Economic inequality is a global problem with many causes. It undermines democracy, fuels political backsliding and hampers economic growth. It also fuels social unrest and aggravates health crises. While inequality is inevitable in a market-based economy as a result of differences in talent, effort and luck, excessive inequality erodes social cohesion, leads to societal polarization and slows economic growth. This resource explores what economic inequality is, how it affects people around the world and the policies that can be put in place to reduce it.
A major driver of economic inequality is the gap between people’s income, a measure that includes wealth and wages. The richest families have far more wealth than the poorest, even if they are not as productive. In addition, the value of assets such as homes and stocks can fluctuate dramatically. For example, the values of homes in the United States rose dramatically between the 1970s and 2020s – a boom that disproportionately benefitted people who own these high-value assets.
Across the world, about half of adults who identify as members of lower social classes believe that different opportunities at birth contribute to inequality a great deal. In most countries, people on the ideological left are more likely to say this than those on the right. Another factor driving inequality is the amount of wealth accumulated by politicians and business leaders, which can lead to corruption and other harmful outcomes. In addition, trade policy can play a role in economic inequality.
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