4.2.2 Inequality Flashcards
What is the Distinction between Wealth and Income Inequality?
Wealth Inequality: (Wealth refers to the total value of assets owned by an individual or household, including real estate, investments, savings, and possessions.) Wealth inequality measures the unequal distribution of these assets among individuals or households. It reflects disparities in accumulated financial resources and net worth.
Income Inequality: (Income represents the flow of money received by individuals or households over a specific period, usually annually.) Income inequality measures the uneven distribution of income among individuals or households. It reflects disparities in earnings from wages, salaries, investments, and government transfers.
What are the Measurements of Income Inequality?
The Lorenz Curve: a graphical representation of income distribution in a population.
It plots the cumulative percentage of income received by the lowest to the highest earners.
A perfectly equal distribution forms a 45-degree line (line of equality).
The greater the deviation of the Lorenz curve from the line of equality, the higher the income inequality.
The Gini Coefficient: a numerical index that quantifies income inequality.
It ranges from 0 (perfect equality) to 1 (perfect inequality).
A higher Gini coefficient indicates greater income inequality.
It is calculated using the area between the Lorenz curve and the line of equality.
What are some Causes of Income and Wealth Inequality Within Countries?
Education: Disparities in access to quality education can lead to differences in skills and income.
Labour Market: Wage differentials based on skills, experience, and demand for certain jobs contribute to income inequality.
Wealth Accumulation: Those with access to investment opportunities and assets accumulate more wealth over time.
Government Policies: Taxation, social safety nets, and welfare policies can either mitigate or exacerbate inequality.
What are some Causes of Income and Wealth Inequality Between Countries?
Globalization: Uneven benefits of globalization, such as outsourcing and offshoring, can widen income disparities between countries.
Historical Factors: Colonialism, trade imbalances, and unequal access to resources have left lasting impacts on global wealth distribution.
Geopolitical Factors: Conflicts, wars, and political instability can hinder development and exacerbate inequality among nations.
What is the Impact of Economic Change and Development on Inequality?
Economic Change:
Economic growth can either reduce or exacerbate inequality depending on how it is distributed.
Inclusive growth policies that target marginalized groups can reduce income inequality.
Development:
Developing countries often experience a Gini coefficient reduction as they progress, but this is not guaranteed.
The focus should be on equitable development, including access to education, healthcare, and infrastructure. Kuznets curve
What are the impacts of capitalism on inequality?
Positive: Capitalism can incentivize innovation, entrepreneurship, and wealth creation, which can benefit society as a whole.
Negative: Unregulated capitalism can lead to income and wealth concentration among the elite, increasing inequality.
Describe the four stages of the Kuznets curve
- Low-Income Stage (Agrarian Economy): At the initial stage of economic development, when a society is primarily agrarian, income inequality tends to be relatively low. In agrarian economies, most people are engaged in similar occupations, and there are limited opportunities for significant income disparities.
- High-Income Stage (Industrialization): As the economy develops and transitions into an industrial phase, income inequality may increase. Industrialization often leads to the growth of cities and the emergence of new industries. This can result in wage disparities between skilled and unskilled workers, as well as between urban and rural areas. Income inequality rises during this phase.
- Turning Point: The Kuznets curve suggests that there is a “turning point” at which income inequality reaches its peak. This turning point is often associated with a shift from industrialization to a more advanced, post-industrial economy.
- High-Income Stage (Post-Industrial or High-Income Economy): After reaching the turning point, as the economy becomes more post-industrial, income inequality is expected to decline. In post-industrial societies, there may be more emphasis on service industries, education, and technology, which can lead to a more even distribution of income.
