Income Inequality

In any economy, some people earn more than others. Income inequality measures how large these differences are. It is often measured using the Gini coefficient, the share of income going to the top 1% or 10% of earners, or ratios comparing the incomes of the richest and poorest groups.

For example, if the top 10% of households receive 40% of a country's total income while the bottom half receive 20%, income is distributed quite unequally.

Inequality is influenced by many factors, including education and skills, technology, globalisation, the strength of trade unions, tax and benefit systems, and the returns earned on wealth. Taxes and government transfers usually reduce inequality significantly, so measures before and after taxes and benefits can differ greatly.

Income inequality differs from wealth inequality, which looks at the distribution of assets and is usually much greater. Economists debate how inequality affects growth, social mobility and political stability, and what policies best address it.