What is Income Inequality?

CW: This article discusses topics of Infant mortality and crimes, such as homicide and robbery which could be distressing to some readers.

Learn what income inequality is and how it affects low income households

Income inequality is the difference in income between the richest households in the country and the poorest. Income inequality in the UK is the highest in Europe but isn't as high as in the US. Income inequality is measured using the Gini index, which measures income distribution across a population; the higher the number is the larger the inequality. According to Credit Suisse, in 2021 the wealth inequality in the UK was 71.7 out of 100 on the Gini index.


In 2019/20 42% of disposable household income went to a fifth of households that are the richest, while only 7% went to the poorest fifth.


The impacts

The effects of income inequality are substantial and not only affect the poorest individuals in the country but the country itself.


Economic


The effects of income inequality on a country's economy are varied:


high levels of income inequality lead to higher levels of personal and institutional debt along with increased levels of instability and an increase in inflation. Which in turn leads to an increase in inequality and can result from or lead to a financial crisis.


Higher-income earners often use their increased wealth to gain more wealth beyond what they need or sometimes, beyond what they could ever spend. This is called rent-seeking. An example of this is people at the top of the income spectrum buying houses they don't need to rent them out, leading to fewer houses on the housing market for other people who need them to purchase.


Rent-seeking isn't stopped due to the influence these people at the top of the income spectrum have over politicians through lobbying and ownership of media outlets.


Education


Wealth inequality affects the social mobility and education of the members of the society.


Children of high earners are likely to become high earners themselves, and the children of low income earners are likely to become low income earners. Wealthy people have access to private schools and tutors, which people with low incomes don't have access to. This gives the children of wealthy people a head start compared to poorer children.


Health


The health of members of unequal societies is shown to be worse than those in more equal societies.


The estimated excess mortality risk is 8% per 0.05 unit increase in the Gini index, so the more unequal the income levels of the country you live in, the more likely it is that you'll die early. Overall the physical health of members of unequal societies is much worse, and the life expectancy is lower.


Adult obesity occurs more frequently in countries with higher income inequality, along with child obesity, but the differences between countries are smaller.


Infant mortality is also higher in countries that are more unequal.


Higher-income earners have access to private healthcare services that may provide a higher quality of service than state-run healthcare services. To add to that, the existence of private healthcare services draws resources, such as staff, away from state-run healthcare, spreading the staff in state-run healthcare thin and causing a lower quality of care for those who rely on state-run healthcare.


There are other factors that lead to increased health risks, separate from income inequality, such as individual income.


Crime


Rates of violence are higher in more unequal societies.


Studies show that permanently decreasing the level of inequality results in lower rates of crimes such as homicides and robberies.


A survey shows that in Venezuela, which has high-income inequality, four-fifths of people asked did not feel safe when walking home alone, whereas, in Norway, which has low-income inequality, 95% of people felt safe when walking home alone.


Summary


Income inequality leads to a reduced quality of life for people who are on the lower end of the income scale.


There needs to be a societal move towards policies that combat income inequality, like preventing the excessive ownership of properties, which can be achieved through campaigning and voting for politicians whose views align with your own.


Policy changes in the government are the best methods of reducing inequality. Still, individuals in the highest bracket of income can help reduce inequality by giving part of their wealth to reputable charities or by giving directly to those in need.