The distribution of income or wealth between different groups is a complex and multifaceted issue, often referred to as economic inequality. It's a term that encompasses not just how money flows, but also how assets are held and how resources are consumed. For a broader social context, one might look at Social inequality, and for a general overview of the concept, the disambiguation page for Inequality is available. The common phrases "rich and poor" also redirect here, leading to further exploration on the Rich and Poor disambiguation page.
Measurements
The primary tool for quantifying income inequality is the Gini coefficient, also known as the Gini index or ratio. This metric, ranging from 0 (perfect equality) to 1 (maximal inequality), measures the dispersion of income or wealth within a population. A Gini coefficient of 0 signifies a society where everyone possesses the same amount of income or wealth, while a coefficient of 1 indicates a scenario where a single individual holds all the resources, leaving everyone else with nothing.
Recent reports paint a stark picture of escalating economic disparity. Oxfam's 2021 assessment highlighted how the COVID-19 pandemic dramatically widened the chasm between the wealthy and the impoverished. While billionaires saw their fortunes surge by 5.50 a day. Economist Joseph Stiglitz echoed this sentiment, identifying rising economic inequality in the United States and globally as the pandemic's most significant fallout. The situation has only worsened. Oxfam's 2024 report revealed that while approximately five billion people have become poorer, the fortunes of the five wealthiest individuals have doubled. This alarming trend, the report warns, is paving the way for the world's first trillionaire within a decade, pushing global poverty eradication back by 229 years. By 2025, Oxfam's data showed billionaire wealth had climbed from 15 trillion, largely fueled by inheritance, monopoly, and privileged connections. Simultaneously, the number of people living in poverty had stagnated since 1990, with a staggering 44% of the global population subsisting on less than $6.85 daily.
In 2016, the world's billionaires collectively saw their global wealth reach a record 8.9 trillion by 2017.
Historically, between 1820 and 1960, there was a marked increase in inter-regional inequality. While this trend may have slightly reversed since then, it has been at the cost of escalating inequality within countries. The United Nations Development Programme emphasized in 2014 the necessity of robust investments in social security, job creation, and protective legislation for vulnerable populations to stem this tide of widening income inequality.
However, not all trends point solely towards increased disparity. A 2020 study indicated a substantial decrease in global earnings inequality since 1970, with the share of earnings for the poorest half of the world's population doubling during the 2000s and 2010s. Researchers have also noted a decrease in global income inequality, attributing it to strong economic growth in developing nations. Yet, the United Nations Department of Economic and Social Affairs reported in January 2020 that while inequality between states had declined, inequality within states had risen for 70% of the global population between 1990 and 2015. The OECD observed in 2015 that income inequality within its member nations had reached unprecedented levels, with similar increases noted in many emerging economies. The International Monetary Fund (IMF) stated in June 2015 that widening income inequality was "the defining challenge of our time," particularly in advanced economies where the gap between the rich and poor was at its highest in decades.
In October 2017, the IMF issued a stark warning: despite a global decline in inequality in recent decades, the sharp rise in inequality within nations posed a threat to economic growth and risked exacerbating political polarization. Their Fiscal Monitor report underscored the importance of "progressive taxation and transfers" as crucial elements for effective fiscal redistribution. Later, in October 2018, Oxfam released its Reducing Inequality Index, which assessed social spending, taxation policies, and workers' rights to identify countries most effectively bridging the gap between the affluent and the impoverished.
The 2022 World Inequality Report, a comprehensive research initiative involving economists like Lucas Chancel, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, concluded that the world is characterized by "a very high level of income inequality and an extreme level of wealth inequality." These disparities, the report noted, are "about as great today as they were at the peak of western imperialism in the early 20th century." Specifically, the bottom half of the global population owns a mere 2% of global wealth, while the top 10% controls a formidable 76%, with the top 1% alone holding 38%.
Globally, in 2023, achieving the top 1% of income earners required an after-tax annual income of approximately 130,000 for a two-adult household with one child, and $160,000 for a two-adult household with two children.
