Economic inequality

economic-dictionary

Economic inequality is the situation in which there is a difference related to income, wealth or economic well-being between the different members of the population of a geographical area.

Normally, when we talk about economic inequality, we are referring to a difference. In a simplified case with two people, if one person has $ 20 and another has $ 40, there is an economic inequality.

It is evident that inequality is the opposite of equality. And, ultimately, equality implies that two people have the same thing. Therefore, inequality will take place whenever different people or groups enjoy different income, wealth or well-being.

Finally, and before getting into the subject, we must never confuse inequality with poverty. Poverty and inequality may or may not coexist. For example, a very unequal society can be very rich. And vice versa, a society with high levels of equality can be very poor. The opposite could also be true.

Causes of economic inequality

As a phenomenon, inequality has causes. Or what is the same, a series of circumstances that cause inequality.

We have collected a set of the most relevant aspects cited by different international organizations, as well as the main investigations. Some causes that can influence inequality are:

  • Globalization
  • Very low wages of a sector of the population
  • Labor frameworks that leave workers unprotected
  • Technological changes
  • Natural disasters and wars
  • Uneven legal frameworks
  • Gender inequality (See salary gap)
  • Absence of fundamental rights
  • Non-existence of wealth redistribution
  • Tax policies that favor high incomes
  • Lack of access to basic services: education, health and justice.
  • Corruption

An important note falls on the expression 'they can influence'. We are not saying that they influence or not, but it is true that they could be a cause of economic inequality.

Consequences of economic inequality

The causes that we have studied previously, in turn motivate a series of consequences. It is advisable not to confuse causes and consequences.

Although, it should be noted, that in some cases they feed back. For example, corruption can lead to increased inequality and, as a consequence, result in more corruption. Among the most prominent consequences of economic inequality are:

  • Reduction of economic growth
  • Worker strikes
  • Minimum wage increases
  • Changes in labor laws
  • Social conflicts
  • Crime and insecurity
  • Tax policies that ‘penalize’ high income

The above, as in the causes, are also ‘possible’ consequences. Therefore, we are not saying that they are a direct consequence, but it could happen.

Measures of economic inequality

We agree that inequality is a very important phenomenon. Increasingly studied by sociologists, economists, intellectuals, and politicians. It makes sense then to think about how we could measure inequality.

That is, the concept is clear, but it is logical to ask: How can we know if there is inequality? And if it exists, how much is this inequality?

Throughout the 20th century, economists such as Conrado Gini, Henri Theil or Max Otto Lorenz investigated the matter. Progressively, his calculations have been improved and developed with more insistence. Then, among the most prominent tools that reflect inequality we find:

  • Gini index
  • Lorenz curve
  • Theil index
  • Atkinson index
  • Kuznets curve

New inequality indicators have been added to these tools that take into account more than one dimension (multidimensional) that address, in addition to income inequality, others such as the capacities defined by Amartya Sen.

Mathematical inequality

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