5 - Economic Inequality

Economic Inequality

The unequal distribution of income, wealth, and opportunities among individuals or groups in a society.

Operationalizing

Defining an abstract concept (like inequality) in measurable terms—e.g., using income or wealth data.

Dunning-Kruger Effect

Cognitive bias where people with low ability overestimate their competence, while experts underestimate theirs.

Inflation

A general increase in prices over time that decreases the purchasing power of money.

Consumer Price Index (CPI)

A measure that tracks the average change over time in prices paid by consumers for a standard basket of goods and services.

Average vs. Median Income

Average income adds all incomes and divides by population; median income is the midpoint—better reflects the typical person's earnings when there's inequality.

Active vs. Passive Income

Active income: earned through direct labor (e.g., wages). Passive income: earned through investments (e.g., rent, dividends).

Stocks and Bonds

Stocks: ownership shares in a company. Bonds: loans to governments or corporations that pay interest over time.

Matthew Effect

"The rich get richer, the poor get poorer" — advantages accumulate for those already advantaged (Merton).

Achieved and Ascribed Statuses

Achieved: earned through effort or talent. Ascribed: given by birth (e.g., race, gender, class).

Income Quintiles

Dividing the population into five equal groups (from poorest 20% to richest 20%) to measure inequality.

Before-Tax/Market Income

Total earnings from work and investments before taxes or government transfers.

After-Tax Income

Income remaining after taxes and government transfers (a better measure of living standards).

Gini Coefficient

A number between 0 (perfect equality) and 1 (perfect inequality) showing how income or wealth is distributed.

3 Reasons for Rising Wealth Inequality

1) The Very Rich Get Even Richer
2) Workers Lost Bargaining Power
3) Corporate Consolidation means less small business owners

Labour Union

An organized group of workers that collectively bargains with employers for better wages, hours, and working conditions.

Oligopoly

A market dominated by a few large firms that can coordinate prices and limit competition.

2 Reasons for Lack of Recognition and Response to Rising Inequality

1) Households gained extra income: women working
2) Invisible Inequality: an inequality that exists but is impossible to see unless someone tells you what their debt load is.

Invisible Inequality

The way privilege and class differences are disguised by consumerism and normalized social expectations.

Absolute, Relative, and Extreme Poverty

Absolute: lacking basic needs like food and shelter.
Relative: poor compared to others in society.
Extreme: living on less than $2.15 USD/day (World Bank).

The Theory of Comparisons

People evaluate their well-being by comparing themselves to others; inequality feels worse when visible differences exist.

Power Distance

The extent to which less powerful members of society accept unequal power distribution.

Individualism

A cultural value emphasizing personal goals and independence over collective well-being.

Uncertainty Avoidance

The degree to which people feel threatened by ambiguity and prefer rules or stability.

Indulgence

A cultural orientation that values enjoyment, freedom, and gratification rather than restraint and strict social norms