Economic inequality

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Differences in national income equality around the world as measured by the national Gini coefficient as of 2018. The Gini coefficient is a number between 0 and 100, where 0 corresponds with perfect equality (where everyone has the same income) and 100 corresponds with absolute inequality (where one person has all the income, and everyone else has zero income). GINI index World Bank up to 2018.png
Differences in national income equality around the world as measured by the national Gini coefficient as of 2018. The Gini coefficient is a number between 0 and 100, where 0 corresponds with perfect equality (where everyone has the same income) and 100 corresponds with absolute inequality (where one person has all the income, and everyone else has zero income).
Wealth disparity in major cities
Tenting in Los Angeles Skid Row.jpg
Tents of the homeless on the sidewalk in Skid Row, Los Angeles
The Manor, Holmby Hills, Los Angeles, in 2008.jpg
An affluent house in Holmby Hills, Los Angeles, only miles from downtown (above)

There are a wide variety of types of economic inequality, most notably measured using the distribution of income (the amount of money people are paid) and the distribution of wealth (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. [2]


Important types of economic measurements focus on wealth, income, and consumption. There are many methods for measuring economic inequality, with 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. [3] Important concepts of equality include equity, equality of outcome, and equality of opportunity.

Research suggests that greater inequality hinders economic growth, with land and human capital inequality reducing growth more than inequality of income. [4] Whereas globalization has reduced global inequality (between nations), it has increased inequality within nations. [5]


Share of income of the top 1% for selected developed countries, 1975 to 2015 Income inequality - share of income earned by top 1%25 1975 to 2015.png
Share of income of the top 1% for selected developed countries, 1975 to 2015

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. [6] A 2011 study titled "Divided we Stand: Why Inequality Keeps Rising" by the Organisation for Economic Co-operation and Development (OECD) sought to explain the causes for this rising inequality by investigating economic inequality in OECD countries; it concluded that following factors had a role: [7]

The study made the following conclusions about the level of economic inequality:

A 2011 OECD study investigated economic inequality in Argentina, Brazil, China, India, Indonesia, Russia and South Africa. It concluded that key sources of inequality in these countries include "a large, persistent informal sector, widespread regional divides (e.g. urban-rural), gaps in access to education, and barriers to employment and career progression for women." [8]

Countries by total wealth (trillions USD), Credit Suisse Countries by total wealth (trillions USD), Credit Suisse.png
Countries by total wealth (trillions USD), Credit Suisse
World map of countries by the inequality-adjusted Human Development Index. 2018 Inequality-Adjusted Human Development INdex.svg
World map of countries by the inequality-adjusted Human Development Index.

A study by the World Institute for Development Economics Research at United Nations University reports 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. [9] The combined wealth of the "10 million dollar millionaires" grew to nearly $41 trillion in 2008. [10] A January 2014 report by Oxfam claims that the 85 wealthiest individuals in the world have a combined wealth equal to that of the bottom 50% of the world's population, or about 3.5 billion people. [11] [12] [13] [14] [15] According to a Los Angeles Times analysis of the report, the wealthiest 1% owns 46% of the world's wealth; the 85 richest people, a small part of the wealthiest 1%, own about 0.7% of the human population's wealth, which is the same as the bottom half of the population. [16] In January 2015, Oxfam reported that the wealthiest 1 percent will own more than half of the global wealth by 2016. [17] [18] An October 2014 study by Credit Suisse also claims that the top 1% now own nearly half of the world's wealth and that the accelerating disparity could trigger a recession. [19]

In October 2015, Credit Suisse published a study which shows global inequality continues to increase, and that half of the world's wealth is now in the hands of those in the top percentile, whose assets each exceed $759,900. [20] A 2016 report by Oxfam claims that the 62 wealthiest individuals own as much wealth as the poorer half of the global population combined. [21] Oxfam's claims have however been questioned on the basis of the methodology used: by using net wealth (adding up assets and subtracting debts), the Oxfam report, for instance, finds that there are more poor people in the United States and Western Europe than in China (due to a greater tendency to take on debts). [22] [23] [24] Anthony Shorrocks, the lead author of the Credit Suisse report which is one of the sources of Oxfam's data, considers the criticism about debt to be a "silly argument" and "a non-issue … a diversion." [23] Oxfam's 2017 report says the top eight billionaires have as much wealth as the bottom half of the global population, and that rising inequality is suppressing wages, as businesses are focused on delivering higher returns to wealthy owners and executives. [25] In 2018, the Oxfam report said that the wealth gap continued to widen in 2017, with 82% of global wealth generated going to the wealthiest 1%. [26] The 2019 Oxfam report said that the poorest half of the human population has been losing wealth (around 11%) at the same time that a billionaire is minted every two days. [27] The 2020 report, while noting that 2,153 billionaires owned as much wealth as the bottom 4.6 billion people in 2019, highlighted the widening gap between genders largely as the result of unpaid care work performed by women, and stated that "our economic system was built by rich and powerful men, who continue to make the rules and reap the lion’s share of the benefit. Worldwide men own 50% more wealth than women." [28]

Wealth inequality in the United States increased from 1989 to 2013. US Wealth Inequality - v2.png
Wealth inequality in the United States increased from 1989 to 2013.

