Question

What is the difference between wealth and income? Define each in detail. Which is a better measure of inequality? Explain why. (Use current data on income and wealth to make your points as well as long- term trends in wealth and income). Do the trends involving income and wealth vary by race, class, and gender? Explain your answer using specific trends.

Answer 1

Wealth is defined as the amount of assets an individual possess at a particular point of time

Whereas income refers to money earned by an individual over a period of time.

Example wealth is what the individuals or households hold as an asset like land or house or other such property. It could also be stocks and bonds(financial and non financial assets) all of which are measured at one point of time . It is a stock concept.

Whereas for income , the interest earned on bonds and stocks or the rent received on land . This is measured over a period of time. Like we measure the rent or salary monthly or yearly ,not on one point of time.

There are various trends observed over the century in income and wealth inequality in mostly Europe and united states

About a century ago the income inequality was higher in Europe than in united states but today United states have recorded higher income inequality than Europe.

According to"Thomas Picketty" , in the early 2010s there was a drastic decline in the income of the top decile(10%) in Europe from 50%to 30% whereas in US its close to 50% which is higher than it ever was in the history of US.

Then similar trends are observed in wealth inequality. Top 10%( decile) in US has more wealth compared to Europe at present .

The trend as always has been is that there is more wealth inequality than income inequality. The wealth concentration has been higher than income inequality throughout the history.

The concentration of capital ownership or wealth is always extreme because in income inequality we have merit and skilled based distribution.

In US the wealth inequality is so much more that the bottom half of the population owns very little or nil wealth though they own appreciable income.

The wealth to income ratio is also of great importance in wealth and income inequality because it measures overall importance given to wealth as compared to income.

Recently the inequalities have increased due to global competition, rise in technology and skills.

Kuznets claimed that income inequality first rises with economic development but as more people obtain the skills, the inequalities reduce.

Investments in education and skill development is important to reduce income inequality