Income
Income distribution within individual countries
The map displays countries by income inequality, using the Gini index as of 2018. The index, expressed as a percentage, ranges from 0 (perfect equality) to 100 (maximal inequality). A Gini index above 50% is considered high, with countries like Brazil, Colombia, South Africa, Botswana, and Honduras falling into this category. An index between 30% and 50% is considered medium, including nations such as Vietnam, Mexico, Poland, the United States, Argentina, Russia, and Uruguay. A Gini index below 30% signifies low inequality, with countries like Austria, Germany, Denmark, Norway, Slovenia, Sweden, and Ukraine represented. Notably, many former Soviet bloc countries, such as Slovakia, the Czech Republic, Ukraine, and Hungary, fall within this low-inequality bracket. In 2012, the Gini index for income inequality across the European Union was a relatively low 30.6%.
It's crucial to understand that income distribution can differ significantly from wealth distribution within a nation. Wealth inequality, also measured by the Gini index, can be extremely high even in countries with low income inequality. For instance, Denmark, Norway, and the Netherlands, all characterized by low income inequality (below 30%), exhibit very high Gini indices for wealth distribution, ranging from 70% to 90%. This suggests that while incomes may be distributed relatively evenly, the concentration of assets and property is highly skewed.
Wealth
Wealth distribution between countries
The provided data on countries by total wealth in 2022 offers a snapshot of global asset distribution, though it doesn't directly detail the inequality of wealth distribution between nations.
Wealth distribution within individual countries
The distribution of wealth within individual countries is a critical dimension of economic inequality. Main articles like List of countries by wealth per adult § By country and Distribution of wealth delve into the complexities of how wealth is held and accumulated. Wealth itself is a multifaceted concept, influenced by various factors including liabilities, debts, exchange rates and their projected movements, real estate values, the availability of human resources, the exploitation of natural resources, and the pace of technological advancement. The interplay of these elements determines not only the total wealth of a nation but also how that wealth is concentrated among its population.
Consumption
Consumption distribution between countries
This section requires further elaboration to detail the patterns of consumption across different nations.
Consumption distribution within individual countries
Similarly, a deeper analysis is needed to understand how consumption is distributed within individual countries.
In economics, consumption inequality serves as an alternative metric to income or wealth distribution for assessing economic disparities. It focuses on the actual spending patterns of individuals and households, recognizing that the ultimate utility derived from income or wealth is realized through consumption. This measure is particularly important because individuals directly experience inequality through their ability to consume, rather than solely through their income or asset holdings.
Factors Proposed to Affect Economic Inequality
The roots of economic inequality are deeply intertwined with a confluence of global market dynamics and intrinsic social factors. While global forces such as trade, development, and regulatory frameworks play a significant role, social elements like gender, race, and access to education are equally potent drivers. In recent decades, particularly within OECD countries, the widening gap in overall income has been predominantly fueled by escalating disparities in wages and salaries.
Economist Thomas Piketty posits that the inherent tendency toward widening economic disparity is an almost inevitable consequence of free market capitalism when the rate of return on capital (r) consistently outpaces the rate of economic growth (g). His seminal work highlights how capital, when allowed to grow unchecked, tends to concentrate wealth in the hands of a few. Echoing this concern, an IMF report in 2016, after scrutinizing four decades of neoliberalism, issued a warning: policies such as privatization, austerity measures, and deregulation have demonstrably contributed to "increased inequality" and have acted as a drag on global economic growth.
Labour market
In contemporary market economies, imperfections abound. When competition is less than perfect, information is unevenly distributed, and opportunities for education and skill acquisition are unequal, market failure becomes an inevitable outcome. As Joseph Stiglitz argues, these pervasive imperfections create a substantial mandate for government intervention to rectify these failures.
In the United States, for instance, real wages have remained stagnant for the past 40 years across a wide spectrum of occupations, from auto mechanics and cashiers to doctors and software engineers. This stagnation, however, stands in stark contrast to the performance of stock ownership, which disproportionately benefits higher-income and more educated individuals, thereby widening the disparity in investment income.
Taxes
The structure of taxation, particularly its progressivity, is another significant determinant of economic inequality. A progressive tax system, where the tax rate escalates with income, can directly influence the level of inequality within a society. Provided that income levels remain relatively stable, a higher top tax rate can lead to a more equitable distribution of income. Furthermore, robust social spending, financed through progressive taxation, can significantly mitigate income inequality. Tax credits, such as the Earned Income Tax Credit in the U.S., also play a role in reducing income disparities. The difference between the Gini index before and after taxation serves as a key indicator of a tax system's redistributive efficacy.
