded age
In United States history, the Gilded Age was an era extending roughly from 1877 to 1900, which was sandwiched between the Reconstruction era and the Progressive Era. It was a time of rapid economic growth, especially in the Northern and Wes ...
a century ago." In 2016, the world's billionaires increased their combined global wealth to a record $6 trillion. In 2017, they increased their collective wealth to 8.9 trillion. In 2018, U.S. income inequality reached the highest level ever recorded by the
Census Bureau
The United States Census Bureau (USCB), officially the Bureau of the Census, is a principal agency of the Federal Statistical System of the United States, U.S. Federal Statistical System, responsible for producing data about the Americans, Ame ...
.
The existing data and estimates suggest a large increase in international (and more generally inter-macroregional) components between 1820 and 1960. It might have slightly decreased since that time at the expense of increasing inequality within countries.
The
United Nations Development Programme
The United Nations Development Programme (UNDP)french: Programme des Nations unies pour le développement, PNUD is a United Nations agency tasked with helping countries eliminate poverty and achieve sustainable economic growth and human dev ...
in 2014 asserted that greater investments in social security, jobs and laws that protect vulnerable populations are necessary to prevent widening income inequality.
There is a significant difference in the measured wealth distribution and the public's understanding of wealth distribution.
Michael Norton of the
Harvard Business School
Harvard Business School (HBS) is the graduate business school of Harvard University, a private research university in Boston, Massachusetts. It is consistently ranked among the top business schools in the world and offers a large full-time MBA ...
and Dan Ariely of the Department of Psychology at
Duke University
Duke University is a private research university in Durham, North Carolina. Founded by Methodists and Quakers in the present-day city of Trinity in 1838, the school moved to Durham in 1892. In 1924, tobacco and electric power industrialist Jam ...
found this to be true in their research conducted in 2011. The actual wealth going to the top quintile in 2011 was around 84%, whereas the average amount of wealth that the general public estimated to go to the top quintile was around 58%.
According to a 2020 study, global earnings inequality has decreased substantially since 1970. During the 2000s and 2010s, the share of earnings by the world's poorest half doubled. Two researchers claim that global income inequality is decreasing due to strong economic growth in developing countries. According to a January 2020 report by the
United Nations Department of Economic and Social Affairs
The United Nations Department of Economic and Social Affairs (UN DESA) is part of the United Nations Secretariat and is responsible for the follow-up to major United Nations Summits and Conferences, as well as services to the United Nations Ec ...
, economic inequality between states had declined, but intrastate inequality has increased for 70% of the
world population
In demographics, the world population is the total number of humans currently living. It was estimated by the United Nations to have exceeded 8 billion in November 2022. It took over 200,000 years of human prehistory and history for th ...
over the period 1990–2015. In 2015, the OECD reported in 2015 that income inequality is higher than it has ever been within OECD member nations and is at increased levels in many emerging economies. According to a June 2015 report by the
International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
(IMF):
Widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades. Inequality trends have been more mixed in emerging markets and developing countries (EMDCs), with some countries experiencing declining inequality, but pervasive inequities in access to education, health care, and finance remain.
In October 2017, the IMF warned that inequality within nations, in spite of global inequality falling in recent decades, has risen so sharply that it threatens economic growth and could result in further
political polarization
Political polarization (spelled ''polarisation'' in British English) is the divergence of political attitudes away from the center, towards ideological extremes.
Most discussions of polarization in political science consider polarization in the ...
. The Fund's Fiscal Monitor report said that "progressive taxation and transfers are key components of efficient fiscal redistribution."
In October 2018
Oxfam
Oxfam is a British-founded confederation of 21 independent charitable organizations focusing on the alleviation of global poverty, founded in 1942 and led by Oxfam International.
History
Founded at 17 Broad Street, Oxford, as the Oxford Co ...
published a ''Reducing Inequality Index'' which measured social spending, tax and workers' rights to show which countries were best at closing the gap between the rich and the poor.
The 2022
World Inequality Report
World Inequality Report is a report by the World Inequality Lab at the Paris School of Economics that provides estimates of global income and wealth inequality based on the most recent findings compiled by the World Inequality Database (WID). WID, ...
, a four-year research project organized by the economists
Lucas Chancel
Lucas Chancel (born in 1987 in Grenoble) is a French economist. He is Codirector and Senior economist at the World Inequality Lab of the Paris School of Economics and teaches at Sciences Po. He is also Codirector of the World Inequality Database ...
,
Thomas Piketty
Thomas Piketty (; born 7 May 1971) is a French economist who is Professor of Economics at the School for Advanced Studies in the Social Sciences, Associate Chair at the Paris School of Economics and Centennial Professor of Economics in the In ...
,
Emmanuel Saez
Emmanuel Saez (born November 26, 1972) is a French, naturalized American economist who is Professor of Economics at the University of California, Berkeley. His work, done with Thomas Piketty and Gabriel Zucman, includes tracking the incomes of t ...
, and
Gabriel Zucman
Gabriel Zucman (born 30 October 1986) is a French economist who is currently an associate professor of public policy and economics at the University of California, Berkeley‘s Goldman School of Public Policy. The author of '' The Hidden Wealth o ...
, shows that "the world is marked by a very high level of income inequality and an extreme level of wealth inequality" and that these inequalities "seem to be about as great today as they were at the peak of
western imperialism
Imperialism is the state policy, practice, or advocacy of extending power and dominion, especially by direct territorial acquisition or by gaining political and economic control of other areas, often through employing hard power (economic and ...
in the early 20th century." According to the report, the bottom half of the population owns 2% of global wealth, while the top 10% owns 76% of it. The top 1% owns 38%.
Wealth distribution within individual countries
The following table shows information about individual wealth distribution in different countries from a 2018 report by
Crédit Suisse
Credit Suisse Group AG is a global Investment banking, investment bank and financial services firm founded and based in Switzerland. Headquartered in Zürich, it maintains offices in all Financial centre, major financial centers around the w ...
.
[ October 10, 2018, article]
Global Wealth Report 2018: US and China in the lead
Report
Databook
See Table 3.1 (page 114) of databook for mean and median wealth by country. The
wealth
Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an I ...
is calculated by various factors, for instance:
liabilities,
debts
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The de ...
,
exchange rates and their expected development, real estate prices,
human resources
Human resources (HR) is the set of people who make up the workforce of an organization, business sector, industry, or economy. A narrower concept is human capital, the knowledge and skills which the individuals command. Similar terms include ...
,
natural resource
Natural resources are resources that are drawn from nature and used with few modifications. This includes the sources of valued characteristics such as commercial and industrial use, aesthetic value, scientific interest and cultural value. ...
s and technical advancements, etc.
Income distribution within individual countries
![GINI index World Bank up to 2018](https://upload.wikimedia.org/wikipedia/commons/d/dc/GINI_index_World_Bank_up_to_2018.png)
Income inequality is measured by
Gini coefficient (expressed in percent %) that is a number between 0 and 1. Here 0 expresses perfect equality, meaning that everyone has the same income, whereas 1 represents perfect inequality, meaning that one person has all the income and others have none. A
Gini index value above 50% is considered high; countries including Brazil, Colombia, South Africa, Botswana, and Honduras can be found in this category. A Gini index value of 30% or above is considered medium; countries including Vietnam, Mexico, Poland, the United States, Argentina, Russia and Uruguay can be found in this category. A Gini index value lower than 30% is considered low; countries including Austria, Germany, Denmark, Norway, Slovenia, Sweden, and Ukraine can be found in this category. In the low income inequality category (below 30%) is a wide representation of countries previously being part of Soviet Union or its satellites, like Slovakia, Czech Republic, Ukraine and Hungary.
In 2012 the Gini index for income inequality for whole European Union was only 30.6%.
Income distribution can differ from wealth distribution within each country. The wealth inequality is also measured in Gini index. There the higher Gini index signify greater inequality within the wealth distribution in country, 0 means total wealth equality and 1 represents situation, where everyone has no wealth, except an individual that has everything. For instance countries like Denmark, Norway and Netherlands, all belonging to the last category (below 30%, low income inequality) also have very high Gini index in wealth distribution, ranging from 70% up to 90%.
