Detailed Overview on Income and Wealth Inequality

Income and Wealth Inequality

Definitions:
- Wealth: A stock of assets (e.g., houses, shares, land, cars, savings).
- Wealth Inequality: Unequal distribution of these assets.
- Income: Regularly received money (e.g., salary, welfare payments, interests, dividends).
- Income Inequality: Unequal distribution of income across a nation.

High levels of poverty can lead to:
- Lower population health levels.
- A less cohesive society and greater divides between income earners.
Achieving a more even income distribution may lead to better macroeconomic stability and social cohesion.

Lorenz Curve: Measures actual distribution of income and wealth.
- Line of perfect equality indicates that the richest x% owns the same cumulative income as x% of the population.
Gini Coefficient: Numerical value from the Lorenz curve indicating inequality.
- Value of 0: Perfect equality (everyone has the same income).
- Value of 1: Perfect inequality (all wealth concentrated in one household).

Absolute Poverty: Living below subsistence; unable to meet basic needs (food, water, sanitation, health, etc.).
- Defined by the World Bank as living on less than $1.25/day.
Relative Poverty: Comparison to country’s average; in UK, those below 60% of median income considered in relative poverty.
- Highlights inequality within the context of specific societies.

Wage Inequality and Unemployment:
- Education level impacts wage earning potential. Higher education = Higher wages.
- Lack of a National Minimum Wage can exacerbate relative poverty.
Job Market Changes: Shift towards part-time and temporary jobs leads to underemployment, affecting income stability.
Structural Unemployment:
- Result of deindustrialization and skills deterioration due to long-term unemployment.
Discrimination: Various forms (gender, age, race) contribute to wage disparities.
Welfare Payments: Often increase less than wages, leading to higher relative poverty.
Regressive Taxes: Lower income households bear a larger tax burden; disproportionately increases inequality.

Poor health can limit job opportunities and increase vulnerability to poverty.
Health Problems: Cause high absenteeism and deter foreign investment, pushing populations into absolute poverty.

Natural Disasters: Can destroy livelihoods (e.g., Nepal earthquake).
Wars: Displace individuals and destroy assets, thrusting populations into extreme poverty.

Inequality exists between countries influenced by various factors (ethnicity, gender, disasters).
Comparative Life Expectancy: Significant disparities (e.g., Japan vs. Sierra Leone).
Economic Development: Historically, Western nations grew faster due to favorable social conditions leading to industrialization.

Suggests that as societies transition from agriculture to industry, inequality rises temporarily, then redistributes with development.
Challenge by Thomas Piketty: Argues capitalist markets perpetuate inequality, creating a dependency on capital returns.

Effects of Inequality:
- Drives productivity through motivation but allows monopolies to exploit lower-income consumers.
- Wealth concentration limits opportunities for lower classes.
- Can foster negative externalities, such as social unrest and misallocation of resources.
Consequences of Poverty:
- Health: Associated with lower life expectancy and higher infant mortality due to malnutrition.
- Societal Issues: Ties to crime, mental health issues, and poor community cohesion.
- Poor Education and Economic Limitations: Families may prioritize survival over education, leading to cycles of poverty and limiting economic growth potential.