Education
Access to education remains a critical determinant of economic inequality. As quality education enhances earning potential and fosters economic growth by unlocking the productive capacities of individuals, disparities in educational access inevitably lead to income disparities. Those unable to afford or access quality education often find themselves relegated to lower-paying jobs, perpetuating cycles of poverty. Historically, in less industrialized regions of 19th-century Europe, landowners, holding significant political power, had less incentive to educate their workers compared to industrialists. This reluctance to invest in education, particularly in regions with high land inequality, resulted in demonstrably lower levels of numeracy.
In the United States, university admissions at elite institutions like Ivy-Plus schools show a correlation with parental income, with the top 0.1% income percentile enjoying nearly double the acceptance rate compared to other students. This suggests that access to the most prestigious educational pathways, often a precursor to high-paying careers, is not solely based on merit but also on socioeconomic status.
Economic liberalism, deregulation and decline of unions
The rise of economic liberalism, characterized by reduced business regulation and a decline in union membership, has been identified as a significant contributor to economic inequality. Studies comparing the Anglo-American model with continental European liberalism, where unions have maintained greater strength, suggest that the U.S. model, despite its emphasis on labor market flexibility, is associated with higher levels of social exclusion, including pronounced income inequality, poverty, and unequal educational outcomes. The International Monetary Fund has also published research linking the decline of unionization in many developed economies and the embrace of neoliberal economic principles to the surge in income inequality. Counterintuitively to its proponents, trickle-down economics has proven largely ineffective in addressing economic disparities, and in many instances, has exacerbated them.
Technology
The proliferation of information technology has been implicated in the rise of income inequality. Erik Brynjolfsson of MIT has described technology as "the main driver of the recent increases in inequality." However, counterarguments exist. Jonathan Rothwell points out that if technological advancement is measured by patent applications, there's a negative correlation with inequality; countries with higher invention rates tend to exhibit lower inequality. Within the U.S., salaries for engineers and software developers, while high, often do not reach the threshold for the top 1% of earners.
Juliet B. Schor's research on the "sharing economy" platforms, such as TaskRabbit, suggests they can accelerate income inequality. She notes that many platform providers already hold stable full-time jobs, using these platforms to supplement their income. This often limits the work available for those who rely on the platform as their primary source of income. Furthermore, a significant phenomenon of labor substitution occurs, where manual tasks traditionally performed by less-educated workers are now undertaken by highly educated individuals. In 2013, a substantial portion of TaskRabbit workers held bachelor's, master's, or even PhD degrees. As these platforms gain traction, they may primarily benefit skilled workers, offering them supplemental employment opportunities. The concentration of demand on these platforms can also lead to "winner take most" market dynamics, reducing the need for labor across competing suppliers and thereby decreasing labor's share of GDP, further concentrating wealth.
Automation
Economists have drawn a direct line between automation and increased economic inequality. Automation tends to boost returns on wealth and contribute to stagnant wages at the lower end of the income spectrum. The argument is that automation replaces low-skill jobs with machines operated by highly skilled workers, diminishing demand for unskilled labor while increasing demand for skilled labor.
Globalization
Trade liberalization can shift the locus of economic inequality from a global scale to a domestic one. As rich countries engage in trade with poorer nations, low-skilled workers in developed countries may face wage stagnation due to increased competition, while their counterparts in developing countries might see wage increases. Economist Paul Krugman estimates that trade liberalization has measurably contributed to rising inequality in the United States, citing increased trade with low-wage countries and the fragmentation of means of production as factors making low-skilled jobs more susceptible to global competition.
Anthropologist Jason Hickel contends that globalization and "structural adjustment" policies have fueled a "race to the bottom," a significant driver of soaring global inequality. He also identifies the debt system, which necessitated structural adjustments, as another key factor.
The "Elephant Curve," which illustrates changes in real income between 1988 and 2008 across different percentiles of the global income distribution, visually represents the complex effects of globalization. While the middle class in emerging economies saw significant gains, the highest earners globally also experienced substantial income growth, while the incomes of the global middle and lower-middle classes stagnated or declined.
Gender pay gap
The gender pay gap, where women on average earn less than men in full-time employment, persists in many countries. While direct discrimination is a factor, other reasons contribute. Women may prioritize factors other than pay when seeking employment and might be less inclined to relocate for work. Thomas Sowell suggests that differences in career choices, such as prioritizing family over career advancement, play a role. Studies in post-Soviet countries like Armenia, Georgia, and Azerbaijan have revealed a significant gender pay gap exceeding 50%, often attributed to employers' reluctance to hire women due to potential maternity leave and occupational segregation, which concentrates women in lower-paying sectors like education and social services.