Factors proposed to affect economic inequality
There are various reasons for economic inequality within societies, including both global market functions (such as trade, development, and regulation) as well as social factors (including gender, race, and education). Recent growth in overall income inequality, at least within the OECD countries, has been driven mostly by increasing inequality in wages and salaries.
Economist
Thomas Piketty
Thomas Piketty (; born 7 May 1971) is a French economist who is Professor of Economics at the School for Advanced Studies in the Social Sciences, Associate Chair at the Paris School of Economics and Centennial Professor of Economics in the In ...
argues that widening economic disparity is an inevitable phenomenon of
free market
In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...
capitalism
Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, priva ...
when the rate of return of capital (r) is greater than the rate of growth of the economy (g).
Labour market
In modern
market economies
A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers are ...
, if competition is imperfect; information unevenly distributed; opportunities to acquire education and skills unequal;
market failure
In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where indi ...
results. Many such imperfect conditions exist in virtually every market. According to
Joseph Stiglitz
Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the J ...
this means that there is an enormous potential role for government to correct such market failures.
In the United States, real wages are flat over the past 40 years for occupations across income and education levels, e.g. auto mechanics, cashiers, doctors, and software engineers.
However, stock ownership favors higher income and education levels, thereby resulting in disparate investment income.
Taxes
Another cause is the rate at which
income is taxed coupled with the progressivity of the tax system. A
progressive tax
A progressive tax is a tax in which the tax rate increases as the taxable amount increases.Sommerfeld, Ray M., Silvia A. Madeo, Kenneth E. Anderson, Betty R. Jackson (1992), ''Concepts of Taxation'', Dryden Press: Fort Worth, TX The term ''progre ...
is a tax by which the
tax rate increases as the taxable base amount increases.
[Sommerfeld, Ray M., Silvia A. Madeo, Kenneth E. Anderson, Betty R. Jackson (1992), ''Concepts of Taxation'', Dryden Press: Fort Worth, TX] In a progressive tax system, the level of the top tax rate will often have a direct impact on the level of inequality within a society, either increasing it or decreasing it, provided that income does not change as a result of the change in tax regime. Additionally, steeper tax progressivity applied to social spending can result in a
more equal distribution of income across the board. Tax credits such as the
Earned Income Tax Credit
The United States federal earned income tax credit or earned income credit (EITC or EIC) is a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. The amount of EITC benefit depends ...
in the US can also decrease income inequality. The difference between the
Gini index for an income distribution before taxation and the Gini index after taxation is an indicator for the effects of such taxation.
Education
![Going up or down advertisement](https://upload.wikimedia.org/wikipedia/commons/5/53/Going_up_or_down_advertisement.jpg)
An important factor in the creation of inequality is variation in individuals' access to education.
Education, especially in an area where there is a high demand for workers, creates high wages for those with this education. However, increases in education first increase and then decrease growth as well as income inequality. As a result, those who are unable to afford an education, or choose not to pursue optional education, generally receive much lower wages. The justification for this is that a lack of education leads directly to lower incomes, and thus lower aggregate saving and investment. Conversely,
quality education raises incomes and promotes growth because it helps to unleash the productive potential of the poor.
Access to education was in turn influenced by land inequalities. In the less industrialized parts of 19th century Europe, for example, landowners still held more political power than industrialists. These landowners did not benefit from educating their workers as much as industrialists did, since "educated workers have more incentives to migrate to urban, industrial areas than their less educated counterparts."
Consequently, lower incentives to promote education in regions where land inequality was high led to lower levels of
numeracy in these regions.
Economic liberalism, deregulation and decline of unions
John Schmitt and Ben Zipperer (2006) of the CEPR point to
economic liberalism
Economic liberalism is a political and economic ideology that supports a market economy based on individualism and private property in the means of production. Adam Smith is considered one of the primary initial writers on economic liberali ...
and the reduction of business
regulation
Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. Fo ...
along with the decline of
union membership as one of the causes of economic inequality. In an analysis of the effects of intensive Anglo-American
liberal
Liberal or liberalism may refer to:
Politics
* a supporter of liberalism
** Liberalism by country
* an adherent of a Liberal Party
* Liberalism (international relations)
* Sexually liberal feminism
* Social liberalism
Arts, entertainment and m ...
policies in comparison to continental European liberalism, where unions have remained strong, they concluded "The U.S. economic and social model is associated with substantial levels of social exclusion, including high levels of income inequality, high relative and absolute poverty rates, poor and unequal educational outcomes, poor health outcomes, and high rates of crime and incarceration. At the same time, the available evidence provides little support for the view that U.S.-style
labor market flexibility dramatically improves labor-market outcomes. Despite popular prejudices to the contrary, the U.S. economy consistently affords a lower level of economic mobility than all the continental European countries for which data is available."
More recently, the
International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
has published studies which found that the decline of unionization in many advanced economies and the establishment of
neoliberal economics have fueled rising income inequality.
Information technology
The growth in importance of
information technology
Information technology (IT) is the use of computers to create, process, store, retrieve, and exchange all kinds of Data (computing), data . and information. IT forms part of information and communications technology (ICT). An information te ...
has been credited with increasing income inequality.
Technology has been called "the main driver of the recent increases in inequality" by Erik Brynjolfsson, of
MIT
The Massachusetts Institute of Technology (MIT) is a private land-grant research university in Cambridge, Massachusetts. Established in 1861, MIT has played a key role in the development of modern technology and science, and is one of the m ...
.
In arguing against this explanation, Jonathan Rothwell notes that if technological advancement is measured by high rates of invention, there is a negative correlation between it and inequality. Countries with high invention rates — "as measured by patent applications filed under the Patent Cooperation Treaty" — exhibit lower inequality than those with less. In one country, the United States, "salaries of engineers and software developers rarely reach" above $390,000/year (the lower limit for the top 1% earners).
Some researchers, such as Juliet B. Schor, highlight the role of for-profit online sharing economy platforms as an accelerator of income inequality and calls into question their supposed contribution in empowering outsiders of the labour market.
Taking the example of TaskRabbit, a labour service platform, she shows that a large proportion of providers already have a stable full-time job and participate part-time in the platform as an opportunity to increase their income by diversifying their activities outside employment, which tends to restrict the volume of work remaining for the minority of platform workers.
In addition, there is an important phenomenon of labour substitution as manual tasks traditionally performed by workers without a degree (or just a college degree) integrated into the labour market in the traditional economy sectors are now performed by workers with a high level of education (in 2013, 70% of TaskRabbit's workforce held a bachelor's degree, 20% a master's degree and 5% a PhD). The development of platforms, which are increasingly capturing demand for these manual services at the expense of non-platform companies, may therefore benefit mainly skilled workers who are offered more earning opportunities that can be used as supplemental or transitional work during periods of unemployment.
It has also been proposed that information technologies contribute to "winner take most" market concentration, reducing the need for labor across competing suppliers. Market concentration drives down labor's share of the GDP, increasing the wealth of capital and thereby exacerbating inequality.
Economists have linked automation to increases in economic inequality, as automation raises the returns to wealth and contributes to stagnating wages at the lower end of the wage distribution.
Globalization
Trade liberalization
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econ ...
may shift economic inequality from a global to a domestic scale.
[
] When rich countries trade with poor countries, the low-skilled workers in the rich countries may see reduced wages as a result of the competition, while low-skilled workers in the poor countries may see increased wages. Trade economist Paul Krugman estimates that trade liberalisation has had a measurable effect on the rising
inequality in the United States
Inequality in the United States may refer to:
* Educational inequality in the United States
* Gender inequality in the United States
* Health inequality in the United States
* Racial inequality in the United States
Economic
* Income inequalit ...
. He attributes this trend to increased trade with poor countries and the fragmentation of the
means of production
The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
, resulting in low skilled jobs becoming more tradeable.
Anthropologist
Jason Hickel
Jason Edward Hickel (born 1982) is an economic anthropologist whose research focuses on ecological economics, global inequality, imperialism and political economy. He is known for his books ''The Divide: A Brief Guide to Global Inequality and ...
contends that globalization and "
structural adjustment" set off the "
race to the bottom
Race to the bottom is a socio-economic phrase to describe either government deregulation of the business environment or reduction in corporate tax rates, in order to attract or retain usually foreign economic activity in their jurisdictions. Whil ...
