Why inequality is growing in the US and around the world (2024)

U.S. income inequality grew in 2021 for the first time in a decade, according to data the Census Bureau released in September 2022.

That might sound surprising, since the most accurate measure of the poverty rate declined during the same time span.

But for development experts like me, this apparent contradiction makes perfect sense.

That’s because what’s been driving income inequality in the United States – and around the world for years – is that the very rich are getting even richer, rather than the poor getting poorer.

In every major region of the world outside of Europe, extreme wealth is becoming concentrated in just a handful of people.

Gini index

Economists and other experts track the gap between the rich and the poor with what’s known as the Gini index or coefficient.

This common measure of income inequality is calculated by assessing the relative share of national income received by proportions of the population.

In a society with perfect equality – meaning everyone receives an equal share of the pie – the Gini coefficient would be 0. In the most unequal society conceivably possible, where a single person hoarded every penny of that nation’s wealth, the Gini coefficient would be 1.

The Gini index rose by 1.2% in the U.S. in 2021 to 0.494 from 0.488 a year earlier, the Census found. In many other countries, by contrast, the Gini has been declining even as the COVID-19 pandemic – and the deep recession and weak economic recovery it triggered – worsened global income inequality.

Inequality tends to be greater in developing countries than wealthier ones. The United States is an exception. The U.S. Gini coefficient is much higher than in similar economies, such as Denmark, which had a Gini coefficient of 0.28 in 2019, and France, where it stood at 0.32 in 2018, according to the World Bank.

Wealth inequality

The inequality picture is even bleaker when looking beyond what people earn – their income – to what they own – their assets, investments and other wealth.

In 2021, the richest 1% of Americans owned 34.9% of the country’s wealth, while average Americans in the bottom half had only US$12,065 – less money than their counterparts in other industrial nations. By comparison, the richest 1% in the United Kingdom and Germany owned only 22.6% and 18.6% of their country’s wealth, respectively.

Globally, the richest 10% of people now possess nearly 76% of the world’s wealth. Meanwhile, the bottom 50% own just 2%, according to the 2022 World Inequality Report, which analyzes data and the work of more than 100 researchers and inequality experts.

Drivers of extreme income and wealth

Large increases in executive pay are contributing to higher levels of income inequality.

Take a typical corporate CEO. Back in 1965, he – all CEOs were white men then, and most still are today – earned about 20 times the amount of an average worker at the company he led. In 2018, the typical CEO earned 278 times as much as their typical employees.

But the world’s roughly 2,700 billionaires make most of their money not through wages but through gains in the value of their stocks and other investments.

Their assets grow in large part because of a cascade of corporate and individual tax breaks, rather than salaried wages granted by shareholders. When the wealthy in the United States earn money from capital gains, the highest tax rate they pay is 20%, whereas the highest income earners are on the hook for as much as 37% on every additional dollar they earn.

This calculation does not even count the effects of tax breaks, which often slash the real-world capital gain tax to much lower levels.

Tesla, SpaceX and Twitter CEO Elon Musk is currently the world’s richest man, with a fortune of $240 billion, according to a Bloomberg estimate. The $383 million he made per day in 2020 made it possible for him to buy enough Tesla Model 3 cars to cover almost the whole of Manhattan had he wished to do so.

Musk’s wealth accumulation is extreme. But the founders of several tech companies, including Google, Facebook and Amazon, have all earned many billions of dollars in just a few years. The average person could never make that much money through a salary alone.

Another day, another billionaire

A new billionaire is created every 26 hours, according to Oxfam, an international aid and research group where I used to work.

Globally, inequality is so extreme that the world’s 10 richest men possess more wealth than the 3.1 billion poorest people, Oxfam has calculated.

Economists who study global inequality have found that the rich in large English-speaking countries, along with India and China, have seen a dramatic rise in their earnings since the 1980s. Inequality boomed as deregulation, economic liberalization programs and other policies created opportunities for the rich to get richer.

Why inequality matters

The rich tend to spend less of their money than the poor. As a result, the extreme concentration of wealth can slow the pace of economic growth.

Extreme inequality can also exacerbate political dysfunction and undermine faith in political and economic systems. It can also erode principles of fairness and democratic norms of sharing power and resources.

The richest people have more wealth than entire countries. Such extreme power and influence in the hands of a select few who face little accountability is raising concerns that are part of a robust debate on whether and how to address extreme inequality.

Many proposed solutions call for new taxes, regulations and policies, along with philanthropic strategies like using grants and community-based investments to dismantle inequality.

