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Income and Wealth Inequality


Helene Gayle, an American doctor, said, ” the difference between rich and poor is becoming more extreme, and as income inequality widens the wealth gap in major nations, education, health, and social mobility are all threatened.” Income inequality refers to how income is unevenly spread in a given population. On the other hand, wealth inequality is the uneven wealth distribution within a population. There is a slight relationship between income and wealth; however, the two differ in concept. Income focuses majorly on financial flows in the households ranging from salaries and wages, payments from the governments and returns on investments. Wealth is the total household saved resources. Both wealth and income are vital as a household indicator of financial prosperity, advantages associated with paid labour, and households’ inequality. This paper focuses on measures, trends and inequalities in income and wealth for the United States population.

Measures of income inequalities

Economists use various metrics to measure income inequalities. The main methods used are; decile ratio, Gini coefficient, Lorenz curve and Theil Index. These methods vary in terms of their pros and cons. The choice of the technique to use largely depends on what to measure and the income source, such as capital gains, wages or taxes. Therefore, it is essential to understand economic inequality dynamics when choosing the right and the best method. The standard method used in measuring income inequality is the “Gini coefficient” (Solt, 2020). This method has some direct relations with the Lorenz curve. The populations’ income is plotted on the “Y-axis” while the total population is plotted on the “X-axis”. The line is drawn at the 45 degrees of incomes equalities. The Gini coefficient in the region between the Lorenz curve and the line at 45 degrees, divided by the area under the line at 45-degree. Individuals have positive income. This is no value of a negative income as the values range from 0-1. The interpretation of the findings is as follows; a smaller Gini value indicates that the society is equal. This method is independent of the economy and the population size. In addition, the technique applies statistics from the whole income distribution.

Trends in the measures of income inequality in the US (1940-2020)

In early 1940, the world experienced the Second World War. During this period, the control on wages prevented top incomes growth. After the end of the war, reforms such as unionization and social security promoted low-income growth. From the beginning of 1970, the wages growth for the top income earners created income inequality with the lower-income earners. Gini coefficient extended from 0.394 in the year 1970 to approximately 0.482 in the year 2013. In the period 1940-1970, the composition of top-income changed from capital to wages income. In addition, during the same period, income on wages increased. After inequality increased in the 1970s, this trend continued. However, in 2001 and 2007-2009 the income on the top earners fell sharply. Crashes contributed to the stock market, reducing the stocks and capital gains value and the income of the top earners that fell during this period and the income of the bottom earners. The year 2009 marked the end of the Great Recession (Tsoulfidis & Paitaridis, 2018). After this period, the economy is doing quite well in several sectors. The labour market is creating more jobs that have seen 110 months in employment growth; a record attained after World War II. There was an increase in income between 2015 and 2018. The increase was $70200 to $74600. The annual rate of increase was 2.1%. This was a more significant growth than the one experienced in 1970-2000. From 1970 to 2020, the share of middle-class income has fallen to 43% from 62%. The same period saw an increase in top income earners to 48% from 29%. In addition, the share to the low-income earner lowered during this same period from 10% to 9%.

Roles of globalization and advances in technology in widening income inequality in the United States.

Globalization widens income inequality. Globalization promotes an increase in trade and specialization. Trade stimulates economic growth; however, this can result in the importation of cheaper manufactured goods. These goods will affect the domestic products and their supply. This leads to a fall and reduction of employment and the income earned by these companies. Fall and reduction of jobs lead to a decline in living standards (Wade, 2020). The few who maintains their position still experience the effects, as their wages are pressured downward. Their salaries are lowered to ensure the domestic company survives the competition from the imported goods. Lowering of wages and fall of employment widens the inequality in income.

Technological advancement increases income inequality. The incorporation of new technologies in a company’s process brings change. For instance, if computers and automation are adopted, then they will take the place of secretaries, typists and workers at the assembly line. Only a few of these workers are required. The workers not needed in the company will be rendered unemployed. Therefore, this widens the income gap as some individual still earns more and others earn nothing. In addition, the new technologies require skilled labour to operate these computers and machines, for example, the engineers. Skilled labour receives more wages compared to non-skilled labour. Therefore, incorporating advanced technology widens the gap between the income received by experienced labour and the income received by non-skilled labourers.

Therefore, globalization and technology play a critical role in widening income inequality. This is because globalization opens up trade. Companies with vast technological advancement with high skilled labour would grow more extensive while the small companies who have not adopted new technology and have skilled labour get smaller. The reason for big companies growing is their increased exports market. On the other hand, the income of the smaller companies gradually decreases.