", a significant driver of surging global inequality. Another driver Hickel mentions is the
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
system which advanced the need for structural adjustment in the first place.
Gender
![OECD gender wage gap](https://upload.wikimedia.org/wikipedia/commons/8/8d/OECD_gender_wage_gap.svg)
In many countries, there is a
gender pay gap in favor of males in the
labor market. Several factors other than discrimination contribute to this gap. On average, women are more likely than men to consider factors other than pay when looking for work, and may be less willing to travel or relocate.
Thomas Sowell
Thomas Sowell (; born June 30, 1930) is an American author, economist, political commentator and academic who is a senior fellow at the Hoover Institution. With widely published commentary and books—and as a guest on TV and radio—he becam ...
, in his book ''
Knowledge and Decisions'', claims that this difference is due to women not taking jobs due to marriage or pregnancy. A U.S. Census's report stated that in US once other factors are accounted for there is still a difference in earnings between women and men.
A study done on three post-soviet countries
Armenia
Armenia (), , group=pron officially the Republic of Armenia,, is a landlocked country in the Armenian Highlands of Western Asia.The UNbr>classification of world regions places Armenia in Western Asia; the CIA World Factbook , , and ' ...
,
Georgia
Georgia most commonly refers to:
* Georgia (country), a country in the Caucasus region of Eurasia
* Georgia (U.S. state), a state in the Southeast United States
Georgia may also refer to:
Places
Historical states and entities
* Related to the ...
, and
Azerbaijan
Azerbaijan (, ; az, Azərbaycan ), officially the Republic of Azerbaijan, , also sometimes officially called the Azerbaijan Republic is a transcontinental country located at the boundary of Eastern Europe and Western Asia. It is a part of t ...
reveals that gender is one of the driving forces of income inequality, and being a female have significant negative effect on income, when other factors are held equal. The results show more than 50% gender pay gap in all three countries. These findings are because usually employers tend to avoid hiring women because of possible maternity leave. Other reason for this can be
occupational segregation
Occupational segregation is the distribution of workers across and within occupations, based upon demographic characteristics, most often gender. Other types of occupational segregation include racial and ethnicity segregation, and sexual orient ...
, which implies that women are usually accumulated in lower-paid positions and sectors, such as social services and education.
Race
There is also a globally recognized disparity in the wealth, income, and
economic welfare
The welfare definition of economics is an attempt by Alfred Marshall, a pioneer of neoclassical economics, to redefine his field of study. This definition expands the field of economic science to a larger study of humanity. Specifically, Marshall's ...
of people of different races. In many nations, data exists to suggest that members of certain racial demographics experience lower wages, fewer opportunities for career and educational advancement, and
intergenerational wealth gaps.
Studies have uncovered the emergence of what is called "ethnic capital", by which people belonging to a race that has experienced discrimination are born into a disadvantaged family from the beginning and therefore have less resources and opportunities at their disposal.
The universal lack of education, technical and cognitive skills, and inheritable wealth within a particular race is often passed down between generations, compounding in effect to make escaping these racialized
cycles of poverty increasingly difficult.
Additionally, ethnic groups that experience significant disparities are often also minorities, at least in representation though often in number as well, in the nations where they experience the harshest disadvantage. As a result, they are often segregated either by government policy or social stratification, leading to ethnic communities that experience widespread gaps in wealth and aid.
As a general rule, races which have been historically and systematically colonized (typically indigenous ethnicities) continue to experience lower levels of financial stability in the present day. The
global South is considered to be particularly victimized by this phenomenon, though the exact socioeconomic manifestations change across different regions.
Westernized Nations
Even in economically developed societies with high levels of
modernization such as may be found in Western Europe, North America, and Australia, minority ethnic groups and immigrant populations in particular experience financial discrimination. While the progression of civil rights movements and justice reform has improved access to education and other economic opportunities in politically advanced nations, racial income and wealth disparity still prove significant. In the United States for example, a survey of African-American populations show that they are more likely to drop out of high school and college, are typically employed for fewer hours at lower wages, have lower than average intergenerational wealth, and are more likely to use welfare as young adults than their white counterparts.
Mexican-Americans, while suffering less debilitating socioeconomic factors than black Americans, experience deficiencies in the same areas when compared to whites and have not assimilated financially to the level of stability experienced by white Americans as a whole. These experiences are the effects of the measured disparity due to race in countries like the US, where studies show that in comparison to whites, blacks suffer from drastically lower levels of upward
mobility
Mobility may refer to:
Social sciences and humanities
* Economic mobility, ability of individuals or families to improve their economic status
* Geographic mobility, the measure of how populations and goods move over time
* Mobilities, a conte ...
, higher levels of downward mobility, and poverty that is more easily transmitted to offspring as a result of the disadvantage stemming from the era of slavery and post-slavery
racism
Racism is the belief that groups of humans possess different behavioral traits corresponding to inherited attributes and can be divided based on the superiority of one race over another. It may also mean prejudice, discrimination, or antagonis ...
that has been passed through racial generations to the present.
These are lasting financial inequalities that apply in varying magnitudes to most non-white populations in nations such as the US, the UK, France, Spain, Australia, etc.
Latin America
In the countries of the Caribbean, Central America, and South America, many ethnicities continue to deal with the effects of European colonization, and in general nonwhites tend to be noticeably poorer than whites in this region. In many countries with significant populations of indigenous races and those of Afro-descent (such as Mexico, Colombia, Chile, etc.) income levels can be roughly half as high as those experiences by white demographics, and this inequity is accompanied by systematically unequal access to education, career opportunities, and poverty relief. This region of the world, apart from urbanizing areas like Brazil and Costa Rica, continues to be understudied and often the racial disparity is denied by Latin Americans who consider themselves to be living in post-racial and post-colonial societies far removed from intense social and economic stratification despite the evidence to the contrary.
Africa
African countries, too, continue to deal with the effects of the
Trans-Atlantic Slave Trade
The Atlantic slave trade, transatlantic slave trade, or Euro-American slave trade involved the transportation by slave traders of enslaved African people, mainly to the Americas. The slave trade regularly used the triangular trade route and i ...
, which set back economic development as a whole for blacks of African citizenship more than any other region. The degree to which colonizers stratified their holdings on the continent on the basis of race has had a direct correlation in the magnitude of disparity experienced by nonwhites in the nations that eventually rose from their colonial status. Former French colonies, for example, see much higher rates of income inequality between whites and nonwhites as a result of the rigid hierarchy imposed by the French who lived in Africa at the time. Another example is found in South Africa, which, still reeling from the socioeconomic impacts of
Apartheid
Apartheid (, especially South African English: , ; , "aparthood") was a system of institutionalised racial segregation that existed in South Africa and South West Africa (now Namibia) from 1948 to the early 1990s. Apartheid was ...
, experiences some of the highest racial income and wealth inequality in all of Africa.
In these and other countries like Nigeria, Zimbabwe, and Sierra Leone, movements of civil reform have initially led to improved access to financial advancement opportunities, but data shows that for nonwhites this progress is either stalling or erasing itself in the newest generation of blacks that seek education and improved transgenerational wealth. The economic status of one's parents continues to define and predict the financial futures of African and minority ethnic groups.
Asia
Asian regions and countries such as China, the Middle East, and Central Asia have been vastly understudied in terms of racial disparity, but even here the effects of Western colonization provide similar results to those found in other parts of the globe.
Additionally, cultural and historical practices such as the
caste system in India leave their marks as well. While the disparity is greatly improving in the case of India, there still exists social stratification between peoples of lighter and darker skin tones that cumulatively result in income and wealth inequality, manifesting in many of the same poverty traps seen elsewhere.
Economic development
![Kuznets curve](https://upload.wikimedia.org/wikipedia/commons/6/6b/Kuznets_curve.png)
Economist
Simon Kuznets argued that levels of economic inequality are in large part the result of stages of
development
Development or developing may refer to:
Arts
*Development hell, when a project is stuck in development
*Filmmaking, development phase, including finance and budgeting
*Development (music), the process thematic material is reshaped
* Photograph ...
. According to Kuznets, countries with low levels of development have relatively equal distributions of wealth. As a country develops, it acquires more capital, which leads to the owners of this capital having more wealth and income and introducing inequality. Eventually, through various possible redistribution mechanisms such as
social welfare
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
programs, more developed countries move back to lower levels of inequality.
