Economic Inequality

Economic inequality is the unequal distribution of income (earnings) and wealth (net worth or savings) in a society. It is a critical issue, with dangerous ramifications for societies that are becoming more divided. Economic inequality is often viewed as the result of globalization and technological change, but policies can influence these forces. For example, automation and trade liberalization have altered labor markets in advanced economies by favoring skilled workers, but the extent to which these trends have widened inequality across countries must reflect differences in national policies.

The gap between the rich and poor in high-income countries has increased substantially over the past few decades, with the United States ranked as the most unequal high-income country in the world. This increase largely stems from a surge in after-tax incomes for the richest population segments and stagnant or declining after-tax incomes for most others. Governments have a vital role to play in mitigating these trends by directly addressing income inequality with targeted policies.

One major factor contributing to growing inequality is that assets, such as homes and stocks, tend to increase in value over time. As a result, those who own these assets are more likely to have a large amount of wealth compared with those who rent or buy their housing. This can also lead to income inequality as people with greater purchasing power are able to purchase more goods and services than those who cannot.

In addition, studies have found that social class is closely linked to economic inequality, though the degree to which this relationship can vary over time. For instance, while the twentieth century saw progress in reducing the wage gap between men and women, this gap still remains.