According to PolitiFact, the top 400 richest Americans "have more wealth than half of all Americans combined." [30] [31] [32] [33] According to The New York Times on July 22, 2014, the "richest 1 percent in the United States now own more wealth than the bottom 90 percent". [15] Inherited wealth may help explain why many Americans who have become rich may have had a "substantial head start". [34] [35] In September 2012, according to the Institute for Policy Studies (IPS), "over 60 percent" of the Forbes richest 400 Americans "grew up in substantial privilege". [36] A 2017 report by the IPS said that three individuals, Jeff Bezos, Bill Gates and Warren Buffett, 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 a century ago." [37] [38] In 2016, the world's billionaires increased their combined global wealth to a record $6 trillion. [39] In 2017, they increased their collective wealth to 8.9 trillion. [40] In 2018, U.S. income inequality reached the highest level ever recorded by the Census Bureau. [41]

The existing data and estimates suggest a large increase in international (and more generally inter-macroregional) component between 1820 and 1960. It might have slightly decreased since that time at the expense of increasing inequality within countries. [42] The United Nations Development Programme in 2014 asserted that greater investments in social security, jobs and laws that protect vulnerable populations are necessary to prevent widening income inequality. [43]

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 and Dan Ariely of the Department of Psychology at Duke University found this to be true in their research, done in 2011. The actual wealth going to the top quintile in 2011 was around 84% where as the average amount of wealth that the general public estimated to go to the top quintile was around 58%. [44]

Two researchers claim that global income inequality is decreasing, due to strong economic growth in developing countries. [45] However, 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. [46] According to a June 2015 report by the International Monetary Fund:

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. [47]

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. The Fund's Fiscal Monitor report said that "progressive taxation and transfers are key components of efficient fiscal redistribution." [48] In October 2018 Oxfam published a Reducing Inequality Index which measured social spending, tax and workers' rights to show which countries were best at closing the gap between rich and poor. [49]

Wealth distribution within individual countries

The following table shows information about individual wealth distribution in different countries, from a 2018 report by Crédit Suisse. [50]