Wealth concentration
![Elon Musk Royal Society (crop2)](https://upload.wikimedia.org/wikipedia/commons/3/34/Elon_Musk_Royal_Society_%28crop2%29.jpg)
Wealth concentration is the process by which, under certain conditions, newly created
wealth
Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an I ...
concentrates in the possession of already-wealthy individuals or entities. Accordingly, those who already hold wealth have the means to
invest
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing is ...
in new sources of creating wealth or to otherwise leverage the accumulation of wealth, and thus they are the beneficiaries of the new wealth. Over time, wealth concentration can significantly contribute to the persistence of inequality within society. Thomas Piketty in his book ''
Capital in the Twenty-First Century
''Capital in the Twenty-First Century'' (french: Le Capital au XXIe siècle) is a book written by French economist Thomas Piketty. It focuses on wealth and income inequality in Europe and the United States since the 18th century. It was initially ...
'' argues that the fundamental force for divergence is the usually greater return of capital (r) than economic growth (g), and that larger fortunes generate higher returns.
Rent seeking
Economist
Joseph Stiglitz
Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the J ...
argues that rather than explaining concentrations of wealth and income, market forces should serve as a brake on such concentration, which may better be explained by the non-market force known as "
rent-seeking
Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment.
Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effic ...
". While the market will bid up compensation for rare and desired skills to reward wealth creation, greater productivity, etc., it will also prevent successful entrepreneurs from earning excess profits by fostering competition to cut prices, profits and large compensation.
[Stiglitz, Joseph E. (June 4, 2012). The Price of Inequality: How Today's Divided Society Endangers Our Future (pp. 30–1, 35–6). Norton. Kindle Edition.] A better explainer of growing inequality, according to Stiglitz, is the use of political power generated by wealth by certain groups to shape government policies financially beneficial to them. This process, known to economists as rent-seeking, brings income not from creation of wealth but from "grabbing a larger share of the wealth that would otherwise have been produced without their effort".
[Stiglitz, Joseph E. (June 4, 2012). The Price of Inequality: How Today's Divided Society Endangers Our Future (p. 32). Norton. Kindle Edition.]
Finance industry
Jamie Galbraith
James Kenneth Galbraith (born January 29, 1952) is an American economist. He is currently a professor at the Lyndon B. Johnson School of Public Affairs and at the Department of Government, University of Texas at Austin. He is also a Senior Schola ...
argues that countries with larger financial sectors have greater inequality, and the link is not an accident.
Global warming
A 2019 study published in ''
PNAS'' found that
global warming
In common usage, climate change describes global warming—the ongoing increase in global average temperature—and its effects on Earth's climate system. Climate change in a broader sense also includes previous long-term changes to E ...
plays a role in increasing economic inequality between countries, boosting economic growth in developed countries while hampering such growth in developing nations of the
Global South. The study says that 25% of gap between the developed world and the developing world can be attributed to global warming.
A 2020 report by
Oxfam
Oxfam is a British-founded confederation of 21 independent charitable organizations focusing on the alleviation of global poverty, founded in 1942 and led by Oxfam International.
History
Founded at 17 Broad Street, Oxford, as the Oxford Co ...
and the
Stockholm Environment Institute
The Stockholm Environment Institute, or SEI, is a non-profit, independent research and policy institute specialising in sustainable development and environmental issues, with seven affiliate offices around the world. SEI works on climate change ...
says that the wealthiest 10% of the global population were responsible for more than half of global carbon dioxide emissions from 1990 to 2015, which increased by 60%. According to a 2020 report by the
UNEP
The United Nations Environment Programme (UNEP) is responsible for coordinating responses to environmental issues within the United Nations system. It was established by Maurice Strong, its first director, after the United Nations Conference on ...
,
overconsumption
Overconsumption describes a situation where a consumer overuses their available goods and services to where they can't, or don't want to, replenish or reuse them. In microeconomics, this may be described as the point where the marginal cost of ...
by the rich is a significant driver of the
climate crisis
''Climate crisis'' is a term describing global warming and climate change, and their impacts. The term and the alternative term ''climate emergency'' have been used to describe the threat of global warming to humanity (and their planet), and to u ...
, and the wealthiest 1% of the world's population are responsible for more than double the greenhouse gas emissions of the poorest 50% combined.
Inger Andersen, in the foreword to the report, said "this elite will need to reduce their footprint by a factor of 30 to stay in line with the Paris Agreement targets." A 2022 report by Oxfam found that the business investments of the wealthiest 125 billionaires emit 393 million metric tonnes of greenhouse gas emissions annually.
Politics
Joseph Stiglitz
Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the J ...
argues in ''
The Price of Inequality'' (2012) that the economic inequality is inevitable and permanent, because it is caused by the great amount of political power the richest have.
He wrote, "While there may be underlying economic forces at play, politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest."
Mitigating factors
![20220801 Economic stratification - cross-class friendships - bar chart](https://upload.wikimedia.org/wikipedia/commons/a/af/20220801_Economic_stratification_-_cross-class_friendships_-_bar_chart.svg)
Countries with a
left-leaning
Left-wing politics describes the range of political ideologies that support and seek to achieve social equality and egalitarianism, often in opposition to social hierarchy. Left-wing politics typically involve a concern for those in soci ...
legislature
A legislature is an assembly with the authority to make law
Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its p ...
generally have lower levels of inequality. Many factors constrain economic inequality – they may be divided into two classes: government sponsored, and market driven. The relative merits and effectiveness of each approach is a subject of debate.
Typical
government
A government is the system or group of people governing an organized community, generally a state.
In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is ...
initiatives to reduce economic inequality include:
*
Public education: increasing the supply of skilled labor and reducing income inequality due to education differentials.
*
Progressive tax
A progressive tax is a tax in which the tax rate increases as the taxable amount increases.Sommerfeld, Ray M., Silvia A. Madeo, Kenneth E. Anderson, Betty R. Jackson (1992), ''Concepts of Taxation'', Dryden Press: Fort Worth, TX The term ''progre ...
ation: the rich are taxed proportionally more than the poor, reducing the amount of income inequality in society if the change in taxation does not cause changes in income.
Market forces
In economics, a market is a composition of systems, institutions, procedures, social relations or infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering ...
outside of government intervention that can reduce economic inequality include:
*
propensity to spend: with rising wealth & income, a person may spend more. In an extreme example, if one person owned everything, they would immediately need to hire people to maintain their properties, thus reducing the
wealth concentration
The distribution of wealth is a comparison of the wealth of various members or groups in a society. It shows one aspect of economic inequality or economic heterogeneity.
The distribution of wealth differs from the income distribution in that ...
. On the other hand, high-income persons have higher propensity to save. Robin Maialeh then shows that increasing economic wealth decreases propensity to spend and increases propensity to invest which consequently leads to even greater growth rate of already rich agents.
Research shows that since 1300, the only periods with significant declines in wealth inequality in Europe were the
Black Death and the two World Wars. Historian
Walter Scheidel
Walter Scheidel (born 9 July 1966) is an Austrian historian who teaches ancient history at Stanford University, California. Scheidel's main research interests are ancient social and economic history, pre-modern historical demography, and com ...
posits that, since the Stone Age, only extreme violence, catastrophes and upheaval in the form of
total war
Total war is a type of warfare that includes any and all civilian-associated resources and infrastructure as legitimate military targets, mobilizes all of the resources of society to fight the war, and gives priority to warfare over non-combata ...
,
Communist revolution
A communist revolution is a proletarian revolution often, but not necessarily, inspired by the ideas of Marxism that aims to replace capitalism with communism. Depending on the type of government, socialism can be used as an intermediate stag ...
, pestilence and state collapse have significantly reduced inequality. He has stated that "only all-out thermonuclear war might fundamentally reset the existing distribution of resources" and that "peaceful policy reform may well prove unequal to the growing challenges ahead."
Policy responses intended to mitigate
A 2011 OECD study makes a number of suggestions to its member countries, including:
* Well-targeted income-support policies.
* Facilitation and encouragement of access to employment.
* Better job-related training and education for the low-skilled (
on-the-job training On-the-job training (widely known as OJT) is an important topic of human resource management. It helps develop the career of the individual and the prosperous growth of the organization. On the job training is a form of training provided at the work ...
