In: Economics
Economic inequalities are most obviously shown by people’s different positions within the economic distribution - income, pay, wealth.Economic inequality is multi-dimensional. Income, consumption, and wealth, independently and jointly, inform the perception and reality of inequality.Yet most studies of inequality limit analysis to one dimension. Even those using more than one ignore the joint distributions. Studying inequality in two and three dimensions for the same households deepens, broadens, and refines our understanding of inequality
Income inequality measures differences in the amount of current income which individuals or households receive in a year. Income is more unequal for individuals than it is for household groups or families. Some low-income individuals are fortunate enough to belong to families with high-income members, and hence their actual standard of living is higher than their own income would allow. Income can be measured before tax, or after tax. It can include TRANSFER PAYMENTS from governments (such as unemployment benefits or public pensions), or it can include only “market” incomes (such as wages, salaries, investment income, and small business income). After tax income including transfer payments is much more equal than before tax income excluding transfers. This is because high-income individuals in most countries pay more income tax, but low-income individuals receive proportionately more transfer payments.
Wealth inequality can also be measured. This compares the accumulated wealth of different households – including home-ownership, direct business wealth, and financial assets (such as stocks, bonds, and savings accounts). Wealth is distributed far more unequally than income. And financial wealth is distributed the most unequally of all (since the only significant form of wealth for most working people is the equity they own in their homes).