Economic inequality

Economic inequality, also known as income inequality, wealth inequality, or the gap between
rich and poor is the disparity of any of various measures of economic well-being among individuals in
a group, among groups in a population, or among countries. Economists generally focus on economic
disparity in three metrics:wealth (wealth inequality), income (income inequality), and consumption.
[1]
The issue of economic inequality can be relevant to notions of equity, equality of outcome,
and equality of opportunity.[2]
Some studies have emphasized inequality as a growing social problem. [3] Too much inequality can be
destructive,[4][5] because income inequality and wealth concentration can hinder long term growth. [6][7]
[8]
Early statistical studies comparing inequality to economic growth had been inconclusive; [9] however in
2011,International Monetary Fund economists showed that greater income equalityless inequality
increased the duration of countries' economic growth spells more than free trade, low government
corruption, foreign investment, or low foreign debt.[10]
Economic inequality varies between societies, historical periods, economic structures and systems.
The term can refer to cross sectional distribution of income or wealth at any particular period, or to the
lifetime income and wealth over longer periods of time. [11] There are various numerical indices for
measuring economic inequality. A widely used one is the Gini coefficient, but there are also many other
methods.

Causes[edit]
There are many reasons for economic inequality within societies. Recent growth in overall income
inequality, at least within the OECD countries, has been driven mostly by increasing inequality in
wages and salaries.[14]
Economist Thomas Piketty, who specializes in the study of economic inequality, argues that widening
economic disparity is an inevitable phenomenon of free marketcapitalism when the rate of return of
capital (r) is greater than the rate of growth of the economy (g). [40]
Common factors thought to impact economic inequality include:

labor market outcomes[14]

globalization,[41] by:

suppressing wages in low-skill jobs due to a surplus of low-skill labor in developing

countries

increasing the market size and the rewards for people and firms succeeding in a
particular niche

providing more investment opportunities for already-wealthy people

increasing international influence [3]

decreasing domestic influence [4]

policy reforms[14]

extra-legal ownership of property (real estate and business) [13]

more regressive taxation[42]

plutocracy

computerization, automation[43] and increased technology,[41] which means more skills are
required to obtain a moderate or high wage

ethnic discrimination[44]

gender discrimination[45]

nepotism[46]

variation in natural ability[47]

neoliberalism[48]

Growing acceptance of very high CEO salaries, e.g. in the United States since the 1960s [49]

Land speculation- Followers of Henry george believe that landlords and land speculators derive
excess wealth and income from the tendency of land to increase exponentially with development
and at a much higher rate than population growth. Their solution is to tax land value, though not
necessarily structures or other improvements. This concept is known as Georgism.

Theoretical frameworks[edit]
Neoclassical economics[edit]
Neoclassical economics views inequalities in the distribution of income as arising from differences in
value added by labor, capital and land. Within labor income distribution is due to differences in value
added by different classifications of workers. In this perspective, wages and profits are determined by
the marginal value added of each economic actor (worker, capitalist/business owner, landlord). [50] Thus
rising inequalities are merely a reflection of the productivity gap between highly-paid professions and
lower-paid professions.[51]
Marxian economics[edit]
Marxian economics attributes rising inequality to job automation and capital deepening within
capitalism. The process of job automation conflicts with the capitalist property form and its attendant
system of wage labor.
In Marxian analysis, capitalist firms increasingly substitute capital equipment for labor inputs (workers)
under competitive pressure to reduce costs and maximize profits. Over the long-term, this trend
increases the organic composition of capital, meaning that less workers are required in proportion to
capital inputs, increasing unemployment (the "reserve army of labour"). This process exerts a
downward pressure on wages. The substitution of capital equipment for labor (mechanization and
automation) raises the productivity of each worker, resulting in a situation of relatively stagnant wages
for the working class amidst rising levels of property income for the capitalist class

Taxes[edit]
Another cause is the rate at which income is taxed coupled with the progressivity of the tax system.
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. [59][60][61]

In a progressive tax system, the level of the top tax rate will often have a direct impact on the level
of inequality within a society, either increasing it or decreasing it, provided that income does not
change as a result of the change in tax regime. Additionally, steeper tax progressivity applied to social
spending can result in a more equal distribution of income across the board.[64] The difference between
the Gini index for an income distribution before taxation and the Gini index after taxation is an indicator
for the effects of such taxation.[65]
[62][63]

There is debate between politicians and economists over the role of tax policy in mitigating or
exacerbating wealth inequality. Economists such as Paul Krugman,Peter Orszag, and Emmanuel
Saez have argued that tax policy in the post World War II era has indeed increased income inequality
by enabling the wealthiest Americans far greater access to capital than lower-income ones. [42]

Education
An important factor in the creation of inequality is variation in individuals' access to education.
[66]
Education, especially in an area where there is a high demand for workers, creates high wages for
those with this education,[67] however, increases in education first increase and then decrease growth
as well as income inequality. As a result, those who are unable to afford an education, or choose not to
pursue optional education, generally receive much lower wages. The justification for this is that a lack
of education leads directly to lower incomes, and thus lower aggregate savings and investment.
Conversely, education raises incomes and promotes growth because it helps to unleash the productive
potential of the poor.
In 2014, economists with the Standard & Poor's rating agency concluded that the widening disparity
between the U.S.'s wealthiest citizens and the rest of the nation had slowed its recovery from the
2008-2009 recession and made it more prone to boom-and-bust cycles. To partially remedy the wealth
gap and the resulting slow growth, S&P recommended increasing access to education. It estimated
that if the average United States worker had completed just one more year of school, it would add an
additional $105 billion in growth to the country's economy over five years. [68]
During the mass high school education movement from 19101940, there was an increase in skilled
workers, which led to a decrease in the price of skilled labor. High school education during the period
was designed to equip students with necessary skill sets to be able to perform at work. In fact, it differs
from the present high school education