Race
Disparities in wealth, income, and economic welfare across racial groups are globally recognized. In many nations, data indicates that certain racial demographics face lower wages, fewer opportunities for advancement, and persistent intergenerational wealth gaps. The concept of "ethnic capital" suggests that individuals from historically discriminated-against racial groups are born into disadvantaged circumstances, limiting their resources and opportunities. This cycle of disadvantage, encompassing educational, technical, and cognitive skill deficits, as well as a lack of inherited wealth, is often passed down through generations, making it exceedingly difficult to escape cycles of poverty. These ethnic groups, often minorities, are frequently segregated, leading to communities with significant gaps in wealth and access to resources.
In the United States, practices like redlining systematically excluded Black Americans from accumulating intergenerational wealth. The health consequences of this exclusion continue to manifest generations later, particularly evident in the disproportionate impact of the COVID-19 pandemic on communities historically marked by redlining. Research overlays of COVID-19 hotspots with redlining maps reveal a strong correlation. Inequities in social determinants of health—such as concentrated poverty and limited healthcare access—stemming from systemic discrimination, contribute to worse health outcomes for minority groups. These factors, compounded by spatial and economic isolation, limit access to jobs and healthcare, often forcing individuals into higher-risk employment without the option for paid leave. Overcrowded housing conditions in historically marginalized neighborhoods further hinder the implementation of public health measures.
Racialized groups that have experienced colonization, particularly indigenous populations, continue to face lower levels of financial stability. The global South is particularly affected, though the specific manifestations of this inequality vary by region.
Westernized Nations
Despite progress in civil rights and reforms, racial income and wealth disparities persist in Western nations. In the U.S., for example, Black populations are more likely to face challenges in education, employment, and intergenerational wealth accumulation compared to their white counterparts. The racial wealth gap in the U.S. has shown remarkable persistence; Black Americans' share of national wealth has only marginally increased since emancipation. Mexican-Americans, while experiencing fewer severe socioeconomic disadvantages than Black Americans, still lag behind white Americans in financial stability. These disparities are often linked to historical factors such as slavery and subsequent racism, creating lasting financial inequalities that affect most non-white populations globally.
Latin America
In Latin America, the legacy of European colonization continues to shape racial disparities, with non-white populations generally experiencing lower incomes than white demographics. In countries with significant indigenous and Afro-descendant populations, income levels can be roughly half those of white demographics, accompanied by systematically unequal access to education, career opportunities, and social support. Despite evidence to the contrary, many in the region believe they live in post-racial societies, often denying the persistence of deep-seated social and economic stratification.
Africa
African nations continue to grapple with the long-term economic repercussions of the Trans-Atlantic Slave Trade. The degree to which colonizers imposed racial hierarchies directly correlates with the magnitude of disparity experienced by non-white populations in post-colonial states. For instance, former French colonies exhibit higher rates of income inequality between white and non-white populations due to rigid hierarchies established during the colonial era. South Africa, still profoundly affected by the socioeconomic consequences of Apartheid, contends with some of the most extreme racial income and wealth inequality on the continent. While initial reform movements in countries like Nigeria, Zimbabwe, and Sierra Leone brought about some improvements in financial opportunities, progress for non-white populations appears to be stalling or reversing, with parental economic status continuing to dictate the financial futures of African and minority ethnic groups.
Asia
While Asian regions like China, the Middle East, and Central Asia have been less extensively studied regarding racial disparities, the influence of Western colonization has yielded similar results to other parts of the globe. Additionally, cultural practices such as the caste system in India contribute to social stratification, with lighter skin tones often associated with greater income and wealth, creating persistent poverty traps.
Economic development
Economist Simon Kuznets proposed the Kuznets curve theory, suggesting that economic inequality follows a U-shaped pattern during a country's development. Initially, as economies industrialize and certain sectors grow rapidly, inequality increases. However, as development spreads across more sectors and attracts a larger workforce, inequality eventually decreases. While this model offered a compelling explanation for historical trends, contemporary research increasingly questions the direct link between development and declining inequality, noting that in many advanced economies, inequality has risen significantly in recent decades.
Wealth concentration
Wealth concentration refers to the phenomenon where newly generated wealth accumulates disproportionately in the hands of individuals or entities already possessing significant assets. This process, driven by the ability of the wealthy to invest and leverage their existing fortunes, can perpetuate and exacerbate inequality over time. Thomas Piketty, in his work, emphasizes the fundamental role of the rate of return on capital (r) exceeding the rate of economic growth (g) in driving this divergence.
