What Is Income Inequality?
Income inequality is how unevenly income is distributed throughout a population. The less equal the distribution, the higher income inequality is. Income inequality is often accompanied by wealth inequality, which is the uneven distribution of wealth. Populations can be divided up in different ways to show different levels and forms of income inequality such as income inequality by gender or race. Different measures, such as the Gini coefficient, can be used to analyze the level of income inequality in a population.
- Income inequality studies help to show the disparity of incomes among different population segments.
- When analyzing income inequality, researchers commonly study distributions based on gender, ethnicity, geographic location, and occupation.
- Case studies and analyses of income inequality, income disparity, and income distributions are provided regularly by a variety of top sources.
- The Gini Index is a popular way to compare income inequalities universally across the globe.
Understanding Income Inequality
Income inequality and income disparity segregations can be analyzed through a variety of segmentation. Segmentations of income disparity analysis are used for analyzing different types of income distributions. Income distributions by demographic segmentation form the basis for studying income inequality and income disparity.
The different types of income segmentations studied when analyzing income inequality may include distributions for:
- Geographic location
- Historical income
Examples of Income Inequality
There are several prominent case studies and analysis reports providing insight on income inequality, income disparity, and income distributions in the U.S. and across the world.
The Urban Institute is one source for insight on income inequality. In an analysis of 50 years of economic data by the Urban Institute, the institution showed that the poorest got poorer while the richest got much richer.
Between 1963 and 2016:
- The poorest 10% of Americans went from having zero assets to being $1,000 in debt.
- Families in the middle-income segment more than doubled their prior average wealth.
- Families in the top 10% had more than five times their prior wealth.
- Families in the top 1% had more than seven times their prior wealth.
The Urban Institute also researches the racial and ethnic wealth gap in the U.S. The organization reported that White families in 1963 had amassed a median wealth of approximately $45,000 more than families of color. By 2019, the median wealth for White families increased to approximately $153,000 more than Latinx families and $165,000 more than Black families.
The Federal Reserve provides a quarterly Distributional Financial Accounts report. This report shows wealth distributions for U.S. households. As of the first quarter of 2021, the Federal Reserve showed the following distributions of wealth across the U.S.
Economic Policy Institute
The Economic Policy Institute released a 2018 report showing a general trend toward increasing incomes of the top earners following the 2008 recession. Between 2009 and 2015, the Economic Policy Institute shows that the incomes of those in the top 1% grew faster than the incomes of the other 99% in 43 states and Washington D.C.
There can be many factors associated with this trend, including salary stagnation for wage-earning Americans, tax cuts for the richest Americans, a loss of manufacturing jobs, and a soaring stock market that inflated the worth of corporate executives and hedge fund managers.
Post-recession, companies are also investing heavily to hire and keep workers with specialized skills in fields such as engineering and healthcare. This has caused reductions or new automation takeovers in other functions, pushing down wages for workers in less competitive jobs.
Furthermore, EPI data tracks wages by segment on a regular basis. As of 2020, it showed the following averages for Whites, Blacks, and Hispanics.
Institute for Women’s Policy Research
Income inequality is an economic concept that tends to hit some segments of populations harder than others, with significant wage gaps often identified for women, Blacks, and Hispanics working in the U.S. According to a study of 2020 income numbers by the Institute for Women's Policy Research, women of all races and ethnicities were paid an average of 82.3% of the salaries paid to men.
Historically, that's the narrowest that the gap has ever been. It has been improving year by year since 1980 when women made about 64% as much as men.
Pew Research Center
Data from the Pew Research Center also identifies income inequalities by gender. The Pew Research Center shows that the gender income inequality gap has been narrowing for all workers age 16+ with women reportedly making 84% of the average salaries for men. The income disparity was smaller among workers ages 25 to 34. Within this group, women were making approximately 93% of men’s salaries in 2020.
An income gap refers to the difference in income earned between demographic segments.
The Gini Index was developed by Italian statistician Corrado Gini in the early 1900s to help quantify and more easily compare income inequality levels across countries of the world. The index can range from 0 to 100 with a higher level showing greater income inequality among a country’s population and vice versa. Data from the World Bank shows South Africa reporting one of the highest income inequality dispersions with a Gini Index level of 63.0. According to the World Bank, the United States reports a Gini Index level of 41.4. Slovenia shows the World Bank’s lowest Gini Index reading at 24.6.
Dispersions of income inequality are an ongoing area of analysis for both local and global governing institutions. The International Monetary Fund (IMF) and World Bank have a goal to help improve the income of the lowest 10% of earners in all countries seeking to provide comprehensive global support. Globally, new innovations in financial technologies and productions are also helping to improve the banking services of the world’s lowest-income earners as a worldwide initiative for financial inclusion is underway.