Median and mean wealth per adult, in US dollars. Countries and subnational areas.
Initially in rank order by median wealth.
Country or
subnational area
Median wealth
per adult.
US dollars
Mean wealth
per adult.
US dollars
Ratio (%)
of median
to mean
Flag of Iceland.svg  Iceland 203,847555,72636.68248
Flag of Australia (converted).svg  Australia 191,453411,06046.5818,433
Flag of Switzerland.svg   Switzerland 183,339530,24434.586,811
Flag of Luxembourg.svg  Luxembourg 164,284412,12739.86456
Flag of Belgium (civil).svg  Belgium 163,429313,04552.218,869
Flag of the Netherlands.svg  Netherlands 114,935253,20545.3913,260
Flag of France.svg  France 106,827280,58038.0749,478
Flag of Canada (Pantone).svg  Canada 106,342288,26336.8928,858
Flag of Japan.svg  Japan 103,861227,23545.71105,108
Flag of New Zealand.svg  New Zealand 98,613289,79834.033,486
Flag of the United Kingdom.svg  United Kingdom 97,169279,04834.8250,919
Flag of Singapore.svg  Singapore 91,656283,11832.374,552
Flag of Spain.svg  Spain 87,188191,17745.6137,410
Flag of Norway.svg  Norway 80,054291,10327.504,057
Flag of Italy.svg  Italy 79,239217,78736.3848,527
Flag of the Republic of China.svg  Taiwan 78,177212,37536.8119,139
Flag of Malta.svg  Malta 76,116140,62954.13347
Flag of Ireland.svg  Ireland 72,473232,95231.113,460
Flag of Austria.svg  Austria 70,074231,36830.297,075
Flag of South Korea.svg  South Korea 65,463171,73938.1241,381
Flag of the United States.svg  United States 61,667403,97415.27242,972
Flag of Denmark.svg  Denmark 60,999286,71221.284,450
Flag of Qatar.svg  Qatar 59,978121,63849.312,177
Flag of Hong Kong.svg  Hong Kong 58,905244,67224.086,224
Flag of Israel.svg  Israel 54,966174,12931.575,405
Flag of Finland.svg  Finland 45,606161,06228.324,327
Flag of Greece.svg  Greece 40,789108,12737.729,019
Flag of Sweden.svg  Sweden 39,709249,76515.907,689
Flag of Germany.svg  Germany 35,169214,89316.3767,470
Flag of Slovenia.svg  Slovenia 34,04379,09743.041,676
Flag of Portugal.svg  Portugal 31,313109,36228.638,377
Flag of Libya.svg  Libya 26,93961,70143.664,085
Flag of Kuwait.svg  Kuwait 26,27891,37428.763,045
Flag of the United Arab Emirates.svg  United Arab Emirates 25,26788,17328.667,752
Flag of Chile.svg  Chile 23,81262,22238.2713,166
Flag of the Seychelles.svg  Seychelles 21,34948,65243.8868
Flag of Slovakia.svg  Slovakia 21,20334,78160.964,339
Flag of Estonia.svg  Estonia 18,89557,80632.691,034
Flag of Croatia.svg  Croatia 17,13135,95147.653,342
Flag of the Czech Republic.svg  Czech Republic 17,01861,48927.688,529
Flag of Mauritius.svg  Mauritius 16,47235,66846.18943
Flag of the People's Republic of China.svg  China 16,33347,81034.161,085,003
Flag of Hungary.svg  Hungary 15,02637,59439.977,826
Flag of Aruba.svg  Aruba 14,90145,61232.6779
Flag of Oman.svg  Oman 14,30441,80434.223,450
Flag of Brunei.svg  Brunei 14,15442,92532.97298
Flag of Bahrain.svg  Bahrain 13,38538,88234.421,153
Flag of Saudi Arabia.svg  Saudi Arabia 12,84743,17429.7622,629
Flag of Uruguay.svg  Uruguay 12,55639,19432.042,484
Flag of Montenegro.svg  Montenegro 12,06024,74648.74475
Flag of the Bahamas.svg  Bahamas 11,38547,82223.81288
Flag of Lithuania.svg  Lithuania 11,16124,60045.372,306
Flag of Bulgaria.svg  Bulgaria 11,01323,98445.925,752
Flag of Poland.svg  Poland 10,57231,79433.2530,626
Flag of Cyprus.svg  Cyprus 10,384100,30810.35909
Flag of Costa Rica.svg  Costa Rica 9,81331,71730.943,490
Flag of Barbados.svg  Barbados 8,52228,76229.63213
Flag of Panama.svg  Panama 8,35828,89728.922,655
Flag of Albania.svg  Albania 8,15716,95748.102,201
Flag of Latvia.svg  Latvia 7,54033,95822.201,557
Flag of Georgia.svg  Georgia 7,07816,72542.322,940
Flag of Malaysia.svg  Malaysia 7,00027,97025.0321,372
Flag of Gabon.svg  Gabon 6,97316,34242.671,124
Flag of Tonga.svg  Tonga 6,79615,25544.5558
Flag of Bosnia and Herzegovina.svg  Bosnia and Herzegovina 6,76214,11047.922,805
Flag of South Africa.svg  South Africa 6,72622,19130.3135,434
Flag of Romania.svg  Romania 6,65820,32132.7615,582
Flag of Samoa.svg  Samoa 6,51618,15435.89105
Flag of Iraq.svg  Iraq 6,51514,19245.9119,160
Flag of Tunisia.svg  Tunisia 6,22614,93241.708,014
Flag of Peru.svg  Peru 6,03622,50826.8220,766
Flag of Mexico.svg  Mexico 5,78420,62028.0583,850
Flag of Jordan.svg  Jordan 5,74513,32843.105,371
Flag of North Macedonia.svg  North Macedonia 5,64012,55144.941,612
Flag of Dominica.svg  Dominica 5,54823,93723.1854
Flag of Trinidad and Tobago.svg  Trinidad and Tobago 5,07615,71932.291,002
Flag of Colombia.svg  Colombia 4,93718,23927.0733,751
Flag of Serbia.svg  Serbia 4,90310,74345.646,809
Flag of Turkmenistan.svg  Turkmenistan 4,82410,44646.183,548
Flag of Antigua and Barbuda.svg  Antigua and Barbuda 4,71219,49724.1770
Flag of El Salvador.svg  El Salvador 4,61615,21930.334,024
Flag of Mongolia.svg  Mongolia 4,61610,29544.841,960