Compare wealth inequality to income inequality.

Income inequality is the degree or the extent to which income is unevenly spread in a given population; on the other hand, wealth inequality defines wealth unequal distribution among society members.

Most income inequalities are represented through percentages; usually, the income percentage is related to the population percentages. Similarly, to represent wealth inequalities, the percentage is used. That is, the wealth possessed by individual percentages to the population percentage.

It is easier to measure income inequality since income is the money received; hence the value remains constant at that particular time; on the other hand, it is tough to measure wealth inequalities. This is because most of the wealth composition, for example, the financial assets, yields varying interests over time (Zucman, 2019). This changes and influences the wealth levels over time. This challenge of determining and measuring wealth is mainly experienced among the wealthiest individuals in the economy. This is due to their assets varieties.

Trends in wealth inequalities in the United States (1940-2020)

Gini coefficient indicates that wealth inequality has risen over time. This increase has increased in the entire population and within the bottom 99% and 90% of the total bottom households. During the post-second world war, the Gini coefficient fluctuated to around 0.8. The period between the years 1950 and 2007 did not experience much change. By the year 2007, the Gini coefficient was at 0.82 (Stopka et al., 2020).This is slightly higher than the coefficient of the period 1950-2007. The difference between these two periods was a 0.02 increase. In 2016-2019, the median wealth of the low wealth individuals increased. These trends indicate that the United States is more unequal than during the 1940s.

Causes of wealth inequalities in the United States

Aggregate processes and the level of individuals and families causes wealth inequalities in the United States. Fluctuations in the market, especially in real estate and stock, play a significant role in wealth inequalities (Zucman, 2019). This is because when there is an increase in the value of a given asset, the owners of these assets become wealthier. In addition, wealthy individuals own most stocks. Therefore, the stock market’s success results in the owners of the stocks intensifying their wealth. Thus, assets ownership is one cause of wealth inequalities in aggregate processes that causes wealth inequalities. This is because, with an increase in the value of an asset, the owner of the asset becomes wealthier, creating a massive difference between those who own the assets and the others who do not own these assets.

Family and individual processes also contribute to wealth inequalities. Total family income plays an essential role in determining the amount of money to save and their wealth. Several factors determine the family’s age and structure determine the net income and wealth ownership. The age of individual influences wealth ownership. The hypothesis of life cycle saving indicates that personal wealth tends to increase during their working years as they accumulate assets that would help them during their old age. The hypothesis on lifecycle suggests that individual net worth rises until their retirement age and then sharply falls. The structure of the family also influences wealth inequalities. Family structures that contribute to wealth accumulation include widowhood and marriage, while family separation or divorce and a larger family size result in less wealth. Therefore, family and individual processes influence wealth inequalities, as one method can contribute to wealth accumulation while others decline or have fewer wealth accumulations.

Role of healthcare inequality as it relates to income and wealth inequalities

Research findings indicate that everything about health has an association with the economic inequality of the population. This can be information of income or wealth. Poverty and poor health are closely related. Wealthy and high-income individual earners are healthier. The distribution of poverty and income causes health inequalities. This is because it directly affects health through what people can purchase in terms of goods and services that can either damage or support their health. In addition, it influences other factors believed to indirectly affect health, for example, the social status and authority over unpredictable events. Individuals with high income and wealth live healthy life. Therefore, since income and wealth contribute to better health, it creates a disparity between the higher income earners and wealthy individuals with the low income and less wealthy individuals on health matters.

Income and wealth inequalities are critical in dictating general health and health inequalities. Therefore, to reduce health inequalities, adopting a strategy to lower the income inequality within a population is vital.

Estimations of the wealth gap between those who have private insurance and those who do not.

Insurance requires contributions towards purchasing an insurance policy. The holders of insurance policy pay premiums every month. Someone capable of accessing private insurance must have enough funds to pay monthly premiums. Low-income earners cannot afford these premiums and hence cannot secure these policies. The wealthy individuals afford these premiums. The income earned by the individual at the bottom of the economy is only enough for their basic needs. The wealthy individual makes enough money to cater for their basic needs and in excess to buy insurance policies. In addition, wealthy individuals have other sources of income from their assets used to access this private insurance. Therefore, the gap between individuals who have access to private insurance and those who do not is huge. One grows on the top income earners, and the other is the lowest income earners.

Evaluation on whether the increase in access to affordable or free healthcare can reduce income or wealth inequalities.

