Economic inequality is an umbrella term for three concepts: income inequality, how the total sum of money paid to people is distributed among them; wealth inequality, how the total sum of wealth owned by people is distributed among the owners; and consumption inequality, how the total sum of money spent by people is distributed among the spenders. Each of these can be measured between two or more nations, within a single nation, or between and within sub-populations (such as within a low-income group, within a high-income group, and between them, within an age group and between inter-generational groups, within a gender group and between them, etc.), either from one or from multiple nations.
Income inequality metrics are used for measuring income inequality, the Gini coefficient being a widely used one. Another type of measurement is the Inequality-adjusted Human Development Index, a composite index that accounts for inequality.Human Development Reports. Inequality-adjusted Human Development Index (IHDI) . United Nations Development Programme. Retrieved: March 3, 2019. Important concepts of equality include equity, equality of outcome, and equality of opportunity.
Historically, there has been a long-run trend towards greater economic inequality over time. The exceptions to this during the modern era are the declines in economic inequality during the two World Wars and amid the creation of modern welfare states after World War II. Whereas globalization has reduced the inequality between nations, it has increased the inequality within most nations. Income inequality between nations peaked in the 1970s, when world income was distributed bimodally into "rich" and "poor" countries. Since then, income levels across countries have been converging, with most people now living in middle-income countries. However, inequality within most nations has risen significantly in the last 30 years, particularly among advanced countries.
Inequality is a central issue in economic policy debate across the globe because government tax and spending policies have significant effects on income distribution. Research has generally linked economic inequality to political and social instability, democratic breakdown and civil conflict. Research also suggests that greater inequality hinders economic growth and macroeconomic stability, and that inequality of land and human capital reduce growth more than inequality of income.
Measurements
The Gini coefficient (also known as the Gini index or Gini ratio) is a measure of statistical dispersion that represents income, wealth, or consumption inequality within a nation or social group. It measures the inequality among the values in a frequency distribution, such as income levels. A Gini coefficient of 0 reflects perfect equality, where all income or wealth values are the same. In contrast, a Gini coefficient of 1 (or 100%) reflects maximal inequality among values, a situation where a single individual has all the income or wealth while all others have none.
Oxfam's 2021 report on global inequality said that the COVID-19 pandemic has increased economic inequality substantially; the wealthiest people across the globe were impacted the least by the pandemic and their fortunes recovered quickest, with billionaires seeing their wealth increase by $3.9 trillion, while at the same time the number of people living on less than $5.50 a day likely increased by 500 million. According to economist Joseph Stiglitz, the pandemic's "most significant outcome" will be rising economic inequality in the United States and between the developed and developing world. Oxfam's 2026 report on economic inequality found that the number of billionaires has increased to 3,000, and their wealth has increased to 18.3 trillion, breaking records. Oxfam posits that this gives billionaires undue influence over politics and the media. On the flip side, nearly half the global population still lives in poverty. The report cites corporate power as the driver of growing inequality, as corporations reap record profits, workers continue to struggle.
In 2016, the world's billionaires increased their combined global wealth to a record $6 trillion. In 2017, they increased their collective wealth to $8.9 trillion.
The existing data and estimates suggest a large increase in international (and more generally inter-macroregional) components between 1820 and 1960. It might have slightly decreased since then, at the expense of increased inequality within countries. The United Nations Development Programme in 2014 asserted that greater investments in social security, jobs, and laws that protect vulnerable populations are necessary to prevent widening income inequality.Mark Anderson (July 24, 2014). Jobs and social security needed as income inequality widens, UNDP warn. The Guardian. Retrieved July 24, 2014.
According to a 2020 study, global earnings inequality has decreased substantially since 1970. During the 2000s and 2010s, the share of earnings by the world's poorest half doubled. Two researchers claim that global income inequality is decreasing due to strong economic growth in developing countries. According to a January 2020 report by the United Nations Department of Economic and Social Affairs, economic inequality between states had declined, but intrastate inequality has increased for 70% of the world population over the period 1990–2015. In 2015, the OECD reported in 2015 that income inequality is higher than it has ever been within OECD member nations and is at increased levels in many emerging economies.Improving job quality and reducing gender gaps are essential to tackling growing inequality. OECD, May 21, 2015. According to a June 2015 report by the International Monetary Fund (IMF):
Widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades. Inequality trends have been more mixed in emerging markets and developing countries (EMDCs), with some countries experiencing declining inequality, but pervasive inequities in access to education, health care, and finance remain.Era Dabla-Norris; Kalpana Kochhar; Nujin Suphaphiphat; Frantisek Ricka; Evridiki Tsounta (June 15, 2015). Causes and Consequences of Income Inequality : A Global Perspective. International Monetary Fund. Retrieved June 16, 2015.