Flag of Brazil.svg  Brazil 24,26331,72432.58145,836
Flag of Namibia.svg  Namibia 3,94411,70433.701,356
Flag of Lebanon.svg  Lebanon 3,93233,72611.664,162
Flag of the Solomon Islands.svg  Solomon Islands 3,8359,03542.45312
Flag of Grenada.svg  Grenada 3,70416,08123.0371
Flag of Botswana.svg  Botswana 3,65210,79333.841,375
Flag of Saint Lucia.svg  Saint Lucia 3,52511,14631.63131
Flag of Azerbaijan.svg  Azerbaijan 3,4107,53045.296,915
Flag of Armenia.svg  Armenia 3,3917,58344.722,175
Flag of Fiji.svg  Fiji 3,2548,03140.52574
Flag of Ecuador.svg  Ecuador 3,21111,06829.0110,507
Flag of Argentina.svg  Argentina 3,17611,53027.5529,953
Flag of Algeria.svg  Algeria 3,1759,07734.9826,565
Flag of Angola.svg  Angola 3,1757,92140.0812,934
Flag of Equatorial Guinea.svg  Equatorial Guinea 3,0579,39832.53695
Flag of Honduras (2008 Olympics).svg  Honduras 2,88710,67527.045,417
Flag of Russia.svg  Russia 2,73919,99713.70112,039
Flag of Maldives.svg  Maldives 2,7026,80839.69308
Flag of Turkey.svg  Turkey 2,67718,55514.4354,411
Flag of Paraguay.svg  Paraguay 2,5899,07528.534,181
Flag of Saint Vincent and the Grenadines.svg  Saint Vincent and the Grenadines 2,54710,88223.4175
Flag of Jamaica.svg  Jamaica 2,5078,92428.091,983
Flag of Morocco.svg  Morocco 2,4269,30526.0723,218
Flag of Sri Lanka.svg  Sri Lanka 2,4155,75841.9414,311
Flag of Vanuatu.svg  Vanuatu 2,3465,35543.81152
Flag of Belize.svg  Belize 2,2988,96125.64221
Flag of Djibouti.svg  Djibouti 2,1235,38939.40569
Flag of Papua New Guinea.svg  Papua New Guinea 2,1176,25433.854,488
Flag of Bolivia.svg  Bolivia 2,1117,30628.896,530
Flag of the Philippines.svg  Philippines 1,9158,34922.9462,043
Flag of Iran.svg  Iran 1,8994,77939.7457,018
Flag of Vietnam.svg  Vietnam 1,8064,56039.6167,300
Flag of Kyrgyzstan.svg  Kyrgyzstan 1,7974,20042.793,668
Flag of Pakistan.svg  Pakistan 1,7113,81644.84110,625
Flag of Indonesia.svg  Indonesia 1,5978,91917.91170,221
Flag of Laos.svg  Laos 1,5675,21530.053,946
Flag of Eritrea.svg  Eritrea 1,4993,41243.932,462
Flag of Guyana.svg  Guyana 1,4544,62031.47475
Flag of Eswatini.svg  Eswatini 1,3884,21932.90719
Flag of Cambodia.svg  Cambodia 1,3653,40440.109,598
Flag of Zimbabwe.svg  Zimbabwe 1,3173,21640.958,103
Flag of Sao Tome and Principe.svg  São Tomé and Príncipe 1,3112,98743.8996
Flag of East Timor.svg  East Timor 1,3032,51351.85584
Flag of India.svg  India 1,2897,02418.35850,210
Flag of Senegal.svg  Senegal 1,2703,07741.277,525
Flag of Benin.svg  Benin 1,2372,97241.625,300
Flag of the Republic of the Congo.svg  Republic of the Congo 1,2193,36136.272,546
Flag of Suriname.svg  Suriname 1,1475,19822.07368
Flag of Cote d'Ivoire.svg  Ivory Coast 1,1192,95837.8311,501
Flag of Thailand.svg  Thailand 1,0859,96910.8852,639
Flag of Nicaragua.svg  Nicaragua 1,0543,72128.333,858
Flag of Bangladesh.svg  Bangladesh 1,0062,33243.14102,793
Flag of the Comoros.svg  Comoros 9712,72935.58412
Flag of Togo.svg  Togo 9172,32439.463,800
Flag of Cameroon.svg  Cameroon 8972,28239.3111,413
Flag of Kenya.svg  Kenya 8802,30638.1624,546
Flag of Lesotho.svg  Lesotho 8572,64032.461,208
Flag of Nepal.svg    Nepal 8342,05440.6017,150
Flag of Mauritania.svg  Mauritania 7641,75643.512,239
Flag of Belarus.svg  Belarus 7401,51448.887,427
Flag of Myanmar.svg  Myanmar 7391,51548.7834,334
Flag of Haiti.svg  Haiti 6192,47225.046,300
Flag of Tajikistan.svg  Tajikistan 6181,36445.314,995
Flag of Yemen.svg  Yemen 5941,96730.2014,122
Flag of Burkina Faso.svg  Burkina Faso 5691,31743.208,571
Flag of Syria.svg  Syria 5001,19042.029,477
Flag of Mali.svg  Mali 4681,09442.787,834
Flag of Liberia.svg  Liberia 4101,01540.392,279
Flag of Ghana.svg  Ghana 39893442.6114,972
Flag of Zambia.svg  Zambia 3901,19732.587,641
Flag of Tanzania.svg  Tanzania 38386544.2825,944
Flag of Niger.svg  Niger 37986343.928,579
Flag of Egypt.svg  Egypt 3463,7179.3157,160
Flag of the Central African Republic.svg  Central African Republic 33296034.582,132
Flag of The Gambia.svg  Gambia 32788936.78936
Flag of Guinea.svg  Guinea 32381639.586,077
Flag of Guinea-Bissau.svg  Guinea-Bissau 29670142.23909
Flag of Chad.svg  Chad 29473540.006,319
Flag of Afghanistan.svg  Afghanistan 29064345.1016,245
Flag of Uganda.svg  Uganda 28771040.4217,941
Flag of Rwanda.svg  Rwanda 25466038.486,123
Flag of Sudan.svg  Sudan 23153043.5819,846
Flag of Nigeria.svg  Nigeria 2081,57213.2388,264
Flag of Mozambique.svg  Mozambique 20148241.7013,360
Flag of Madagascar.svg  Madagascar 17943241.4412,471
Flag of Sierra Leone.svg  Sierra Leone 15335543.103,596
Flag of Kazakhstan.svg  Kazakhstan 1525,1222.9712,086
Flag of Burundi.svg  Burundi 14232144.244,972
Flag of the Democratic Republic of the Congo.svg  DR Congo 12333137.1635,869
Flag of Ethiopia.svg  Ethiopia 7816746.7151,036
Flag of Malawi.svg  Malawi 5414138.308,493
Flag of Ukraine.svg  Ukraine 4303,96410.8535,267

