Economic inequality is the unequal distribution of economic resources or outcomes among individuals, households, groups or regions. It can refer to differences in income, wealth, consumption, earnings, access to assets, economic opportunities or living standards, and the precise meaning depends on the measure being used. Income inequality concerns the distribution of flows received over a period, whereas wealth inequality concerns the distribution of accumulated assets minus liabilities at a point in time.
Economic inequality is therefore broader than simply asking whether some people earn more than others. It can involve differences in financial assets, property ownership, savings, debt, employment opportunities and access to economic resources. The OECD distinguishes income and wealth inequality and uses several statistical measures to analyse their distributions.
Income inequality is commonly measured using the distribution of household or individual income across the population. The Gini coefficient is one of the most widely used measures. The OECD explains that its income Gini measure ranges from zero, representing perfect equality, to one, representing perfect inequality in which all measured income goes to one person.
Other measures include income shares held by particular groups, percentile ratios and decile ratios such as the ratio between the income of the upper and lower parts of a distribution. Different measures answer different questions. A Gini coefficient summarises the entire distribution, while a top income share focuses attention on concentration among high earners. No single measure captures every dimension of economic inequality.
Wealth inequality differs from income inequality because wealth represents accumulated net assets rather than income received during a period. Household net wealth is commonly defined as the value of assets owned by a household minus its liabilities. Assets can include property, financial investments, business ownership, pensions and savings, while liabilities can include mortgages and other debts. Wealth can generate future income through rent, dividends, interest or business profits and can also provide security against economic shocks. Because wealth accumulates over time and can be transferred between generations, its distribution can be substantially different from the distribution of current income. A household can therefore have relatively high income but modest accumulated wealth, or comparatively low current income while owning valuable assets.
Economic inequality can arise from differences in education, skills, occupations, hours worked, employment opportunities, bargaining power, ownership of productive assets, inheritance, entrepreneurship, investment returns and demographic circumstances. Technological change can increase demand for particular skills while reducing demand for others. Globalisation can alter the relative demand for different types of labour. Institutions such as tax systems, labour market rules, collective bargaining arrangements, social transfers and education systems can influence the distribution of market and disposable income. Economic inequality is consequently produced by interactions among market processes, inherited circumstances, individual decisions and public institutions. A statistical association between two factors does not automatically establish that one factor is the sole cause of inequality, because multiple mechanisms can operate simultaneously.
Economic inequality can be measured before or after government taxes and transfers, and this distinction is essential. Market income represents income arising before direct taxes and public cash transfers, while disposable income reflects the effects of direct taxation and transfers. Comparing the two distributions provides information about the redistributive effect of fiscal policy. The OECD measures income redistribution partly by comparing Gini coefficients for market income with those for disposable income.
This means that two countries can have similar market income inequality but different disposable income inequality because their tax and transfer systems have different structures, sizes and targeting. Economic inequality therefore cannot be interpreted properly without specifying which income concept, population, unit of analysis and time period is being used.
Economic inequality is different from poverty, although the concepts overlap. Poverty generally concerns whether people fall below a specified threshold of resources or living standards, whereas inequality concerns the distribution of resources across the entire population or between particular groups. A country can reduce poverty while still having substantial inequality if the incomes of lower income households rise without narrowing the distance from higher income households substantially. Conversely, inequality can change without a corresponding large change in poverty. Relative poverty measures can be closely connected to the overall income distribution, but poverty and inequality remain analytically distinct concepts. Understanding the distinction is important when interpreting economic statistics and evaluating the effects of taxation, transfers, economic growth and public services.
Economic inequality also has an intergenerational dimension. Wealth, education, housing and financial resources can be transferred between generations, while family circumstances can influence access to opportunities even when no direct financial transfer occurs. Home ownership, inherited businesses, financial assets and educational resources can affect future economic outcomes. At the same time, economic mobility can change the relationship between inequality at one point in time and inequality across generations.
A society can have substantial income differences in a particular year while also experiencing considerable movement between income positions, or it can have persistent differences with limited mobility. Measuring inequality therefore requires distinguishing cross sectional inequality from lifetime inequality, intergenerational mobility and the persistence of economic advantage or disadvantage.
The significance of economic inequality is debated because its consequences depend on its scale, source, duration and institutional context. Differences in income can reflect differences in skills, effort, working hours, investment returns, ownership and other factors, but extreme or persistent inequality can also be associated with unequal access to education, political influence, health, housing and economic opportunity. The World Bank has highlighted relationships between economic and political inequality and the importance of inclusive institutions for development.
At the same time, inequality statistics do not by themselves establish whether a particular distribution is socially desirable or economically harmful. Rigorous analysis therefore examines its causes, measurement, effects and persistence rather than treating a single inequality indicator as a complete description of economic wellbeing.