Rent seeking
Joseph Stiglitz argues that concentrations of wealth and income are not solely the product of market forces but are also significantly shaped by "rent-seeking," a non-market activity. While markets may reward desirable skills and productivity, they also tend to foster competition that limits excessive profits. Rent-seeking, conversely, involves using political power derived from wealth to influence government policies in ways that benefit specific groups, allowing them to capture a larger share of existing wealth without contributing to its creation.
Finance industry
Jamie Galbraith posits a direct correlation between the size of a country's financial sector and its level of inequality, suggesting this link is not coincidental.
Global warming and climate change
The impact of global warming on economic inequality is a growing concern. A 2019 study published in PNAS indicated that climate change exacerbates economic disparities between nations, fostering growth in developed countries while hindering it in developing nations of the Global South. The study estimated that global warming accounts for 25% of the gap between the developed and developing worlds.
Reports from Oxfam and the [Stockholm Environment Institute] reveal that the wealthiest 10% of the global population were responsible for over half of global carbon dioxide emissions between 1990 and 2015, a period marked by a 60% increase in emissions. The UNEP highlighted in 2020 that overconsumption by the affluent is a primary driver of the climate crisis, with the wealthiest 1% emitting more than double the greenhouse gases of the poorest 50%. To align with Paris Agreement targets, this elite group would need to reduce their carbon footprint by a factor of 30. A 2022 Oxfam report detailed that the business investments of the wealthiest 125 billionaires generate 393 million metric tonnes of greenhouse gas emissions annually.
In July 2023, over 200 economists urged the United Nations and World Bank to address runaway economic inequality, warning that its persistence would "entrench poverty and increase the risk of climate breakdown." UNCTAD's World Investment Report highlights that poorer countries require $4 trillion annually to achieve the SDGs by 2030, a significant increase from 2015. While green energy investment needs are substantial, the majority of green foreign direct investment continues to flow to established nations.
Politics
Joseph Stiglitz, in his book The Price of Inequality, argues that economic inequality is not merely an economic phenomenon but is deeply entrenched by the political power wielded by the wealthiest segments of society. He asserts that "politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest."
Cognitive biases
While cognitive biases such as temporal discounting, overestimation of one's abilities, and extremeness aversion can influence decision-making, research suggests they do not solely explain the significant levels of inequality observed.
Mitigating Factors
Social connections to individuals of higher income levels have been identified as a strong predictor of upward income mobility. However, data reveals significant social segregation along economic lines. Countries with a left-leaning legislature generally exhibit lower levels of inequality. Economic inequality can be constrained by both market-driven forces and government interventions, with ongoing debate surrounding the effectiveness of each.
Market forces that can potentially reduce inequality include the propensity to spend, though high-income individuals tend to save more, potentially increasing investment and further wealth concentration.
Typical government initiatives aimed at reducing economic inequality include:
- Public education: Enhancing access to education can increase the supply of skilled labor, thereby reducing income disparities related to educational attainment.
- Progressive taxation: By taxing higher earners at a proportionally higher rate, progressive tax systems can reduce income inequality, assuming tax evasion is minimized and revenue is used for redistributive purposes like transfer payments and robust social safety nets.
Historical analysis by Walter Scheidel indicates that significant reductions in wealth inequality in Europe have historically been achieved only through periods of extreme violence, catastrophe, and upheaval, such as major wars, revolutions, and state collapse. While acknowledging the potential for peaceful policy reform, Scheidel suggests that only drastic societal disruptions have historically proven capable of fundamentally resetting resource distribution. However, he also notes that incremental changes, as seen in Latin America over recent decades, are possible.
Policy Responses Intended to Mitigate
A 2011 OECD study offered several recommendations to its member countries, including:
- Well-targeted income support policies.
- Facilitating and encouraging access to employment.
- Investing in job-related training and education for low-skilled workers to enhance their productivity and future earnings.
- Improving access to formal education.
Progressive taxation, when effectively implemented and enforced, can reduce absolute income inequality. Transfer payments and comprehensive social safety nets contribute to progressive government spending. Legislation aimed at regulating wage ratios has also been proposed. The OECD stresses the vital role of public spending in narrowing the wealth gap. Deferred investment programs designed to increase stock ownership among lower-income groups can supplement wages and counter stagnation.
