Economic inequality

People have different amounts of money. Some have a lot. Some have very little. This is called inequality.

There are three ways to see this. One is how much people earn. One is what they own. One is what they spend.

Sometimes, the gap gets bigger. In many lands, the gap is growing. This can make life hard for some.

Governments can help. They can use taxes to help people. They can also spend on things like pensions. This helps make things more fair for all.

Economic inequality means that money is not spread evenly.

There are three main ways to look at this. First is income inequality. This is how the money people earn is shared. Second is wealth inequality. This is how much people own. Third is consumption inequality. This is how people spend their money.

Experts use a tool called the Gini coefficient to measure this. A score of 0 means everyone has the same amount. A score of 1 means one person has everything.

In the past, inequality has changed a lot. For many years, the gap grew larger. During the two World Wars, inequality went down. After those wars, many nations built welfare states. These states help people through social spending. This includes things like pensions for older people.

Today, things are mixed. Some countries have less inequality between nations. But inside many nations, the gap is growing. The COVID-19 pandemic also made this gap wider. Many billionaires saw their wealth grow very fast. At the same time, more people lived in poverty.

Economic inequality is a term used to describe how money is spread among people. It covers three main ideas. First is income inequality, which looks at how much money people earn. Second is wealth inequality, which looks at the total value of things people own. Third is consumption inequality, which looks at how much money people spend.

Scientists and leaders study these gaps to understand how societies work. They look at these numbers within one country or between many different nations. They also look at groups like different ages or different genders.

To measure these gaps, experts use a special tool called the Gini coefficient. This tool uses a scale from 0 to 1. A score of 0 means there is perfect equality. This would mean everyone has the exact same amount of money or wealth. A score of 1 means there is maximal inequality. In this case, one person would own everything while everyone else has nothing.

Another tool is the Inequality-adjusted Human Development Index. This index helps show how inequality affects a person's quality of life. These measurements help leaders decide how to make things fairer for everyone.

History shows that inequality changes over long periods of time. For a long time, the gap between people has generally grown larger. There were some exceptions during the modern era. For example, inequality went down during the two World Wars. After those wars, many nations created welfare states. These states use social spending to help people. They provide things like pensions for older people and benefits for families.

These programs can decrease income inequality by about one-third in many advanced economies.

Recent years have brought big changes to these numbers. Globalization has helped reduce the gap between different nations. However, it has increased inequality inside most individual nations. The COVID-19 pandemic also changed things significantly. According to Oxfam, the wealthiest people were impacted the least by the pandemic. Billionaires saw their wealth increase by $3.9 trillion during this time. At the same time, many more people lived on less than $5.50 a day.

Some reports say the number of billionaires has now reached 3,000.

Many researchers study why these gaps matter for the world. Large gaps in inequality are often linked to social and political trouble. This can include things like civil conflict or changes in how governments work. Inequality can also make it harder for a country to grow its economy. Some studies show that inequality in land and skills hurts growth more than income gaps. Leaders today debate how to use taxes and spending to fix these issues. Improving job quality and closing gender gaps are also important steps.

Economic inequality is an umbrella term for three distinct economic concepts. First is income inequality, which measures how the total sum of money paid to people is distributed. Second is wealth inequality, which looks at the total value of assets owned by individuals. Third is consumption inequality, which examines how the total sum of money spent is distributed among spenders.

These gaps can be measured between nations or within a single nation. Experts also study sub-populations, such as different age groups or gender groups. Understanding these distributions is vital for analyzing how societies function and how resources are managed.

To quantify these differences, economists use specific statistical tools. The Gini coefficient, also called the Gini index, is a widely used measure of statistical dispersion. It represents inequality on a scale from 0 to 1. A Gini coefficient of 0 reflects perfect equality, where everyone has the same income or wealth. Conversely, a coefficient of 1 represents maximal inequality, where one person holds everything and others have nothing.

Another tool is the Inequality-adjusted Human Development Index (IHDI). This is a composite index that accounts for inequality within human development metrics. These measurements allow researchers to track how economic gaps change over time and across different regions.

History shows a long-run trend toward greater economic inequality over time. There were notable exceptions during the modern era. Inequality declined during the two World Wars and during the creation of modern welfare states after World War II. In advanced economies, taxes and transfers can decrease income inequality by one-third. This is often achieved through public social spending, such as pensions and family benefits.

While some debate the optimum level of inequality, most agree that complete equality is unachievable. This makes the management of existing gaps a central part of global economic policy.

Globalization has created a complex shift in how inequality is distributed. It has reduced inequality between different nations by helping developing countries grow. However, globalization has increased inequality within most individual nations. In the 1970s, income inequality between nations peaked in a bimodal distribution of "rich" and "poor" countries. Since then, income levels have been converging as more people live in middle-income countries.

Despite this international convergence, intrastate inequality has increased for 70% of the world population between 1990 and 2015.

Recent global events have significantly impacted these economic trends. The COVID-19 pandemic substantially increased economic inequality. According to Oxfam, the wealthiest people were impacted the least by the pandemic. Billionaires saw their wealth increase by $3.9 trillion during this period. Simultaneously, the number of people living on less than $5.50 a day likely increased by 500 million.

More recent reports show the number of billionaires has increased to 3,000. Their collective wealth has reached record levels of 18.3 trillion. This concentration of wealth can lead to undue influence over politics and the media.

Research suggests that extreme inequality carries significant social and economic risks. High levels of inequality are linked to political and social instability. This includes risks of revolution, democratic breakdown, and civil conflict. Furthermore, inequality can hinder macroeconomic stability and economic growth. Specifically, inequality regarding land and human capital may reduce growth more than income inequality alone.

The 2022 World Inequality Report noted that current wealth inequality is extremely high. It suggested levels are similar to the peak of western imperialism in the early 20th century.

Several factors contribute to rising inequality within developed nations. An OECD study identified changes in household structures as a key factor. For example, single-headed households rose from 15% in the late 1980s to 20% in the mid-2000s. Another factor is assortative mating, where people marry partners with similar economic backgrounds. Additionally, there is a growing gap between the demand for and supply of specific skills.

In many emerging economies, gaps in access to education, healthcare, and finance also drive inequality. Addressing these issues requires investments in social security, job quality, and laws that protect vulnerable populations.