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What is economic inequality?

Economic inequality is the unequal distribution of income and opportunity between different groups in society. It is a concern in almost all countries around the world and often people are trapped in poverty with little chance to climb up the social ladder. But, being born into poverty does not automatically mean you stay poor. Education, at all levels, enhancing skills, and training policies can be used alongside social assistance programs to help people out of poverty and to reduce inequality. Several countries are also now exploring whether a universal basic income could be the answer.

  • Is unconditional basic income a viable alternative to other social welfare measures? Updated

    Countries give basic education and health care to everyone, and for good reasons—why not basic income?

    Ugo Colombino, March 2019
    Globalization and automation have brought about a tremendous increase in productivity, with enormous benefits, but also a dramatic reallocation of jobs, skills, and incomes, which might jeopardize the full realization of those benefits. Current social policies may not be adequate to successfully redistribute the gains from automation and globalization or to advance the reallocation of jobs and skills. Under certain circumstances, an unconditional basic income might be a better alternative for achieving these goals. It is simple, transparent, and has low administrative costs, though it may require higher taxes or a cut/reallocation of other public expenditures.
  • Market competition and executive pay Updated

    Increased competition affects the pay incentives firms provide to their managers and may also affect overall pay structures

    Priscila Ferreira, February 2019
    Deregulation and managerial compensation are two important topics on the political and academic agenda. The former has been a significant policy recommendation in light of the negative effects associated with overly restrictive regulation on markets and the economy. The latter relates to the sharp increase in top executives’ pay and the nature of the link between pay and performance. To the extent that product-market competition can affect the incentive schemes offered by firms to their executives, the analysis of the effects of competition on the structure of compensation can be informative for policy purposes.
  • Intergenerational income persistence Updated

    Measures of intergenerational persistence can be indicative of equality of opportunity, but the relationship is not clear-cut

    Jo Blanden, January 2019
    A strong association between incomes across generations—with children from poor families likely to be poor as adults—is frequently considered an indicator of insufficient equality of opportunity. Studies of such “intergenerational persistence,” or lack of intergenerational mobility, measure the strength of the relationship between parents’ socio-economic status and that of their children as adults. However, the association between equality of opportunity and common measures of intergenerational persistence is not as clear-cut as is often assumed. To aid interpretation researchers often compare measures across time and space but must recognize that reliable measurement requires overcoming important data and methodological difficulties.
  • School tracking and intergenerational social mobility Updated

    Postponing school tracking can increase social mobility without significant adverse effects on educational achievement

    Tuomas Pekkarinen, December 2018
    The goal of school tracking (assigning students to different types of school by ability) is to increase educational efficiency by creating more homogeneous groups of students that are easier to teach. However, there are concerns that, if begun too early in the schooling process, tracking may improve educational attainment at the cost of reduced intergenerational social mobility. Recent empirical evidence finds no evidence of an efficiency–equality trade-off when tracking is postponed.
  • Trade liberalization and gender inequality Updated

    Can free-trade policies help to reduce gender inequalities in employment and wages?

    Janneke Pieters, October 2018
    Women consistently work less in the labor market and earn lower wages than men. While economic empowerment of women is an important objective in itself, women's economic activity also matters as a condition for sustained economic growth. The political debate on the labor market impacts of international trade typically differentiates workers by their educational attainment or skills. Gender is a further dimension in which the impacts of trade liberalization can differ. In a globalizing world it is important to understand whether and how trade policy can contribute toward enhancing gender convergence in labor market outcomes.
  • Relative pay, effort, and labor supply

    Comparisons to others’ pay and to one’s own past earnings can affect willingness to work and effort on the job

    Anat Bracha, June 2017
    Recent studies show that even irrelevant relative pay information—earnings compared to the past or to others—significantly affects workers’ willingness to work (labor supply) and effort. This effect stems mainly from those whose pay compares unfavorably; accordingly, earning less compared to others or less than in the past significantly reduces one’s willingness to work and effort exerted on the job. Comparing favorably, however, has mixed effects—with usually no effect on effort, but positive or no effects on labor supply. Understanding when relative pay increases labor supply and effort can thus help firms devise optimal payment structures.
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