Einar H. Dyvik
Research expert covering Nordics and global data for society, economy, and politics
Economic inequality worldwide - statistics & facts
Over the past decades, the world has seen increasing levels of economic inequality, where income and wealth is increasingly unequally distributed. Even though the global gross domestic product (GDP) increased steadily over the past decades, the wealth increase has fallen into the hands of a few. For instance, the richest one percent of the global population holds 45 percent of the total global wealth. This trend can especially be observed in developing countries, with South Africa topping the Gini index, probably the most popular way of measuring income inequality around the world. However, developed countries, for instance in Europe, have also seen increasing levels of economic inequality, and many people now see this as one of the biggest issues facing their countries. But why are high levels of economic inequality undesirable, what drives the phenomenon, and what can be done to redistribute more of the income and wealth?
The factors driving economic inequality are complex and inter-related. One factor is an unequal distribution of wages and salaries, when a minority earns significantly higher wages than a majority of the population. Moreover, rapid economic development, as well as transitions from one economic system to another tend to cause high levels of wealth landing in the hands of a few. The latter could be observed after the collapse of the Soviet Union, when Russia and other former Soviet republics transitioned from a state-economy to a free market-economy, and a few individuals were able to gain control of vast shares of the countries' wealth and economic resources. In some countries, economic inequality is related to race and ethnicity. In the United States, for instance, inequality levels were higher among Blacks than other ethnicities. Gender is another factor related to inequality, with women only earning 35 percent of the global income.
The dangers and drivers of economic inequality
Experts and researchers continue to disagree on the perfect level of inequality (or equality), but there is a wide consensus that too high levels of economic inequality poses a threat of destabilizing a country. Particularly when mixed with high levels of poverty, high inequality can lead to increasing crime, violence, and even revolutions, probably most famously seen during the French and Russian revolutions. More recent examples include the Cuban Revolution in 1959 and the Arab Spring, uprisings caused by food shortages and high unemployment levels in addition to anger at political leaders seen as abusive and corrupt. Furthermore, the increasing inequality levels are seen as one of the key drivers of populism and extremism observed in many established democracies.The factors driving economic inequality are complex and inter-related. One factor is an unequal distribution of wages and salaries, when a minority earns significantly higher wages than a majority of the population. Moreover, rapid economic development, as well as transitions from one economic system to another tend to cause high levels of wealth landing in the hands of a few. The latter could be observed after the collapse of the Soviet Union, when Russia and other former Soviet republics transitioned from a state-economy to a free market-economy, and a few individuals were able to gain control of vast shares of the countries' wealth and economic resources. In some countries, economic inequality is related to race and ethnicity. In the United States, for instance, inequality levels were higher among Blacks than other ethnicities. Gender is another factor related to inequality, with women only earning 35 percent of the global income.
Redistribution measures
The most common, and arguably effective tool to reduce income and wealth inequality, are taxes. When used effectively, different types of taxes can ensure more distribution as taxed income and wealth is distributed back to the public, either via public schools, hospitals, social security, and infrastructure. One of the most common taxes is income tax. Especially a progressive income tax, where the tax rate increases progressively with the income level, is seen as an effective tool for redistribution. However, since the 1980s, marginal top personal income tax rates have decreased around the world, coinciding with increasing levels of inequality during the same period. A wealth tax, where a taxpayer's assets are taxed, is another type of tax sometimes used by states for distribution. Critics argue that too high wealth taxes will reduce incentives to accumulate wealth, which ultimately leads to a lack of job creation. Some also argue that a wealth tax drives tax evasion. Nevertheless, it is estimated that the United States could increase its tax revenues by around 446 billion U.S. dollars by introducing a wealth tax.