Voters in some states, like Massachusetts, voted to raise taxes on the income earned by their richest residents in ballot initiatives in November 2022. Proponents of these initiatives claim the revenue raised would boost funding for public services, such as education and infrastructure. President Joe Biden is also proposing to almost double the top capital gains tax for those making over $1 million.

However societies choose to act, I believe change is needed.

Why inequality is growing in the US and around the world (2024)

FAQs

Why is inequality growing in the US and around the world? ›

Shifting economic paradigms are altering distributional dynamics. Transformative technological change, led by digital technologies, has been reshaping markets, business models, and the nature of work in ways that can increase inequality within economies.

What is the main cause of inequality in the US? ›

What Causes Income Inequality? Income inequality is caused by a variety of factors, including historical racial segregation, governmental policies, a stagnating minimum wage, outsourcing, globalization, changes in technology, and the waning power of labor unions.

What are the 3 main reasons of inequality of the world? ›

High unemployment is a significant driver of inequality, especially for young people. Gender, race, and land ownership are three other main causes.

Why does inequality matter in the US? ›

Inequality is a drag on economic growth and fosters political dysfunction, experts say. Concentrated income and wealth reduces the level of demand in the economy because rich households tend to spend less of their income than poorer ones. Reduced opportunities for low-income households can also hurt the economy.

What is the major reasons of inequality? ›

Inequalities are not only driven and measured by income, but are determined by other factors - gender, age, origin, ethnicity, disability, sexual orientation, class, and religion. These factors determine inequalities of opportunity which continue to persist, within and between countries.

Why is inequality on the rise? ›

Some of key factors behind the increase in within-country income inequality noted in the literature include technological progress, globalization, commodity price cycles, and domestic economic policies such as redistributive fiscal policies, labor and product market policies.

What is the biggest cause of social inequality? ›

The causes of social inequality include society's acceptance of roles, stereotyping, social organization by class (or class systems) and economic disparity, as well as legislation and political inequality.

What are 3 reasons why inequality is bad? ›

Considering the other side of the argument, inequality can have a detrimental effect on society as a whole. This is because it has negative impacts on growth/ economic stability, social mobility and equal opportunity, health, levels of crime and violence.

How bad is inequality in America? ›

How much wealth inequality is there in the U.S.? The top 10% of households by wealth had $6.7 million on average. As a group, they held 66.9% of total household wealth. The bottom 50% of households by wealth had $50,000 on average.

What are the biggest inequalities in the world? ›

The world is vastly unequal, extreme wealth coexists with extreme poverty. The poorest 50% of the global population share just 8% of total income. At the same time, the richest 10% of the global population earn over 50% of total income. Between countries, income inequality is high, but the gap may be narrowing.

What is the cause of global inequality? ›

It states that global inequality is primarily caused by core nations (or high-income nations) exploiting semi-peripheral and peripheral nations (or middle-income and low-income nations), creating a cycle of dependence (Hendricks 2010).

How to reduce inequality in society? ›

ADOPT FISCAL AND SOCIAL POLICIES THAT PROMOTE EQUALITY

Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality.

What is the inequality in the United States society? ›

US income and wealth inequality

In the United States, the 10% earning the highest incomes take home nearly half of all income and the richest 10% of all households own more than 70% of all the wealth. Wealth inequality is measured using the distribution of net household wealth among adults.

Why is inequality unfair? ›

Inequalities can be unfair because of what causes them (e.g. discrimination or other failures of equality of opportunity) and/or because of their consequences (e.g. they cause objectionable inequalities in status or power). We have reason to remove unfair causes of inequalities and to prevent unfair consequences.

What is the US ranked in inequality? ›

Income inequality in the U.S. is the highest of all the G7 nations, according to data from the Organization for Economic Cooperation and Development.

Why does the US have the highest income inequality? ›

Causes of inequality may include executive compensation increasing relative to the average worker, financialization, greater industry concentration, lower unionization rates, lower effective tax rates on higher incomes, and technology changes that reward higher educational attainment.

What are the inequalities around the world? ›

The world is vastly unequal, extreme wealth coexists with extreme poverty. The poorest 50% of the global population share just 8% of total income. At the same time, the richest 10% of the global population earn over 50% of total income. Between countries, income inequality is high, but the gap may be narrowing.

Why is there a lot of inequality in global cities? ›

There is a lot of inequality in global cities largely because they are much bigger, thus drawing from more diverse sources while sustaining a wider range of economic or political activity. A large global city would attract wealth unlike what other cities can attract.

Where does the US rank in income inequality in the world? ›

Among industrial nations, the United States is by far the most top-heavy, with much greater shares of national wealth and income going to the richest 1 percent than any other country.

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