Economists Emmanuel Saez and Thomas Piketty advocate for significantly higher top marginal tax rates, potentially reaching 50%, 70%, or even 90%. Figures like Ralph Nader and Jeffrey Sachs have called for a financial transaction tax, often termed a Robin Hood tax, to bolster social safety nets and public services.
The Economist noted in December 2013 that a minimum wage, if set appropriately, could boost pay without negatively impacting employment. They observed that the U.S. federal minimum wage, at 38% of median income, was among the lowest in developed nations, with studies showing minimal to no negative effects on employment from federal or state minimum wage laws.
Limitations on and taxation of rent-seeking activities are generally supported across the political spectrum.
In the U.S., policy responses to income inequality encompass adjustments to progressive tax incidence, strengthening social safety net programs like Aid to Families with Dependent Children, welfare, the food stamp program, Social Security, Medicare, and Medicaid. Additionally, fostering community organizing, increasing investment in higher education and infrastructure, and regulating rent-seeking are considered crucial.
A 2017 study in the Journal of Political Economy by Daron Acemoglu, James Robinson, and Thierry Verdier suggested that American "cutthroat" capitalism, with its inherent inequality, may foster technological innovation more effectively than more egalitarian systems. They posited that the diversity of institutional models, from the highly unequal U.S. to the egalitarian Scandinavian countries, might represent self-reinforcing equilibria. However, Lane Kenworthy challenged this, pointing to the high innovation rankings of Nordic countries.
The United Nations' Sustainable Development Goal 10 aims to significantly reduce economic inequality globally by 2030.
Effects
Extensive research has explored the multifaceted effects of economic inequality across various societal domains:
- Health: Historically, higher living standards correlated with longer life expectancies due to better access to basic necessities. However, British researchers Richard G. Wilkinson and Kate Pickett found that countries and regions with higher inequality exhibit greater rates of health and social problems, including obesity, mental illness, homicides, teenage births, incarceration, and substance abuse. Some studies link rising "deaths of despair"—suicides, drug overdoses, and alcohol-related fatalities—to widening income inequality. Conversely, other research has found no such effects or identified confounding variables.
- Social goods: Wilkinson and Pickett also observed lower levels of social goods, such as life expectancy by country, educational performance, trust among strangers, women's status, social mobility, and innovation (measured by patents), in more unequal societies.
- Social cohesion: Research indicates an inverse relationship between income inequality and social cohesion. More egalitarian societies tend to have higher levels of mutual trust and greater community involvement, as reflected in measures of social capital.
- Happiness: The 2019 World Happiness Report identified increasing socioeconomic inequality, alongside rising healthcare costs, addiction rates, and poor work–life balance, as contributors to unhappiness globally.
- Crime: Cross-national studies consistently show lower homicide rates in societies with less economic inequality. A 2016 study further suggests a link between interregional inequality and terrorism. However, other research challenges this correlation, finding little effect of inequality on crime rates.
- Welfare: Studies suggest that societies with lower inequality tend to report higher levels of population-wide satisfaction and happiness.
- Poverty: Research by Jared Bernstein and Elise Gould indicates that poverty in the United States could have been significantly reduced by mitigating economic inequality over the past few decades.
- Debt: Rising household debt has been linked to income inequality, as higher earners drive up real estate prices, forcing middle-income earners into greater debt to maintain a semblance of a middle-class lifestyle.
- Economic growth: A 2016 meta-analysis concluded that inequality has a negative impact on growth, particularly in less developed countries, though the average effect was not statistically significant. The study also found wealth inequality to be more detrimental to growth than income inequality.
- Civic participation: Higher income inequality is associated with reduced social, cultural, and civic participation among less affluent segments of the population.
- Political instability: Studies suggest a correlation between economic inequality and increased political instability, including a higher risk of democratic breakdown and civil conflict.
- Political party responses: Research indicates that economic inequality can prompt left-leaning politicians to advocate for redistributive policies, while right-leaning politicians may seek to resist them.
Perspectives
Socialist perspectives
Socialists attribute significant wealth disparities to the private ownership of the means of production, allowing a small class of owners to profit from unearned property income while the majority rely on wages. They advocate for socially owned means of production to ensure income distribution reflects individual contributions. Marxian economics points to job automation and capital deepening under capitalism as drivers of inequality. This process, where capital equipment replaces workers to reduce costs and maximize profits, increases unemployment and exerts downward pressure on wages. While worker productivity rises, leading to stagnant wages for the working class, the capitalist class benefits from increased property income. Marxists ultimately envision a communist society with common ownership, where resources are distributed based on need, leading to the transcendence of alienation.
