Income inequality – definition and examples

Income inequality refers to the varying incomes of different socioeconomic groups in an economy. We sometimes refer to it as the income gap. It highlights the gap between those with the highest and lowest incomes in a country, region, or the whole world.

Income inequality exists when there is an unequal distribution of incomes across various groups of individuals and households in an economy.

Income inequality usually compares socioeconomic groups. However, it may also compare the incomes of men versus women, or white people versus African Americans.

We usually express income inequality in percentage terms. For example, we may say that the top ten percent of earners represent fifty percent of a country’s total income.


Income and income distribution

The term income is the money that people receive for the work they do. It also includes money we get from things we sell and services we provide.

Income distribution looks at how much different socioeconomic groups in a country, region, or the world earn. To define income inequality, we need to know what the income distribution is.

Oxfordreference.com has the following definition of the term:

“Differences in income between individuals or families, or between different groups, areas, or countries.”

Income inequality and wage inequality are similar. However, wage inequality does not include income from dividends, investments, selling something, or the profit a sole trader makes.


Wealth vs. income inequality

Our wealth is all our possessions, including cash we have at home, money in the bank, shares, bonds, property, vehicles, etc. In other words, our wealth is everything we own.

Our income, on the other hand, is the flow of money we receive such as our salary, bonuses, and share dividends.

The profit we make when we sell something for more than we bought it for is also our income. We usually calculate income per week, per month, or per year.

Therefore, wealth inequality looks at the distribution of all wealth in a country. It looks at how fairly or unfairly total wealth is distributed across a population.

We also express wealth inequality in percentage terms. For example, I might say that ten percent of the population own sixty percent of a country’s wealth.


Income inequality and automation

Automation is finding its way into every niche and cranny of our economy. Robots, computers, and artificial intelligence threaten to exacerbate income inequality, a report has warned.

The Institute for Public Policy Research warns that increasing automation will affect low-wage workers the most. The Institute for Public Policy Research is a left-wing think-tank based in London, UK.

Robots are already starting to master many repetitive tasks and replacing human workers.

Low-wage jobs, the authors found, are five times more likely to become automated than high-income jobs. The retail trade, manufacturing, and transportation are at highest risk, they added.