Note on Economic Inequality

By: Aldo Sesia and Clayton Rose

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Synopsis: For over half a century, most of the world's economies have enjoyed steady growth and prosperity. However, beginning in the 1980s, and continuing essentially unabated to the present, the gap between the "haves" and the "have-nots" in developed countries has widened, with a small proportion of the population reaping an increasingly larger share of a country's economic rewards. This growing economic inequality has been particularly pronounced in the United States, but the phenomenon has also occurred in many nations, among them Germany, Japan and Sweden. This note provides background on aspects of economic inequality. It begins by describing both income inequality and wealth inequality, providing an explanation of two widely used metrics and data that show increasing inequalities over time. It then moves to the factors that might contribute to this inequality, as well to propositions of economic and social consequences that might result from the widening gap. Finally, it addresses the issue of "equality of opportunity" or social mobility.