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What Is Income Inequality?

Income inequality is how unevenly income is distributed throughout a population. The less equal the distribution, the higher income inequality is. Income inequality is often accompanied by wealth inequality, which is the uneven distribution of wealth. Populations can be divided up in different ways to show different levels and forms of income inequality such as income inequality by sex or race. Different measures, such as the Gini coefficient, can be used to analyze the level of income inequality in a population. Income inequality and income disparity segregations can be analyzed through a variety of segmentations. Segmentations of income disparity analysis are used for analyzing different types of income distributions. Income distributions by demographic segmentation form the basis for studying income inequality and income disparity. The Urban Institute is one source for insight on income inequality. In an analysis of 50 years of economic data by the Urban Institute, the institution showed that the poorest got poorer while the richest got much richer. Between 1963 and 2016: The poorest 10% of Americans went from having zero assets to being $1,000 in debt, families in the middle-income segment more than doubled their prior average wealth, families in the top 10% had more than five times the prior wealth, families in the top 1% had more than seven times their prior wealth.

The Economic Policy Institute released a 2018 report showing a general trend toward increasing incomes of the top earners following the 2008 Recession. Between 2009 and 2015, the Economic Policy Institute shows that the incomes of those in the top 1% grew faster than the incomes of the other 99% in 43 states and Washington D.C. There can be many factors associated with this trend, including salary stagnation for wage-earning Americans, tax cuts for the richest Americans, a loss of manufacturing jobs, and a soaring stock market that inflated the worth of corporate executives and hedge fund managers.

Income inequality is an economic concept that tends to hit some segments of populations harder than others, with significant wage gaps often identified for women, African Americans, and Hispanics working in the U.S. According to a study of 2017 income numbers by the Institute for Women's Studies, women of all races and ethnicities were paid an average 81.8% of the salaries paid to men. Historically, that's the narrowest that the gap has ever been. It has been improving year by year since 1980 when women made about 64% as much as men.

Data from the Pew Research Center also identifies income inequalities among men vs. women. The Pew Research Center shows that the gender income inequality gap has been narrowing for all workers age 16+ with women reportedly making 85% of the average salaries for men. Income disparity has varied however among workers ages 25 to 34. Within this group, women were making approximately 95% of men’s salaries in 2010 but this has fallen significantly to 89% in 2018.

The Gini Index was developed by Italian statistician Corrado Gini in the early 1900s to help quantify and more easily compare income inequality levels across countries of the world. The Index can range from 0 to 100 with a higher level showing greater income inequality among a country’s population and vice versa. Data from the World Bank shows South Africa reporting one of the highest income inequality dispersions with a Gini Index level of 63.0. According to the World Bank, the United States reports a Gini Index level of 41.5. Ukraine shows the World Bank’s lowest Gini Index reading at 25.0.

Dispersions of income inequality are an ongoing area of analysis for both local and global governing institutions. The IMF and World Bank have a goal to help improve income of the lowest 10% of earners in all countries seeking to provide comprehensive global support. Globally, new innovations in financial technologies and productions are also helping to improve the banking services of the world’s lowest-income earners as a worldwide initiative for financial inclusion is underway.