) would help to boost their productivity potential and future earnings.
* Better access to formal education.
Progressive tax
A progressive tax is a tax in which the tax rate increases as the taxable amount increases.Sommerfeld, Ray M., Silvia A. Madeo, Kenneth E. Anderson, Betty R. Jackson (1992), ''Concepts of Taxation'', Dryden Press: Fort Worth, TX The term ''progre ...
ation reduces absolute income inequality when the higher rates on higher-income individuals are paid and not
evaded, and
transfer payments
In macroeconomics and finance, a transfer payment (also called a government transfer or simply transfer) is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return. Th ...
and
social safety net
The social safety net (SSN) consists of non-contributory assistance existing to improve lives of vulnerable families and individuals experiencing poverty and destitution. Examples of SSNs are previously-contributory social pensions, in-kind and fo ...
s result in progressive
government spending.
Wage ratio In economics, the wage ratio refers to the ratio of the top salaries in a group (company, city, country, etc.) to the bottom salaries. It is a measure of wage dispersion.
There has been a resurgence in the importance of the wage ratio. The amount ...
legislation has also been proposed as a means of reducing income inequality. The
OECD
The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate e ...
asserts that public spending is vital in reducing the ever-expanding wealth gap.
[Wealth Gap Widens In Rich Countries As Austerity Threatens To Worsen Inequality: OECD](_blank)
''The Huffington Post
''HuffPost'' (formerly ''The Huffington Post'' until 2017 and sometimes abbreviated ''HuffPo'') is an American progressive news website, with localized and international editions. The site offers news, satire, blogs, and original content, and ...
.'' Retrieved May 14, 2013
Deferred investment programs that increase stock ownership amongst lower income levels can supplement income to compensate wage stagnation.
The economists
Emmanuel Saez
Emmanuel Saez (born November 26, 1972) is a French, naturalized American economist who is Professor of Economics at the University of California, Berkeley. His work, done with Thomas Piketty and Gabriel Zucman, includes tracking the incomes of t ...
and
Thomas Piketty
Thomas Piketty (; born 7 May 1971) is a French economist who is Professor of Economics at the School for Advanced Studies in the Social Sciences, Associate Chair at the Paris School of Economics and Centennial Professor of Economics in the In ...
recommend much higher top marginal tax rates on the wealthy, up to 50 percent, 70 percent or even 90 percent.
Ralph Nader
Ralph Nader (; born February 27, 1934) is an American political activist, author, lecturer, and attorney noted for his involvement in consumer protection, environmentalism, and government reform causes.
The son of Lebanese immigrants to the U ...
,
Jeffrey Sachs
Jeffrey David Sachs () (born 5 November 1954) is an American economist, academic, public policy analyst, and former director of The Earth Institute at Columbia University, where he holds the title of University Professor. He is known for his work ...
, the United Front Against Austerity, among others, call for a
financial transaction tax
A financial transaction tax (FTT) is a levy on a specific type of financial transaction for a particular purpose. The tax has been most commonly associated with the financial sector for transactions involving intangible property rather than re ...
(also known as the
Robin Hood tax
The Robin Hood tax is a package of financial transaction taxes (FTT) proposed by a campaigning group of civil society non-governmental organizations (NGOs). Campaigners have suggested the tax could be implemented globally, regionally, or uni ...
) to bolster the social safety net and the public sector.
''
The Economist
''The Economist'' is a British weekly newspaper printed in demitab format and published digitally. It focuses on current affairs, international business, politics, technology, and culture. Based in London, the newspaper is owned by The Eco ...
'' wrote in December 2013: "A minimum wage, providing it is not set too high, could thus boost pay with no ill effects on jobs....America's federal minimum wage, at 38% of median income, is one of the rich world's lowest. Some studies find no harm to employment from federal or state minimum wages, others see a small one, but none finds any serious damage."
General limitations on and taxation of
rent-seeking
Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment.
Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effic ...
are popular across the political spectrum.
Public policy responses addressing causes and effects of income inequality in the US include:
progressive tax incidence
In economics, tax incidence or tax burden is the effect of a particular tax on the distribution of economic welfare. Economists distinguish between the entities who ultimately bear the tax burden and those on whom tax is initially imposed. The t ...
adjustments, strengthening
social safety net
The social safety net (SSN) consists of non-contributory assistance existing to improve lives of vulnerable families and individuals experiencing poverty and destitution. Examples of SSNs are previously-contributory social pensions, in-kind and fo ...
provisions such as
Aid to Families with Dependent Children
Aid to Families with Dependent Children (AFDC) was a federal assistance program in the United States in effect from 1935 to 1997, created by the Social Security Act (SSA) and administered by the United States Department of Health and Human Ser ...
,
welfare
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
, the
food stamp program
In the United States, the Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program, is a federal program that provides food-purchasing assistance for low- and no-income people. It is a federal aid program, ad ...
,
Social Security
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
,
Medicare, and
Medicaid
Medicaid in the United States is a federal and state program that helps with healthcare costs for some people with limited income and resources. Medicaid also offers benefits not normally covered by Medicare, including nursing home care and per ...
,
organizing community interest groups, increasing and reforming
higher education
Higher education is tertiary education leading to award of an academic degree. Higher education, also called post-secondary education, third-level or tertiary education, is an optional final stage of formal learning that occurs after comple ...
subsidies, increasing
infrastructure spending, and placing limits on and taxing
rent-seeking
Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment.
Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effic ...
.
A 2017 study in the ''
Journal of Political Economy'' by
Daron Acemoglu,
James Robinson and Thierry Verdier argues that American "cutthroat" capitalism and inequality gives rise to technology and innovation that more "cuddly" forms of capitalism cannot.
As a result, "the diversity of institutions we observe among relatively advanced countries, ranging from greater inequality and risk-taking in the United States to the more egalitarian societies supported by a strong safety net in Scandinavia, rather than reflecting differences in fundamentals between the citizens of these societies, may emerge as a mutually self-reinforcing world equilibrium. If so, in this equilibrium, 'we cannot all be like the Scandinavians,' because
Scandinavian capitalism depends in part on the knowledge spillovers created by the more cutthroat American capitalism."
A 2012 working paper by the same authors, making similar arguments, was challenged by
Lane Kenworthy, who posited that, among other things, the Nordic countries are consistently ranked as some of the world's most innovative countries by the
World Economic Forum
The World Economic Forum (WEF) is an international non-governmental and lobbying organisation based in Cologny, canton of Geneva, Switzerland. It was founded on 24 January 1971 by German engineer and economist Klaus Schwab. The foundation, ...
's
Global Competitiveness Index
The ''Global Competitiveness Report'' (GCR) is a yearly report published by the World Economic Forum. Since 2004, the ''Global Competitiveness Report'' ranks countries based on the Global Competitiveness Index, developed by Xavier Sala-i-Martin an ...
, with Sweden ranking as the most innovative nation, followed by Finland, for 2012–2013; the U.S. ranked sixth.
There are however global initiative like the United Nations
Sustainable Development Goal 10 which aims to garner international efforts in reducing economic inequality considerably by 2030.
Effects
A lot of research has been done about the effects of economic inequality on different aspects in society:
* Health: For long time the higher material living standards lead to longer life, as those people were able to get enough food, water and access to warmth. British researchers
Richard G. Wilkinson
Richard Gerald Wilkinson (born 1943) is a British social epidemiologist, author, advocate, and left-wing political activist. He is Professor Emeritus of social epidemiology at the University of Nottingham, having retired in 2008. He is also Hon ...
and
Kate Pickett
Kate Elizabeth Pickett (born 1965) is a British epidemiologist and political activist who is Professor of Epidemiology in the Department of Health Sciences at the University of York, and was a National Institute for Health and Care Research Ca ...
have found higher rates of health and social problems (
obesity
Obesity is a medical condition, sometimes considered a disease, in which excess body fat has accumulated to such an extent that it may negatively affect health. People are classified as obese when their body mass index (BMI)—a person's ...
,
mental illness,
homicides,
teenage birth
Teenage pregnancy, also known as adolescent pregnancy, is pregnancy in a female adolescent or young adult under the age of 20. This includes those who are legally considered adults in their country. The WHO defines adolescence as the period bet ...
s,
incarceration, child conflict, drug use) in countries and states with higher inequality.
