Question

Why is it important to examine wealth along with income when studying inequality?

Answer 1

Inequality is generally analyzed on the basis of income differences i.e. the differences in the average income earned by people in a given year. Income is a flow concent and wealth is a stock concept. Wealth refers to the dollar value of the total amount of assets possessed by a person on a given date. Income is not the single factor that creates economic inequality. Wealth also creates economic inequality as the wealth held varied a lot from one person to another. A person having a huge amount of wealth may not be interested in working and earning income at present. The low income of that wealthy person does not necessarily mean he/she is a victim of inequality as he/she already possesses a huge amount of wealth. Similarly, a person may have a negligible amount of wealth but can still earn a decent income in a given year. This also does not mean that the person's economic wellbeing is excellent as he/she does not have wealth.

Therefore, it is important to examine wealth along with income in order to study inequality.