Most people use or pay hundreds or even thousands of dollars for medical expenses every year. A single person incurs several costs in terms of workplace premiums contributed towards medical expenses in a year. In addition, extra cash is incurred during different hospital visits; in some cases, the costs are extended to prescription when some are required to purchase drugs. This is just the essential cost of medication for a single individual; when the same is done for the whole family, it is evident that health takes up most of the family income. Therefore, increasing access to affordable health care will reduce income or wealth inequality. Free healthcare will be of importance to the less fortunate families. This is because they will no longer incur health costs. Therefore, the funds that otherwise would be used to cater to their individual and family health would be used for other functions. These functions and projects include acquiring assets and purchase of stock. When these families acquire and purchase stock, there is a rise in their wealth. Therefore, this will bridge and reduce the gap between the wealthier individuals and those who are not rich. Consequently, it is worth noting that increasing access to free healthcare would play a significant role in reducing income and wealth inequalities within a population.

Recommendations on how to reduce income or wealth inequality

The federal government should implement these policies to reduce wealth and income inequality. They should ensure; the minimum wages of employees are increased, expansion of earned income tax, and build assets for families working and investing in education.

To begin with, the federal government should adopt a policy that increases the minimum wage of the employees. Improving the employees’ wages who earn the least in the economy will elevate them from poverty. This resulted in them bridging the more significant gap between them and the people earning more or wealthier. It is worth noting that raising employees’ minimum wages neither destroys employment nor the economy’s growth.

Another policy that can reduce income and wealth inequality is building assets for working families. Policies that promote higher savings rates and those that reduce the building costs of assets, for example, households, should be embraced. This will encourage and motivate struggling families who earn small wages to build their assets. This will provide economic security to them and, at the same time, reduce the wealth inequalities in the community and the states. This is because; homeownership is an essential path to wealth.

Education is an important sector that reduces income and wealth inequalities. The federal government should adopt a policy that improves education and the quality of the schools. Education is one of the components that contribute to inequality. Education increases the productivity of the people. Therefore, it is essential to invest heavily in education as it reduces inequality across all the sectors of an economy. For instance, an educated person possesses excellent skills in their field of specialization; hence, their wages are more than a non-skilled employee.

Finally, increasing the tax on earned income reduces the wealth and income inequalities. In the past few years, the earned income tax credit has been shown to benefit many families and lift families beyond the poverty line. Therefore, a rise in the earned income tax credit will mean that more families are pulled beyond the poverty line while at the same time providing working families not privileged to be rich with economic support. Therefore, increasing the tax on earned income reduces wealth inequalities, as more individuals and families will be pushed beyond the poverty line.


Income and wealth inequalities are firmly but correlated lowly. The concept of wealth and income affects every population, United States included. Both income and wealth inequalities are compared between two classes in a population, the top class and the lower class. Income considers money flow in a given individual, while wealth measures assets. This paper focused on the different measures of inequality the trends in inequalities from 1940-2020 among the population of the United States. The best method to measure inequalities is the Gini coefficient. In addition, technology and globalization contribute to disparities in wealth due to importations of cheap goods, which lender the domestic industries to decline. The decline in the industries means that some individuals will be deprived of their sources of livelihood. It is worth noting that some measures and policies reduce wealth inequalities, for instance, the provision of accessible and free healthcare. This is because the fund these families would otherwise use in healthcare costs is used for other functions like buying assets. In addition, other policies such as improving education, building assets for low-income families, and increasing the tax on earned income play a role in reducing wealth inequality. Therefore, adopting a policy that reduces income and wealth inequalities is essential to bridge the gap between the wealthy and the less fortunate individuals.


Solt, F. (2020). Measuring income inequality across countries and over time: The standardized world income inequality database. Social Science Quarterly101(3), 1183-1199. doi:10.1111/ssqu.12795

Stopka, T. J., Feng, W., Corlin, L., King, E., Mistry, J., Mansfield, W., Allen, J. D. (2022). Assessing equity in health, wealth, and civic engagement: A nationally representative survey, United States, 2020. International Journal for Equity in Health21(1). Doi:10.1186/s12939-021-01609-w

Tsoulfidis, L., & Paitaridis, D. (2018). Capital intensity, unproductive activities and the Great Recession in the US economy. Cambridge Journal of Economics43(3), 623-647. doi:10.1093/cje/bey051

Wade, R. H. (2020). Should we worry about income inequality? Neoliberalism, Globalization, and Inequalities, 95-118. doi:10.1201/9781315231082-8

Zucman, G. (2019). Global wealth inequality. Annual Review of Economics11(1), 109-138. doi:10.1146/annual-economics-080218-025852


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