Economic Inequality

Economic inequality is the gap between average incomes in a country. It’s measured with the Gini coefficient, which divides a nation’s incomes by their population and then compares them to each other. A lower Gini coefficient indicates less inequality.

Economic inequality can have many causes. The rise in inequality since 1980 is due to businesses replacing lesser skilled workers with technology requiring higher skills; globalization, where jobs have been outsourced; and changes to tax policies that have allowed rich people to pay lower rates. Some inequality is also driven by differences in talent and effort.

High levels of inequality can also lead to social disintegration, political polarization and even poorer growth. Research has shown that in more equal societies, there are lower rates of violent crime and property crime, and better health outcomes including life expectancy, infant mortality and literacy.

While some inequality is inevitable in a market-based economy as a result of differences in talent, effort and luck, excessive inequality can erode social cohesion, fuel political polarization and reduce economic growth. It’s therefore important to understand what drives inequality and how policymakers can promote more inclusive outcomes from economic change. To do this, it’s necessary to bring together groups that don’t typically work together. For example, labor unions, climate activists and students can build alliances to advocate for fair systems. Visible fairness, such as a universal basic dividend (UBD) or taxes that fund schools and hospitals, can help rebuild trust and create new partnerships.