Income distribution within individual countries

Countries' income inequality according to their most recent reported Gini index values as of 2018. GINI index World Bank up to 2018.png
Countries' income inequality according to their most recent reported Gini index values as of 2018.

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, Slovenia, Sweden and Ukraine can be found in this category. [52]

Various proposed causes of economic inequality

There are various reasons for economic inequality within societies. Recent growth in overall income inequality, at least within the OECD countries, has been driven mostly by increasing inequality in wages and salaries. [7]

Economist Thomas Piketty argues that widening economic disparity is an inevitable phenomenon of free market capitalism when the rate of return of capital (r) is greater than the rate of growth of the economy (g). [53]

Labour market

A major cause of economic inequality within modern market economies is the determination of wages by the market. Where competition is imperfect; information unevenly distributed; opportunities to acquire education and skills unequal; market failure results. Since many such imperfect conditions exist in virtually every market, there is in fact little presumption that markets are in general efficient. This means that there is an enormous potential role for government to correct such market failures. [54]

Malthusian Argument

See Thomas Malthus


Another cause is the rate at which income is taxed coupled with the progressivity of the tax system. A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. [55] [56] [57] [58] [59] 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. [60] Tax credits such as the Earned Income Tax Credit in the US can also decrease income inequality. [61] 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. [62]


Illustration from a 1916 advertisement for a vocational school in the back of a US magazine. Education has been seen as a key to higher income, and this advertisement appealed to Americans' belief in the possibility of self-betterment, as well as threatening the consequences of downward mobility in the great income inequality existing during the Industrial Revolution. Going up or down advertisement.jpg
Illustration from a 1916 advertisement for a vocational school in the back of a US magazine. Education has been seen as a key to higher income, and this advertisement appealed to Americans' belief in the possibility of self-betterment, as well as threatening the consequences of downward mobility in the great income inequality existing during the Industrial Revolution.

An important factor in the creation of inequality is variation in individuals' access to education. [63] Education, especially in an area where there is a high demand for workers, creates high wages for those with this education. [64] 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, education raises incomes and promotes growth because it helps to unleash the productive potential of the poor.

Economic liberalism, deregulation and decline of unions

John Schmitt and Ben Zipperer (2006) of the CEPR point to economic liberalism and the reduction of business regulation 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 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." [65]

More recently, the International Monetary Fund 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. [66] [67]

Information technology

The growth in importance of information technology has been credited with increasing income inequality. [68] Technology has been called "the main driver of the recent increases in inequality" by Erik Brynjolfsson, of MIT. [69] 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). [70]


"Elephant curve": Change in real income between 1988 and 2008 at various income percentiles of global income distribution. Global changes in real income by income percentile - v1.png
"Elephant curve": Change in real income between 1988 and 2008 at various income percentiles of global income distribution.

