Economic inequality is the extent to which income, wealth and economic opportunities are spread unevenly across a population. Income inequality concerns flows such as wages, profits, interest and transfers earned each year. Wealth inequality concerns stocks of assets such as housing, shares and businesses, minus debts, and is usually much larger. Inequality of opportunity asks how far a person's prospects depend on circumstances they did not choose, such as parents' income, place of birth or gender.
Inequality is distinct from poverty: one measures the gap between people, the other the share of people below a minimum. It can be measured within a country, between countries, or among all people in the world. It is a central topic in public finance, labor economics and political debate, and views on how much inequality is acceptable differ widely.
Economic inequality in plain terms
Imagine a village where everyone brings food to a shared harvest feast. Inequality is about how the plates are filled. In one village most plates hold similar amounts; in another a few plates are piled high while many are nearly empty. The total food may be the same in both.
Economists ask three questions about those plates: how unequal they are, why, and whether anything should be done. Some see a big gap as a fair reward for effort and risk that also drives growth. Others see it as a sign that rules favour the well-off, and worry that it weakens trust and democracy.
How inequality is measured
- The Gini coefficient. A single number from 0 (everyone has the same) to 1 (one person has everything), based on the Lorenz curve.
- Top shares. The share of income or wealth held by the top 10%, 1% or 0.1%, built from tax records, surveys and national accounts.
- Ratios. The 90/10 ratio compares incomes at the 90th and 10th percentiles; the Palma ratio compares the top 10% with the bottom 40%.
- Pre-tax and post-tax measures. Comparing income before and after taxes and transfer payments shows how much a government redistributes. The US Census Bureau reported that in 2024 the Gini index for households was 8.7% lower on a post-tax basis than on pre-tax money income.
Trends
Inequality between countries has narrowed since about 1990, mainly because China, India and other large emerging markets grew faster than rich economies. Within many countries, especially the United States and the United Kingdom, income inequality rose from around 1980 after the Great Compression of the mid-20th century had narrowed it. The World Inequality Report 2026, published in December 2025 by the World Inequality Lab, estimated that the richest 10% of people worldwide received about 53% of global pre-tax income and held about three-quarters of personal wealth, while the bottom half held about 2% of wealth. It reported South Africa and India among the most unequal large economies. These figures depend on combining tax data with national accounts; some economists, such as Gerald Auten and David Splinter for the United States, argue that such methods overstate the rise in top income shares.
Explanations
- Technology. Skill-biased technological change raised demand for highly educated workers and reduced it for routine jobs.
- Trade and globalization. Import competition hurt some manufacturing regions in rich countries while raising incomes in exporting economies.
- Returns to capital. Thomas Piketty's Capital in the Twenty-First Century (2013) argued that when the return on capital exceeds growth, wealth tends to concentrate. Critics dispute the data and the mechanism, noting that much recent wealth growth comes from housing.
- Institutions and policy. Declining trade union membership, lower top marginal tax rates, the level of the minimum wage and rent-seeking by powerful firms are cited by different schools.
- Development stage. Simon Kuznets suggested in 1955 that inequality first rises and then falls as economies industrialize; the pattern holds in some cases but not others.
The policy debate
Those who favour stronger redistribution argue that high inequality reduces social mobility, concentrates political influence, can weaken aggregate demand and harms health and trust. IMF research has linked lower net inequality with longer growth spells. Proposals include a more progressive tax system, a wealth tax or higher inheritance tax, higher minimum wages and spending on education and human capital.
Others argue that unequal rewards encourage effort, risk-taking and entrepreneurship, that what matters is lifting the poor rather than limiting the rich, and that high taxes on capital can reduce investment or drive it abroad through tax competition. Many economists in this camp prefer measures such as earned-income credits, school reform and removing barriers to opportunity. There is broad agreement that inequality of opportunity is harder to defend than inequality from differing choices, but much less agreement on how to separate the two.