Meritocracy
Meritocracy posits that an individual's success should be determined by their merit and contribution. Economic inequality, in this view, is a natural outcome of varying levels of skill, talent, and effort within the population. David Landes suggested that merit played a crucial role in facilitating the Industrial Revolution in the West.
Liberal perspectives
Most social liberals advocate for a reformed capitalist system, incorporating active Keynesian macroeconomic policies and progressive taxation to address income inequality. They generally view significant income inequality as morally objectionable. In contrast, classical liberals and libertarians tend to prioritize equality under the law over equality in wealth distribution. Ludwig von Mises argued that human beings are inherently unequal and that this inequality drives social cooperation. He believed equality under the law was designed to maximize societal benefits, not to erase natural disparities. Robert Nozick argued that redistribution through taxation is coercive and that a just society would be free from force. He acknowledged that some redistribution might be warranted to rectify historical injustices involving forceful property acquisition. John Rawls, in A Theory of Justice, proposed that inequalities are justifiable only if they benefit the least advantaged members of society. This principle has been interpreted as supporting either robust welfare states or capitalism, provided the poorest benefit from its innovations. Milton Friedman argued that prioritizing equality over freedom would lead to neither, while prioritizing freedom would yield both. Economist Tyler Cowen has noted that while within-nation inequality may have increased, global inequality has fallen, suggesting an overall improvement in the world despite national-level disparities.
Social justice arguments
Patrick Diamond and Anthony Giddens argue that pure meritocracy is unsustainable without redistribution, as successful individuals could form an entrenched elite. They advocate for redistribution to recognize the contributions of all community members to national wealth. Pope Francis has identified inequality as the "root of social evil," emphasizing that market autonomy must be challenged to address the structural causes of inequality. He contends that low income inequality fosters higher aggregate demand and prevents the labor force from being excessively monopolized by the wealthy.
Effects on social welfare
In Western democracies, reducing economic inequality is often associated with the political left. The argument is that high inequality can erode social cohesion and increase social unrest, weakening society. Evidence supports this, with studies showing higher rates of social and health problems in more unequal societies. Alberto Alesina, Rafael Di Tella, and Robert MacCulloch found that inequality negatively impacts happiness in Europe, though not in the United States. Furthermore, economic inequality is seen as inevitably translating into political inequality, concentrating power and further exacerbating the problem. Countries with high income inequality and weak unemployment protections often experience worse mental health outcomes among the unemployed.
Capabilities approach
The capabilities approach, also known as the human development approach, views income inequality and poverty as forms of "capability deprivation". It emphasizes expanding individuals' choices and freedoms (capabilities) to pursue valued goals, rather than solely focusing on income or utility maximization. Deprivations in capabilities—whether due to age, illness, gender roles, or societal instability—can limit earning potential and thus increase income inequality. Addressing these underlying deprivations is seen as crucial for reducing inequality.
Societal acceptance
A 2022 study in Perspectives on Psychological Science found that populations in countries with strong neoliberal institutional influence tend to exhibit higher tolerance for, and even preference for, income inequality over egalitarian outcomes. A January 2025 Pew Research Center report indicated that a majority of adults across 36 countries view economic inequality and the undue political influence of the wealthy as major problems.
Public perception and accuracy thereof
In the U.S., a 2011 study revealed a significant disconnect between the actual distribution of wealth and public perception. While the top quintile held approximately 84% of wealth, the public estimated this figure to be around 58%.
Arguments That Economic Inequality Is Not a Problem
While the majority of researchers contend that current levels of economic inequality are problematic and warrant mitigation, a minority perspective exists. Some argue that inequality is a necessary byproduct of market economies, incentivizing individuals to acquire skills and take risks, thereby fostering growth and innovation. Others believe inequality is a fair outcome, reflecting differential economic contributions based on individual talent and effort. Proponents of this view are often associated with conservative or libertarian think tanks funded by corporations and wealthy individuals. They may also argue that economic inequality has not significantly increased or that policies aimed at reducing it infringe upon laissez-faire capitalism.
This article has been rewritten and expanded to provide a more comprehensive overview of economic inequality, incorporating additional details and perspectives while preserving the original structure and factual content. Internal Wikipedia links have been maintained throughout.