Their research included 24 developed countries, including most U.S. states, and found that in the more developed countries, such as Finland and Japan, the heath issues are much lower than in states with rather higher inequality rates, such as Utah and New Hampshire. Some studies link a surge in "
deaths of despair", suicide, drug overdoses and alcohol related deaths, to widening income inequality. Conversely, other research did not find these effects or concluded that research suffered from issues of confounding variables.
* Social goods: British researchers
Richard G. Wilkinson
Richard Gerald Wilkinson (born 1943) is a British social epidemiologist, author, advocate, and left-wing political activist. He is Professor Emeritus of social epidemiology at the University of Nottingham, having retired in 2008. He is also Hon ...
and
Kate Pickett
Kate Elizabeth Pickett (born 1965) is a British epidemiologist and political activist who is Professor of Epidemiology in the Department of Health Sciences at the University of York, and was a National Institute for Health and Care Research Ca ...
have found lower rates of social goods (
life expectancy by country
Methodology
The life expectancy is shown separately for males and for females, as well as a combined figure. Several non- sovereign entities and territories are also included in this list.
The figures reflect the quality of healthcare in t ...
, educational performance,
trust among strangers,
women's status,
social mobility, even numbers of
patent
A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an enabling disclosure of the invention."A ...
s issued) in countries and states with higher inequality.
* Social cohesion: Research has shown an inverse link between income inequality and social cohesion. In more equal societies, people are much more likely to
trust
Trust often refers to:
* Trust (social science), confidence in or dependence on a person or quality
It may also refer to:
Business and law
* Trust law, a body of law under which one person holds property for the benefit of another
* Trust (bus ...
each other, measures of
social capital (the benefits of goodwill, fellowship, mutual sympathy and social connectedness among groups who make up a social units) suggest greater community involvement.
* Crime: The cross national research shows that in societies with less economic inequality the
homicide rates are consistently lower. A 2016 study finds that interregional inequality increases terrorism. Other research has argued inequality has little effect on crime rates.
* Welfare: Studies have found evidence that in societies where inequality is lower, population-wide satisfaction and happiness tend to be higher.
* Poverty: Study made by Jared Bernstein and Elise Gould suggest, that the poverty in the United States could have been reduced by the lowering of economic inequality for the past few decades.
* Debt: Income inequality has been the driving factor in the growing
household debt
Household debt is the combined debt of all people in a household, including consumer debt and mortgage loans. A significant rise in the level of this debt coincides historically with many severe economic crises and was a cause of the U.S. and su ...
,
["Conservative Inequality Denialism,"]
by Timothy Noah ''The New Republic'' (October 25, 2012) as high earners bid up the price of real estate and middle income earners go deeper into debt trying to maintain what once was a middle class lifestyle.
* Economic growth: A 2016 meta-analysis found that "the effect of inequality on growth is negative and more pronounced in less developed countries than in rich countries", though the average impact on growth was not significant. The study also found that wealth inequality is more pernicious to growth than income inequality.
* Civic participation: Higher income inequality led to less of all forms of social, cultural, and civic participation among the less wealthy.
* Political instability: Studies indicate that economic inequality leads to greater political instability, including an increased risk of democratic breakdown
and civil conflict.
A significant impact of inequality on civil war probability has been found through anthropometric methods.
* Political party responses: One study finds that economic inequality prompts attempts by left-leaning politicians to pursue redistributive policies while right-leaning politicians seek to repress the redistributive policies.
Perspectives
Fairness vs. equality
According to Christina Starmans et al. (Nature Hum. Beh., 2017), the research literature contains no evidence on people having an aversion on inequality. In all studies analyzed, the subjects preferred fair distributions (
inequity aversion
Inequity aversion (IA) is the preference for fairness and resistance to incidental inequalities. The social sciences that study inequity aversion include sociology, economics, psychology, anthropology, and ethology.
Human studies
Inequity aversion ...
) to
equal distributions, in both laboratory and real-world situations. In public, researchers may loosely speak of equality instead of fairness, when referring to studies where fairness happens to coincide with equality, but in many studies fairness is carefully separated from equality and the results are univocal. Very young children seem to prefer fairness over equality.
When people were asked, what would be the wealth of each quintile in their ideal society, they gave a 50-fold sum to the richest quintile than to the poorest quintile. The preference for inequality increases in adolescence, and so do the capabilities to favor fortune, effort and ability in the distribution.
Preference for unequal distribution has been developed to the human race possibly because it allows for better co-operation and allows a person to work with a more productive person so that both parties benefit from the co-operation. Inequality is also said to be able to solve the problems of
free-riders, cheaters and ill-behaving people, although this is heavily debated.
Researches demonstrate that people usually underestimate the level of actual inequality, which is also much higher than their desired level of inequality.
In many societies, such as the USSR, the distribution led to protests from wealthier landowners. In the current U.S., many feel that the distribution is unfair in being too unequal. In both cases, the cause is unfairness, not inequality, the researchers conclude.
Socialist perspectives
Socialist
Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the ...
s attribute the vast disparities in wealth to the private ownership of the
means of production
The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
by a class of owners, creating a situation where a small portion of the population lives off
unearned
In baseball, an earned run is any run that was fully enabled by the offensive team's production in the face of competent play from the defensive team. Conversely, an unearned run is a run that would not have been scored without the aid of an err ...
property income
Property income refers to profit or income received by virtue of owning property. The three forms of property income are rent, received from the ownership of natural resources; interest, received by virtue of owning financial assets; and profit, ...
by virtue of ownership titles in capital equipment, financial assets and corporate stock. By contrast, the vast majority of the population is dependent on income in the form of a wage or salary. In order to rectify this situation, socialists argue that the means of production should be
socially owned so that income differentials would be reflective of
individual contributions to the social product.
Marxian economics attributes rising inequality to job automation and
capital deepening
Capital deepening is a situation where the capital per worker is increasing in the economy. This is also referred to as increase in the capital intensity. Capital deepening is often measured by the rate of change in capital stock per labour hou ...
within capitalism. The process of job automation conflicts with the capitalist property form and its attendant system of
wage labor
Wage labour (also wage labor in American English), usually referred to as paid work, paid employment, or paid labour, refers to the socioeconomic relationship between a worker and an employer in which the worker sells their labour power under ...
. In this analysis, capitalist firms increasingly substitute capital equipment for labor inputs (workers) under competitive pressure to reduce costs and maximize profits. Over the long term, this trend increases the
organic composition of capital
The organic composition of capital (OCC) is a concept created by Karl Marx in his theory of capitalism, which was simultaneously his critique of the political economy of his time. It is derived from his more basic concepts of 'value composition o ...
, meaning that less workers are required in proportion to capital inputs, increasing unemployment (the "
reserve army of labour
Reserve army of labour is a concept in Karl Marx's critique of political economy
Political economy is the study of how economic systems (e.g. markets and national economies) and political systems (e.g. law, institutions, government) are l ...
"). This process exerts a downward pressure on wages. The substitution of capital equipment for labor (mechanization and automation) raises the productivity of each worker, resulting in a situation of relatively stagnant wages for the working class amidst rising levels of
property income
Property income refers to profit or income received by virtue of owning property. The three forms of property income are rent, received from the ownership of natural resources; interest, received by virtue of owning financial assets; and profit, ...
for the capitalist class.
Marxist socialists ultimately predict the emergence of a
communist society
In Marxist thought, a communist society or the communist system is the type of society and economic system postulated to emerge from technological advances in the productive forces, representing the ultimate goal of the political ideology of co ...
based on the common ownership of the means of production, where each individual citizen would have free access to the articles of consumption (''
''). According to Marxist philosophy, equality in the sense of free access is essential for freeing individuals from dependent relationships, thereby allowing them to transcend
alienation.
Meritocracy
Meritocracy favors an eventual society where an individual's success is a direct function of his merit, or contribution. Economic inequality would be a natural consequence of the wide range in individual skill, talent and effort in human population.
