Economic inequality refers to the differences in income or wealth among people, households, and nations. It has been at an historical high in most advanced and major emerging economies, which together comprise two-thirds of the world’s population and 85 percent of global GDP.
Inequality can be driven by policies such as low wages for workers, tax breaks for corporations and ultra-wealthy individuals, and deregulation of businesses. It can also be caused by social factors such as barriers to accessing occupations. For example, a prospective hair stylist may have to pay for licensing and hours of training before becoming certified in their profession. Another factor is social stratification, which refers to how a person or household is ranked by their socioeconomic status in a society.
Many economists with progressive ideologies such as Thomas Piketty have argued that a rise in economic inequality harms incentives to produce and increase wealth. They point to the utilitarian principle that resources should be distributed in such a way that the sum of individual utility is maximized. Inequality dilutes this principle by allowing richer people to spend their money on items that provide little or no additional benefit to them, such as larger summer homes and cars. These items dilute the utility of other goods and services that could be purchased with the same dollars, such as education or health care.
Broad global trends suggest that economic inequality has increased in recent decades and is likely to continue to do so unless policymakers take action to curb it. Increasing economic inequality has been associated with a number of problems including higher poverty rates, lower life expectancy, and more limited access to healthy food and quality health care.