Trade liberalization may shift economic inequality from a global to a domestic scale. [72] 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. He attributes this trend to increased trade with poor countries and the fragmentation of the means of production, resulting in low skilled jobs becoming more tradeable.

LSE anthropologist Jason Hickel contends that globalization and "structural adjustment" set off the "race to the bottom", a significant driver of surging global inequality. Another driver Hickel mentions is the debt system which advanced the need for structural adjustment in the first place. [73]


The gender gap in median earnings of full-time employees according to the OECD 2015 OECD gender wage gap.svg
The gender gap in median earnings of full-time employees according to the OECD 2015

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. [75] [76] Thomas Sowell, 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. [77] The income gap in other countries ranges from 53% in Botswana to -40% in Bahrain. [78]

Economic development

A Kuznets curve Kuznets curve.png
A Kuznets curve

Economist Simon Kuznets argued that levels of economic inequality are in large part the result of stages of development. 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 programs, more developed countries move back to lower levels of inequality.

Wealth concentration

As of 2019, Jeff Bezos is the richest person in the world. Jeff Bezos' iconic laugh.jpg
As of 2019, Jeff Bezos is the richest person in the world.

Wealth concentration is the process by which, under certain conditions, newly created wealth concentrates in the possession of already-wealthy individuals or entities. Accordingly, those who already hold wealth have the means to invest 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 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. [79]

Rent seeking

Economist Joseph Stiglitz 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". 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. [80] 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" [81]

Finance industry

Jamie Galbraith argues that countries with larger financial sectors have greater inequality, and the link is not an accident. [82] [83] [ why? ]

Global warming

A 2019 study published in PNAS found that global warming 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. [84]

Mitigating factors

Countries with a left-leaning legislature generally have lower levels of inequality. [85] [86] 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 initiatives to reduce economic inequality include:

Market forces outside of government intervention that can reduce economic inequality include:

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. [92] Historian Walter Scheidel posits that, since the stone age, only extreme violence, catastrophes and upheaval in the form of total war, Communist revolution, pestilence and state collapse have significantly reduced inequality. [93] [94] 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." [95] [96]


A lot of research has been done about the effects of economic inequality on different aspects in society:


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 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. Already very young children seem to prefer fairness over equality. [110]

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. [110]

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. [110] Researches demonstrate that people usually underestimate the level of actual inequality, which is also much higher than their desired level of inequality. [111]

In many societies, such as the USSR, the distribution led to protests from wealthier landowners. [112] 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. [110]

Socialist perspectives

Socialists attribute the vast disparities in wealth to the private ownership of the means of production by a class of owners, creating a situation where a small portion of the population lives off unearned property income 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. [113]

Marxist socialists ultimately predict the emergence of a communist society based on the common ownership of the means of production, where each individual citizen would have free access to the articles of consumption ( From each according to his ability, to each according to his need ). 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. [114]


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 stated that the progression of Western economic development that led to the Industrial Revolution was facilitated by men advancing through their own merit rather than because of family or political connections. [115]

Liberal perspectives

Most modern social liberals, 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 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. [116]

However, contemporary classical liberals and libertarians 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, a prominent figure in the Austrian School 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 argued in A Theory of Justice [117] 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 since even the poorest members of society theoretically benefit from increased innovations under capitalism; others believe only a strong welfare state can satisfy Rawls's theory of justice.

Classical liberal Milton Friedman 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 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. [118]

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 requires redistribution of high incomes and large concentrations of wealth in a way that spreads it more widely, in order to "recognise 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) [119]

Pope Francis 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." [120] He later declared that "inequality is the root of social evil." [121]

When income inequality is low, aggregate demand will be relatively high, because more people who want ordinary consumer goods and services will be able to afford them, while the labor force will not be as relatively monopolized by the wealthy. [122]

Effects on social welfare

In most western democracies, the desire to eliminate or reduce economic inequality is generally associated with the political left. One practical argument in favor of reduction is the idea that economic inequality reduces social cohesion and increases social unrest, thereby weakening the society. There is evidence that this is true (see inequity aversion) and it is intuitive, at least for small face-to-face groups of people.[ citation needed ] Alberto Alesina, Rafael Di Tella, and Robert MacCulloch find that inequality negatively affects happiness in Europe but not in the United States. [123]

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. [124]

Capabilities approach

The capabilities approach – sometimes called the human development approach – looks at income inequality and poverty as form of "capability deprivation". [125] Unlike neoliberalism, which "defines well-being as utility maximization", economic growth and income are considered a means to an end rather than the end itself. [126] Its goal is to "wid[en] people's choices and the level of their achieved well-being" [127] through increasing functionings (the things a person values doing), capabilities (the freedom to enjoy functionings) and agency (the ability to pursue valued goals). [128]

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 roles 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. [125] As a result, income inequality increases, and it becomes more difficult to reduce the gap without additional aid. To prevent such inequality, this approach believes it is important to have political freedom, economic facilities, social opportunities, transparency guarantees, and protective security to ensure that people aren't denied their functionings, capabilities, and agency and can thus work towards a better relevant income.