In October 2017, the IMF warned that inequality within nations, despite global inequality falling in recent decades, has risen sharply enough to threaten economic growth and could result in further political polarization. The Fund's Fiscal Monitor report said that "progressive taxation and transfers are key components of efficient fiscal redistribution." In October 2018, Oxfam published a Reducing Inequality Index which measured social spending, tax and workers' rights to show which countries were best at closing the gap between the rich and the poor.
The 2022 World Inequality Report, a four-year research project organized by the economists Lucas Chancel, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, shows that "the world is marked by a very high level of income inequality and an extreme level of wealth inequality" and that these inequalities "seem to be about as great today as they were at the peak of western imperialism in the early 20th century". According to the report, the bottom half of the population owns 2% of global wealth, while the top 10% owns 76% of it. The top 1% owns 38%. The 2026 report showed that wealth inequality continues to increase around the world, with the richest 10% of the global population owning 75% of global wealth, while the bottom half owned only 2%. The report also noted that the richest 1% are wealthier than the bottom 90%, and the richest 0.001% own 3 times the wealth of half the world's population.
Globally in 2023, this is how much after-tax annual income it took, in U.S. dollars, for someone to be in the top 1% of income earners:Lots of Americans are in the global 1%. A tenth of their income could transform the world., Vox, September 15, 2023, Single adult with no children: $60,000 Two adults with one child: $130,000 Two adults with two children: $160,000
Income
Income distribution within individual countries
In 1820, the ratio between the income of the top and bottom 20 percent of the world's population was three to one. By 1991, it was eighty-six to one. A 2011 study titled "Divided we Stand: Why Inequality Keeps Rising" by the Organisation for Economic Co-operation and Development (OECD) sought to explain the causes for this rising inequality by investigating economic inequality in OECD countries; it concluded that the following factors played a role: Changes in the structure of households can play an important role. Single-headed households in OECD countries have risen from an average of 15% in the late 1980s to 20% in the mid-2000s, resulting in higher inequality. Assortative mating refers to the phenomenon of people marrying people with similar backgrounds, for example, doctors marrying other doctors rather than nurses. OECD found that 40% of couples where both partners work belonged to the same or neighboring earnings deciles, compared with 33% some 20 years earlier. In the bottom percentiles, the number of hours worked has decreased. The main reason for increasing inequality seems to be the difference between the demand for and supply of skills. The study made the following conclusions about the level of economic inequality: Income inequality in OECD countries is at its highest level for the past half-century. The ratio between the bottom 10% and the top 10% has increased from 1:7 to 1:9 in 25 years. There are tentative signs of a possible convergence of inequality levels towards a common and higher average level across OECD countries. With very few exceptions (France, Japan, and Spain), the wages of the 10% best-paid workers have risen relative to those of the 10% lowest paid.
A 2011 OECD study investigated economic inequality in Argentina, Brazil, China, India, Indonesia, Russia, and South Africa. It concluded that key sources of inequality in these countries include "a large, persistent informal sector, widespread regional divides (e.g., urban–rural), gaps in access to education, and barriers to employment and career progression for women".
Income inequality is measured by the Gini coefficient (expressed as a %), which ranges from 0 to 1. Here, 0 represents perfect equality, meaning everyone has the same income, whereas 1 represents perfect inequality, meaning one person has all the income and others have none. A Gini index value above 50% is considered high; countries such as Brazil, Colombia, South Africa, Botswana, and Honduras fall into this category. A Gini index value of 30% or above is considered medium; countries including Vietnam, Mexico, Poland, the United States, Argentina, Russia and Uruguay can be found in this category. A Gini index below 30% is considered low; countries such as Austria, Germany, Denmark, Norway, Slovenia, Sweden, and Ukraine fall into this category. In the low-income inequality category (below 30%) is a wide representation of countries previously being part of Soviet Union or its satellites, like Slovakia, Czech Republic, Ukraine and Hungary.
In 2012, the Gini index for income inequality for the whole European Union was only 30.6%.