EDU Articles

Learn about investing, trading, retirement, banking, personal finance and more.

Ad is loading...
Help CenterFind Your WayBuy/Sell Daily ProductsIntraday ProductsFAQ
Expert's OpinionsBest StocksInvestingTradingCryptoArtificial Intelligence
IntroductionMarket AbbreviationsStock Market StatisticsThinking about Your Financial FutureSearch for AdvisorsFinancial CalculatorsFinancial MediaFederal Agencies and Programs
Investment PortfoliosModern Portfolio TheoriesInvestment StrategyPractical Portfolio Management InfoDiversificationRatingsActivities AbroadTrading Markets
Investment Terminology and InstrumentsBasicsInvestment TerminologyTrading 1 on 1BondsMutual FundsExchange Traded Funds (ETF)StocksAnnuities
Technical Analysis and TradingAnalysis BasicsTechnical IndicatorsTrading ModelsPatternsTrading OptionsTrading ForexTrading CommoditiesSpeculative Investments
Cryptocurrencies and BlockchainBlockchainBitcoinEthereumLitecoinRippleTaxes and Regulation
RetirementSocial Security BenefitsLong-Term Care InsuranceGeneral Retirement InfoHealth InsuranceMedicare and MedicaidLife InsuranceWills and Trusts
Retirement Accounts401(k) and 403(b) PlansIndividual Retirement Accounts (IRA)SEP and SIMPLE IRAsKeogh PlansMoney Purchase/Profit Sharing PlansSelf-Employed 401(k)s and 457sPension Plan RulesCash-Balance PlansThrift Savings Plans and 529 Plans and ESA
Personal FinancePersonal BankingPersonal DebtHome RelatedTax FormsSmall BusinessIncomeInvestmentsIRS Rules and PublicationsPersonal LifeMortgage
Corporate BasicsBasicsCorporate StructureCorporate FundamentalsCorporate DebtRisksEconomicsCorporate AccountingDividendsEarnings

What is Income Inequality?

One of the most pressing and debated issues in the economic and social sphere is income inequality. This complex phenomenon refers to the disparities in the distribution of income among individuals and groups within a society. Understanding its root causes, implications, and solutions is vital for policymakers, economists, and society at large.

Defining Income Inequality

Income inequality refers to the unequal distribution of income among a population. It is a comparison of the income of the wealthiest group to that of the poorest group, often divided into quintiles or deciles. This phenomenon isn't merely about different income levels; it's about the widening gap between these groups over time and the implications of this disparity.

A common measure of income inequality is the Gini Index or Gini Coefficient. A value of 0 represents absolute equality, where everyone has the same income, while a value of 1 implies absolute inequality, where one person has all the income and the rest have none.

The Roots of Income Inequality

Income inequality arises due to a variety of factors. On one hand, personal elements such as education level, skill set, work ethic, and innovative ideas can influence an individual's income. On the other hand, systemic issues like gender or racial discrimination, economic policies, and societal norms also play significant roles. While some income disparity is expected and can drive competition and innovation, excessively high inequality can be a sign of systemic biases and barriers to economic mobility.

Income Inequality and Social Mobility

Income inequality is intimately tied to the concept of social mobility – the ability of individuals to move between different socio-economic strata. The idea of "The American Dream," where hard work can propel one to higher socio-economic status, is predicated on high social mobility. However, research suggests that extreme income inequality tends to limit social mobility. As wealth concentrates among the upper class, opportunities for the lower classes to ascend the socio-economic ladder become scarce, contributing to persistent inequality across generations.

The Implications of Income Inequality

The consequences of income inequality extend beyond individuals to society at large. High levels of income inequality can result in a lack of opportunities for improved standards of living, creating a cycle of poverty and limited economic mobility. In extreme cases, it can lead to social unrest, political instability, and economic crises.

The disparities can also manifest in other ways, such as inequality in healthcare access, education quality, and even life expectancy. Essentially, income inequality can create a chasm within societies, leading to a myriad of social, economic, and political challenges.

The Reality of Income Inequality in the World

The degree of income inequality varies from country to country. Some societies maintain a relatively balanced distribution of income, while others exhibit significant disparities. The United States, for example, has one of the highest levels of income inequality in the world, as measured by the Gini Coefficient.

Income inequality, in its essence, reflects how unevenly economic prosperity is shared within a society. While some level of inequality can spur economic growth and innovation, excessive disparities can impede social mobility and trigger socio-political unrest. Consequently, understanding and addressing income inequality is crucial for promoting social justice, economic growth, and stability in our societies. Policymakers, economists, and society at large need to focus on strategies to promote inclusive growth, creating societies where opportunities are not monopolized by the few but accessible to all.


Income inequality is the difference in the average income of the lower/middle class and the upper class.

Naturally the high income of very rich people in the country, which constitute a very small percentage of the population, will dwarf the average income of those who are not very rich. The worrisome thing is when the gap between them widens at an accelerating rate and the lower classes are not able to break through to the upper classes.

Income inequality is a field of study that focuses on the average income and standard of living of the average lower- and middle-class families in a country and compares it to that of the upper-class citizens. Some countries do not have a large disparity between the two, while some have a very wide gap.

Naturally some people will have more skills and education, better ideas and better work ethic than some other people, but when one person is paid far higher amounts for the same amount of work that may or may not have much utility value in society, this is income inequality.

Having a higher income and more money tends to enable a person to make an even greater amount of money in the future, which further increases income inequality. Social mobility is a closely related concept, which has to do with the ability in a society of a member of one socio-economic class to move up into the other, higher-income tiers.

This is a large part of the mythos of the American Dream: that through hard work, anyone could become as successful as anyone else. A large wealth gap, which is another word for income inequality, tends to stifle social mobility, according to some studies.

The United States has among the highest levels of income inequality in the worth. It is measured with such statistical tools as the Gini Coefficient.

What is the Income of the Average American?
What are Federal Tax Brackets?
What is Income Per Capita?

Ad is loading...