Policy responses intended to mitigate

No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.

President Franklin Delano Roosevelt, 1933 [129]

A 2011 OECD study makes a number of suggestions to its member countries, including: [8]

Progressive taxation reduces absolute income inequality when the higher rates on higher-income individuals are paid and not evaded, and transfer payments and social safety nets result in progressive government spending. [130] [131] [132] Wage ratio legislation has also been proposed as a means of reducing income inequality. The OECD asserts that public spending is vital in reducing the ever-expanding wealth gap. [133]

The economists Emmanuel Saez and Thomas Piketty recommend much higher top marginal tax rates on the wealthy, up to 50 percent, 70 percent or even 90 percent. [134] Ralph Nader, Jeffrey Sachs, the United Front Against Austerity, among others, call for a financial transactions tax (also known as the Robin Hood tax) to bolster the social safety net and the public sector. [135] [136] [137]

The Economist 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." [138]

General limitations on and taxation of rent-seeking are popular across the political spectrum. [139]

Public policy responses addressing causes and effects of income inequality in the US include: progressive tax incidence adjustments, strengthening social safety net provisions such as Aid to Families with Dependent Children, welfare, the food stamp program, Social Security, Medicare, and Medicaid, organizing community interest groups, increasing and reforming higher education subsidies, increasing infrastructure spending, and placing limits on and taxing rent-seeking. [140]

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. [141] 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." [141] 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's Global Competitiveness Index, with Sweden ranking as the most innovative nation, followed by Finland, for 2012–2013; the U.S. ranked sixth. [142]

See also

Related Research Articles

Gini coefficient Measure of inequality in the income or wealth distribution

In economics, the Gini coefficient, sometimes called the Gini index or Gini ratio, is a measure of statistical dispersion intended to represent the income inequality or wealth inequality within a nation or any other group of people. It was developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper Variability and Mutability.

A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate. The term can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is a regressive tax. An example of a regressive tax would be a sales tax, with a sales tax a larger proportion of income is taxed to the poor than the rich.

In economics, income distribution is how a nation's total GDP is distributed amongst its population. Income and its distribution have always been a central concern of economic theory and economic policy. Classical economists such as Adam Smith, Thomas Malthus, and David Ricardo were mainly concerned with factor income distribution, that is, the distribution of income between the main factors of production, land, labour and capital. Modern economists have also addressed this issue, but have been more concerned with the distribution of income across individuals and households. Important theoretical and policy concerns include the balance between income inequality and economic growth, and their often inverse relationship.

Income inequality metrics or income distribution metrics are used by social scientists to measure the distribution of income and economic inequality among the participants in a particular economy, such as that of a specific country or of the world in general. While different theories may try to explain how income inequality comes about, income inequality metrics simply provide a system of measurement used to determine the dispersion of incomes. The concept of inequality is distinct from poverty and fairness.

Distribution of wealth Spread of wealth in a society

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.

International inequality Inequality between nations wealth

International inequality refers to the idea of inequality between countries. This can be compared to global inequality which is inequality between people across countries. This may refer to economic differences between countries. As well as medical care and education differences.

Income inequality in the United States National income inequality

Income inequality in the United States is the extent to which income is distributed in an uneven manner among the American population. It has fluctuated considerably since measurements began around 1915, moving in an arc between peaks in the 1920s and 2000s, with a 30-year period of relatively lower inequality between 1950–1980.

Social inequality Uneven distribution of resources in a society

Social inequality occurs when resources in a given society are distributed unevenly, typically through norms of allocation, that engender specific patterns along lines of socially defined categories of persons. It is the differentiation preference of access of social goods in the society brought about by power, religion, kinship, prestige, race, ethnicity, gender, age, sexual orientation, and class. Social inequality usually implies to the lack of equality of outcome, but may alternatively be conceptualized in terms of the lack of equality of access to opportunity. The social rights include labor market, the source of income, health care, and freedom of speech, education, political representation, and participation. Social inequality linked to economic inequality, usually described on the basis of the unequal distribution of income or wealth, is a frequently studied type of social inequality. Although the disciplines of economics and sociology generally use different theoretical approaches to examine and explain economic inequality, both fields are actively involved in researching this inequality. However, social and natural resources other than purely economic resources are also unevenly distributed in most societies and may contribute to social status. Norms of allocation can also affect the distribution of rights and privileges, social power, access to public goods such as education or the judicial system, adequate housing, transportation, credit and financial services such as banking and other social goods and services.