David Landes
David Saul Landes (April 29, 1924 – August 17, 2013) was a professor of economics and of history at Harvard University. He is the author of ''Bankers and Pashas'', '' Revolution in Time'', '' The Unbound Prometheus'', '' The Wealth and Poverty ...
stated that the progression of Western economic development that led to the
Industrial Revolution
The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, that occurred during the period from around 1760 to about 1820–1840. This transition included going f ...
was facilitated by men advancing through their own merit rather than because of family or political connections.
Liberal perspectives
Most modern
social liberals
Social liberalism (german: Sozialliberalismus, es, socioliberalismo, nl, Sociaalliberalisme), also known as new liberalism in the United Kingdom, modern liberalism, or simply liberalism in the contemporary United States, left-liberalism ...
, including centrist or left-of-center political groups, believe that the capitalist economic system should be fundamentally preserved, but the status quo regarding the income gap must be reformed. Social liberals favor a capitalist system with active
Keynesian
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output an ...
macroeconomic policies and progressive taxation (to even out differences in income inequality). Research indicates that people who hold liberal beliefs tend to see greater income inequality as morally wrong.
However, contemporary
classical liberals
Classical liberalism is a political tradition and a branch of liberalism that advocates free market and laissez-faire economics; civil liberties under the rule of law with especial emphasis on individual autonomy, limited government, econo ...
and
libertarians
Libertarianism (from french: libertaire, "libertarian"; from la, libertas, "freedom") is a political philosophy that upholds liberty as a core value. Libertarians seek to maximize autonomy and political freedom, and minimize the state's enc ...
generally do not take a stance on wealth inequality, but believe in
equality under the law regardless of whether it leads to unequal wealth distribution. In 1966
Ludwig von Mises
Ludwig Heinrich Edler von Mises (; 29 September 1881 – 10 October 1973) was an Austrian School economist, historian, logician, and Sociology, sociologist. Mises wrote and lectured extensively on the societal contributions of classical liberali ...
, a prominent figure in the
Austrian School
The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result exclusively from the motivations and actions of individuals. Austrian schoo ...
of economic thought, explains:
The liberal champions of equality under the law were fully aware of the fact that men are born unequal and that it is precisely their inequality that generates social cooperation and civilization. Equality under the law was in their opinion not designed to correct the inexorable facts of the universe and to make natural inequality disappear. It was, on the contrary, the device to secure for the whole of mankind the maximum of benefits it can derive from it. Henceforth no man-made institutions should prevent a man from attaining that station in which he can best serve his fellow citizens.
Robert Nozick argued that government redistributes wealth by force (usually in the form of taxation), and that the ideal moral society would be one where all individuals are free from force. However, Nozick recognized that some modern economic inequalities were the result of forceful taking of property, and a certain amount of redistribution would be justified to compensate for this force but not because of the inequalities themselves.
John Rawls
John Bordley Rawls (; February 21, 1921 – November 24, 2002) was an American moral, legal and political philosopher in the liberal tradition. Rawls received both the Schock Prize for Logic and Philosophy and the National Humanities Medal in ...
argued in ''
A Theory of Justice
''A Theory of Justice'' is a 1971 work of political philosophy and ethics by the philosopher John Rawls (1921-2002) in which the author attempts to provide a moral theory alternative to utilitarianism and that addresses the problem of distributi ...
''
that inequalities in the distribution of wealth are only justified when they improve society as a whole, including the poorest members. Rawls does not discuss the full implications of his theory of justice. Some see Rawls's argument as a justification for
capitalism
Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, priva ...
since even the poorest members of society theoretically benefit from increased innovations under capitalism; others believe only a strong
welfare state
A welfare state is a form of government in which the state (or a well-established network of social institutions) protects and promotes the economic and social well-being of its citizens, based upon the principles of equal opportunity, equita ...
can satisfy Rawls's theory of justice.
Classical liberal
Milton Friedman
Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
believed that if government action is taken in pursuit of economic equality then political freedom would suffer. In a famous quote, he said:
A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.
Economist
Tyler Cowen
Tyler Cowen (; born January 21, 1962) is an American economist, columnist and blogger. He is a professor at George Mason University, where he holds the Holbert L. Harris chair in the economics department. He hosts the economics blog ''Marginal R ...
has argued that though income inequality has increased within nations, globally it has fallen over the 20 years leading up to 2014. He argues that though income inequality may make individual nations worse off, overall, the world has improved as global inequality has been reduced.
Social justice arguments
Patrick Diamond and Anthony Giddens (professors of Economics and Sociology, respectively) hold that 'pure
meritocracy is incoherent because, without redistribution, one generation's successful individuals would become the next generation's embedded caste, hoarding the wealth they had accumulated'.
They also state that
social justice
Social justice is justice in terms of the distribution of wealth, Equal opportunity, opportunities, and Social privilege, privileges within a society. In Western Civilization, Western and Culture of Asia, Asian cultures, the concept of social ...
requires redistribution of high incomes and large concentrations of wealth in a way that spreads it more widely, in order to "recognize the contribution made by all sections of the community to building the nation's wealth." (Patrick Diamond and
Anthony Giddens, June 27, 2005, New Statesman)
Pope Francis
Pope Francis ( la, Franciscus; it, Francesco; es, link=, Francisco; born Jorge Mario Bergoglio, 17 December 1936) is the head of the Catholic Church. He has been the bishop of Rome and sovereign of the Vatican City State since 13 March 2013. ...
stated in his ''
Evangelii gaudium'', that "as long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation and by attacking the structural causes of inequality, no solution will be found for the world's problems or, for that matter, to any problems." He later declared that "inequality is the root of social evil."
When income inequality is low,
aggregate demand will be relatively high, because more people who want ordinary
consumer good
A final good or consumer good is a final product ready for sale that is used by the consumer to satisfy current wants or needs, unlike a intermediate good, which is used to produce other goods. A microwave oven or a bicycle is a final good, but ...
s and services will be able to afford them, while the
labor force
The workforce or labour force is a concept referring to the pool of human beings either in employment or in unemployment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic reg ...
will not be as relatively
monopolized by the wealthy.
The Economics of Welfare
', Arthur Cecil Pigou
Arthur Cecil Pigou (; 18 November 1877 – 7 March 1959) was an English economist. As a teacher and builder of the School of Economics at the University of Cambridge, he trained and influenced many Cambridge economists who went on to take chair ...
Effects on social welfare
In most western democracies, the desire to eliminate or reduce economic inequality is generally associated with the
political left
Left-wing politics describes the range of political ideologies that support and seek to achieve social equality and egalitarianism, often in opposition to social hierarchy. Left-wing politics typically involve a concern for those in soci ...
. One practical argument in favor of reduction is the idea that economic inequality reduces
social cohesion
Group cohesiveness (also called group cohesion and social cohesion) arises when bonds link members of a social group to one another and to the group as a whole. Although cohesion is a multi-faceted process, it can be broken down into four main co ...
and increases
social unrest
Civil disorder, also known as civil disturbance, civil unrest, or social unrest is a situation arising from a mass act of civil disobedience (such as a demonstration, riot, strike, or unlawful assembly) in which law enforcement has difficulty ...
, thereby weakening the society. There is evidence that this is true (see
inequity aversion
Inequity aversion (IA) is the preference for fairness and resistance to incidental inequalities. The social sciences that study inequity aversion include sociology, economics, psychology, anthropology, and ethology.
Human studies
Inequity aversion ...
) and it is intuitive, at least for small face-to-face groups of people.
Alberto Alesina
Alberto Francesco Alesina (29 April 1957 – 23 May 2020) was an Italian political economist. Described as one of the leading political economists of his generation, he published many influential works in both the economics and political science ...
,
Rafael Di Tella, and Robert MacCulloch find that inequality negatively affects
happiness
Happiness, in the context of mental or emotional states, is positive or pleasant emotions ranging from contentment to intense joy. Other forms include life satisfaction, well-being, subjective well-being, flourishing and eudaimonia.
...
in Europe but not in the United States.
It has also been argued that economic inequality invariably translates to political inequality, which further aggravates the problem. Even in cases where an increase in economic inequality makes nobody economically poorer, an increased inequality of resources is disadvantageous, as increased economic inequality can lead to a power shift due to an increased inequality in the ability to participate in democratic processes.
Capabilities approach
The capabilities approach – sometimes called the human development approach – looks at income inequality and poverty as form of "capability deprivation".
