Economic inequality is a concern in almost every country around the world. It is a source of social discontent and can lead to political polarization and slow economic growth. However, the issue is complex and cannot be explained by just one factor. A wide range of factors contributes to the rise of economic inequality, including global forces such as technological progress and commodity price cycles. Within countries, factors like redistributive fiscal policies and labor market liberalization and deregulation also play a role. In addition, changing demographics and shifting patterns of mobility can contribute to rising inequality.
For example, a shift from manufacturing to services has led to the hollowing out of middle-class jobs in many developed economies. This has also contributed to the growing gap between those with high and low education levels, known as the “skill premium.” Meanwhile, changes in housing markets have exacerbated inequality between homeowners and renters.
Another important factor in income inequality is the concentration of wealth. Wealth inequality is a more powerful indicator of inequality than income inequality because it can be leveraged to gain access to credit and other assets. It can also exacerbate income inequality in a self-reinforcing cycle.
PIIE has brought together research from leading experts on the trends and causes of economic inequality in countries around the world. It draws on the work presented at the Peterson Institute’s 2019 conference, Combating Inequality, as well as subsequent research from PIIE scholars and other outside sources.