Wealth inequality in the United States Unequal distribution of assets in the United States

Wealth inequality in the United States, also known as the wealth gap, is the unequal distribution of assets among residents of the United States. Wealth includes the values of homes, automobiles, personal valuables, businesses, savings, and investments. The net worth of U.S. households and non-profit organizations was $107 trillion in the third quarter of 2019, a record level both in nominal terms and purchasing power parity. As of Q3 2019, the bottom 50% of households had $1.67 trillion or 1.6% of the net worth, versus $74.5 trillion or 70% for the top 10%. From an international perspective, the difference in US median and mean wealth per adult is over 600%.

Redistribution of income and wealth transfer of income and of wealth from some individuals to others

Redistribution of income and wealth is the transfer of income and wealth from some individuals to others by means of a social mechanism such as taxation, charity, welfare, public services, land reform, monetary policies, confiscation, divorce or tort law. The term typically refers to redistribution on an economy-wide basis rather than between selected individuals.

Income inequality in India overview about the income inequality in India

Income inequality in India refers to the unequal distribution of wealth and income among its citizens. According to the CIA World Factbook, the Gini index of India, which is a measure of income distribution inequality, was 35.2 in 2011, ranking 95th out of 157. Wealth distribution is also uneven, with one report estimating that 54 percent of the country's wealth is controlled by millionaires, the second highest after Russia as of November 2016. The richest 1% of Indians own 58.4% of wealth. The richest 10 % of Indians own 80.7 % of the wealth. This trend is going in the upward direction every year, which means the rich are getting richer at a much faster rate than the poor. Inequality worsened since the establishment of income tax in 1922, overtaking the British Raj's record of the share of the top 1% in national income, which was 20.7% in 1939–40.

Tax policy and economic inequality in the United States discusses how tax policy affects the distribution of income and wealth in the United States. Income inequality can be measured before- and after-tax; this article focuses on the after-tax aspects. Income tax rates applied to various income levels and tax expenditures primarily drive how market results are redistributed to impact the after-tax inequality. After-tax inequality has risen in the United States markedly since 1980, following a more egalitarian period following World War II.

Poverty in New Zealand overview about poverty in New Zealand

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Effects of economic inequality

Effects of income inequality, researchers have found, include higher rates of health and social problems, and lower rates of social goods, a lower population-wide satisfaction and happiness and even a lower level of economic growth when human capital is neglected for high-end consumption. For the top 21 industrialised countries, counting each person equally, life expectancy is lower in more unequal countries. A similar relationship exists among US states.

Denmark has been noted as having one of the lowest income inequality ratings in the world and has been known to maintain relative stability in this metric throughout decades past. The OECD data of 2016 gives Denmark a Gini coefficient of 0.249, below the OECD average of 0.315. The OECD in 2013 ranked Denmark with having a 0.254 Gini coefficient, ranking third behind Iceland and Norway respectively as the countries with the lowest income inequality qualifications. The Gini coefficients are measured using a 0–1 calibration where 0 equals complete equality and 1 equals complete inequality. "Wage-distributive outcomes" and their effect on income equality have been noted since the 1970s and 80s. Denmark, along with other Nordic countries, such as Finland and Sweden, has long held a stable low wage inequality index as well.

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, also referred to as, is an open source database, that is part of an international collaborative effort of over a hundred researchers in five continents. The World Inequality Report includes discussions on potential future academic research as well as content useful for public debates and policy related to economic inequality. The first report, entitled World Inequality Report 2018, which was released on December 14, 2017 at the Paris School of Economics during the first Conference, was compiled by Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman based on WID data. The 300-page report cautions that since 1980, around the globe, there has been an increase in the gap between rich and poor. In Europe, the increase in inequality increased more moderately while in North America and Asia, the increase was rapid. In the Middle East, Africa, and Brazil, income inequality did not increase but remained at very high levels.

Economic inequality in New Zealand

Economic inequality in New Zealand is one of the social issues related to that country.

Poverty in Norway has been declining from World War II until the Global Financial Crisis but is now increasing slowly, and is significantly higher among immigrants from the Middle East and Africa. Before an analysis of poverty can be undertaken, the definition of poverty must first be established because it is a subjective term. The measurement of poverty in Norway deviates from the measurement used by the OECD. Norway traditionally has been a global model and leader in maintaining low levels on poverty and providing a basic standard of living for even its poorest citizens. Norway combines a free market economy with the welfare model to ensure both high levels of income and wealth creation and equal distribution of this wealth and has achieved levels of unprecedented levels of economic development, equality and prosperity.


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