4.2.2 Inequality

• Wealth


  A stock of assets, such as a house, shares, land, cars and savings
• Wealth inequality


  The unequal distribution of assets
• Income


  Money received on a regular basis, e.g. from a job, welfare payments, interest or dividends
• Income inequality


  Uneven distribution of income across a nation
• Lorenz curve


  Measures the distribution of income and wealth in a country
• Gini coefficient


  A value of 0 indicates perfect equality, a value of 1 is perfect inequality
• Causes of income and wealth inequality within and between countries

  • Inequality in wages
  • Welfare payments and taxes
  • Unemployment
  • Changes to the UK tax system
  • Inequality between countries
• Inequality in wages


  • More part-time and temporary jobs rather than full time jobs
  • Wage gap between skilled and unskilled workers
  • Women earn less than men on average
  • Discrimination against workers based on age, disabilities, gender and race
• Welfare payments and taxes

  • State pensions and welfare payments tend to increase less than wages
  • Welfare payments have been cut recently
  • Some taxes are regressive, meaning those on lower incomes bear a larger burden
• Unemployment


  • Can cause relative poverty and is detrimental where no one in a household is working
• Changes to the UK tax system

  • Switch towards more regressive indirect taxes
  • Top income tax rate fell from 83% in 1979 to 40% in 1988
  • Basic income tax rate fell from 33% to 22%, benefiting the richest households more
• Inequality between countries


  • Certain social groups being excluded and marginalised
  • Some countries held back by wars, droughts, famines and earthquakes
  • Inequality of opportunity between countries
• As society moves from agriculture to industry


  Inequality within society increases
• Capitalism


  A society where capital is privately owned and workers are paid wages by private firms, with minimal government intervention
• Capitalism


  • Entrepreneurs take risks and are driven by the profit motive
  • Inequality is essential to encourage entrepreneurs to take risks
  • Inequality motivates workers to learn new skills and work hard
  • Capitalism leads to monopoly power which can exploit consumers and workers
• Inheritance is passed down generations


  Wealth is often concentrated in the hands of a few families
• Income redistribution and wage equality

  Can be achieved through government intervention, e.g. inheritance tax, state education, regulation of monopolies
• The price mechanism and the free market ignore equality