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What is Economic Inequality? An Overview

It’s no secret that the United States suffers from a large number of issues that people need to work together to overcome. One of the most prominent is economic inequality. This is something that negatively affects millions of Americans across the entire country.

As the name suggests, this problem stems from the way wealth is dispersed.

Let’s take a closer look to determine what you need to know about economic inequality in America.

Economic Inequality Definition

Economic inequality refers to the unequal distribution of wealth, assets, income, and opportunities.

For example, in America today there are dozens of billionaires while millions of citizens live below the poverty line. One of the primary ways to measure economic inequality is by looking at the Gini coefficient, which can take on a value between zero and one.

A country with perfect equality has achieved a Gini coefficient of zero. A country with complete inequality has achieved a Gini coefficient of one. The United States has an estimated Gini index of .45. This means there is a large economic gap between the rich and poor.

Why Does It Matter?

The first thing to understand here is that inequality isn’t always bad. It’s actually nearly impossible for an economy or society to sustain itself without some degree of wealth disparity. What matters more than the level of inequality is the way this happens, and whether it can be fixed.

Some economists believe that a certain amount of inequality is necessary to fuel economic growth. Investors will only invest in projects if there is some chance they can get a return on their money.

Many other people believe this way of thinking misses the point. While some inequality may be necessary for investment, too much financial segregation does nothing to help.

It only serves to erode social cohesion, which in turn can lead to increased crime rates and other problems.

If you’re looking for more information on this topic, you can check out this study by Thomas Piketty that explores the impact that economic inequality has worldwide.

What Are the Benefits of Reducing Inequality?

There may indeed be benefits of reducing economic inequality: it could help make America a more cohesive and stronger country. Other countries with more balanced distributions of wealth have experienced greater economic growth than those with large inequality gaps. So, there is evidence this could happen in the United States too.

Reducing economic inequality would likely lead to a more fulfilling life for underprivileged families. This type of change isn’t just good for them — it’s also good for everyone. A more equal America would likely lead to a more cohesive society that works together toward the common good of the American people.

By extension, this would also improve a large number of aspects of typical American life. For example, people who are able to stress less over their finances will have much greater mental health.

What Are Possible Solutions to Economic Inequality?

The major step needed to reduce economic inequality in America is for people to band together and find a solution. There are some possible ways this could happen:

  • Raising the minimum wage so employees can sustain themselves while working
  • Finding new sources of income for underprivileged families and individuals through government programs
  • Making it easier to apply for assistance from federal programs

Of course, these possible solutions all come with their own sets of problems. Raising the minimum wage could lead to higher unemployment rates, for example.

Also, food stamps are sometimes subject to fraud and abuse by underprivileged citizens who sell the benefits on the black market.

The bottom line is that there are no easy solutions.

What Are the Long-term Consequences of Economic Inequality?

The long-term consequences of economic inequality in America are unclear. It’s possible that this type of inequality could damage America’s social fabric. This would have a huge impact on individuals, families, and society as a whole.

If economic inequality is never resolved, it could continue to undermine upward mobility.

What Are Economic Inequality Examples?

There are many examples of economic inequality in American society:

  • The gap between the richest and poorest members of society is higher than ever before
  • Many people find themselves getting paid low wages and unable to make ends meet even if they work full time
  • Higher education is becoming increasingly more expensive
  • Many people hold the belief that all of the economic growth during the recovery has gone to the wealthiest citizens

Of course, there are many more examples not listed here that still make an impact on the American people.

Are Some Types of Economic Inequality More Harmful Than Others?

It’s difficult to say what type of inequality is most dangerous.

All forms of economic inequality affect the country as a whole in their own way. This is a result of fueling social tension, decreasing social mobility, or making higher education more expensive.

Putting a Stop to Economic Inequality Is Imperative

Otherwise, millions of Americans will never achieve the quality of life that they are entitled to.

Although economic inequality is a complex systemic issue, it’s possible for change to be made over time. Be sure that you keep the above information in mind so that you can recognize how to do your part when the opportunity becomes available.

Feel free to check out the rest of our blog for other useful information about this topic and economics as a whole.

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