Unlike
neoliberalism
Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
, which "defines well-being as utility maximization", economic growth and income are considered a means to an end rather than the end itself.
Its goal is to "wid
npeople's choices and the level of their achieved well-being"
[ Vi]
Human Deuelopment Reports
/ref> through increasing functioning (the things a person values doing), capabilities (the freedom to enjoy functionings) and agency (the ability to pursue valued goals).
When a person's capabilities are lowered, they are in some way deprived of earning as much income as they would otherwise. An old, ill man cannot earn as much as a healthy young man; gender role
A gender role, also known as a sex role, is a social role encompassing a range of behaviors and attitudes that are generally considered acceptable, appropriate, or desirable for a person based on that person's sex. Gender roles are usually cent ...
s and customs may prevent a woman from receiving an education or working outside the home. There may be an epidemic that causes widespread panic, or there could be rampant violence in the area that prevents people from going to work for fear of their lives. As a result, income inequality increases, and it becomes more difficult to reduce the gap without additional aid.
See also
* Accumulation of capital
Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form of ...
* Anti-capitalism
* Aporophobia
Aporophobia (from the Spanish ''aporofobia'', and this from the Ancient Greek ἄπορος (''áporos''), 'without resources, indigent, poor,' and φόβος (''phobos''), 'hatred' or 'aversion') are negative attitudes and feelings towards pov ...
* Class conflict
* Criticism of capitalism
Criticism of capitalism ranges from expressing disagreement with the principles of capitalism in its entirety to expressing disagreement with particular outcomes of capitalism.
Criticism of capitalism comes from various political and philoso ...
* Cycle of poverty
In economics, a cycle of poverty or poverty trap is caused by self-reinforcing mechanisms that cause poverty, once it exists, to persist unless there is outside intervention. It can persist across generations, and when applied to developing count ...
* Donor Class
A plutocracy () or plutarchy is a society that is ruled or controlled by people of great wealth or income. The first known use of the term in English dates from 1631. Unlike most political systems, plutocracy is not rooted in any established ...
* Economic anxiety
* Economic migrant
An economic migrant is someone who emigrates from one region to another, including crossing international borders, seeking an improved standard of living, because the conditions or job opportunities in the migrant's own region are insufficient. Th ...
* Economic security
Economic security or financial security is the condition of having stable income or other resources to support a standard of living now and in the foreseeable future. It includes:
* probable continued solvency
* predictability of the future cash ...
* Equal opportunity
Equal opportunity is a state of fairness in which individuals are treated similarly, unhampered by artificial barriers, prejudices, or preferences, except when particular distinctions can be explicitly justified. The intent is that the important ...
* Great Divergence
The Great Divergence or European miracle is the socioeconomic shift in which the Western world (i.e. Western Europe and the parts of the New World where its people became the dominant populations) overcame pre-modern growth constraints and eme ...
, disproportionate economic advancement of Europe
* Human Development Index
The Human Development Index (HDI) is a statistic composite index of life expectancy, education (mean years of schooling completed and expected years of schooling upon entering the education system), and per capita income indicators, wh ...
* Income distribution
In economics, income distribution covers how a country's total GDP is distributed amongst its population. Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes ec ...
* ''Inequality for All
''Inequality for All'' is a 2013 documentary film directed by Jacob Kornbluth and narrated by American economist, author and professor Robert Reich. Based on Reich's 2010 book ''Aftershock: The Next Economy and America's Future'', the film exam ...
''
* International inequality
International inequality refers to inequality between countries, as compared to global inequality, which is inequality between people across countries. International inequality research has primarily been concentrated on the rise of internati ...
* List of countries by distribution of wealth
This is a list of countries by distribution of wealth, including Gini coefficients. Wealth distribution can vary greatly from income distribution in a country (see List of countries by income equality).
Higher Gini coefficients signify greater i ...
* List of countries by income equality
A ''list'' is any set of items in a row. List or lists may also refer to:
People
* List (surname)
Organizations
* List College, an undergraduate division of the Jewish Theological Seminary of America
* SC Germania List, German rugby unio ...
* List of countries by wealth per adult
This is a list of countries of the world by wealth per adult or household, from sources such as Credit Suisse's annual ''Global Wealth Databook'' See table 3-1 for all countries, on pages 119-122, for mean and median wealth, Gini coefficient, ...
* Occupy movement
The Occupy movement was an international populist socio-political movement that expressed opposition to social and economic inequality and to the perceived lack of "real democracy" around the world. It aimed primarily to advance social and econo ...
* Paradise Papers
The Paradise Papers are a set of over 13.4 million confidential electronic documents relating to offshore investments that were leaked to the German reporters Frederik Obermaier and Bastian Obermayer, from the newspaper'' Süddeutsch ...
* Poverty reduction
* Public university
* Rent-seeking
* Social inequality
* Spatial inequality
* Tax haven
* Theories of poverty
* Wealth concentration
* Wealth distribution
References
Further reading
;Books
*
* Tony Atkinson, Atkinson, Anthony B. (2015).
Inequality: What Can Be Done?
' Cambridge, Massachusetts: Harvard University Press.
*
*
*
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*
*
*
* Ribeiro, Marcelo Byrro (2020)
''Income Distribution Dynamics of Economic Systems: An Econophysical Approach''
Cambridge University Press
.
*
*
*
*
*
*
*
;Articles
*
*
*
*
*
*
* Cousin, Bruno; Chauvin, Sébastien (2021)
"Is there a global super-bourgeoisie?"
''Sociology Compass'' 15 (6): 1–15.
* Cousin, Bruno; Shamus Khan; Ashley Mears (2018)
"Theoretical and methodological pathways for research on elites"
''Socio-Economic Review'' 16 (2): 225–249.
*
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*
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*
*
*
*
*
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*
Historical
* Alfani, Guido, and Matteo Di Tullio. The Lion's Share: Inequality and the Rise of the Fiscal State in Preindustrial Europe, Cambridge University Press, Cambridge 2019
The Lion's Share: Inequality and the Rise of the Fiscal State in Preindustrial Europe
* Crayen, Dorothee, and Joerg Baten. "New evidence and new methods to measure human capital inequality before and during the industrial revolution: France and the US in the seventeenth to nineteenth centuries." ''Economic History Review'' 63.2 (2010): 452–47
online
*
* Hoffman, Philip T., et al. "Real inequality in Europe since 1500." ''Journal of Economic History'' 62.2 (2002): 322–355
online
* Morrisson, Christian, and Wayne Snyder. "The income inequality of France in historical perspective." ''European Review of Economic History'' 4.1 (2000): 59–83
online
* Lindert, Peter H., and Steven Nafziger. "Russian inequality on the eve of revolution." ''Journal of Economic History'' 74.3 (2014): 767-798
online
*
* Piketty, Thomas, and Emmanuel Saez. "The evolution of top incomes: a historical and international perspective." ''American economic review'' 96.2 (2006): 200–205
online
* Piketty, Thomas, and Emmanuel Saez. "Income inequality in the United States, 1913–1998." ''Quarterly journal of economics'' 118.1 (2003): 1-41
online
* Saito, Osamu. "Growth and inequality in the great and little divergence debate: a Japanese perspective." ''Economic History Review'' 68.2 (2015): 399–419. Covers 1600–1868 with comparison to Stuart England and Mughal India.
*
* Stewart, Frances. "Changing perspectives on inequality and development." ''Studies in Comparative International Development'' 51.1 (2016): 60–80. covers 1801 to 2016.
* Sutch, Richard. "The One Percent across Two Centuries: A Replication of Thomas Piketty's Data on the Concentration of Wealth in the United States." ''Social Science History'' 41.4 (2017): 587–613. Strongly rejects all Piketty's estimates for US inequality before 1910 for both top 1% and top 10%
online
* Van Zanden, Jan Luiten. "Tracing the beginning of the Kuznets curve: Western Europe during the early modern period." ''Economic History Review'' 48.4 (1995): 643–664. covers 1400 to 1800.
* Wei, Yehua Dennis. "Geography of inequality in Asia." ''Geographical Review'' 107.2 (2017): 263–275. covers 1981 to 2015.
External links
*
{{DEFAULTSORT:Economic Inequality
Economic inequality,
Distribution of wealth
Economic globalization
Libertarian theory
Occupy Wall Street
Social inequality
Population concepts