Economic inequality refers to differences in income, wealth and opportunity between people. It can be reduced by policies that redistribute income through taxes and transfers, or by raising the minimum wage or promoting higher education.
Inequality has risen in most advanced economies. This reflects the rise in market-based forces such as technology and globalization that give disproportionate advantages to those with higher skills, education, and effort. In addition, government policy has shifted away from progressive taxation and toward reducing social security benefits and cutting taxes on the wealthy.
This shift has accelerated the growth of top incomes and contributed to greater inequality, as those at the top do better under current economic conditions. In the United States, the inequality gap is among the widest in the world.
Many factors contribute to economic inequality, including businesses replacing lesser-skilled workers with automation and outsourcing jobs to lower-wage countries. Structural racism limits Black Americans’ opportunities to earn more income and accumulate wealth. The COVID-19 pandemic also exacerbated inequality by causing businesses to shut and limiting access to jobs.
Inequality is more pronounced in certain communities, including parts of Appalachia, the Mississippi Delta, the South and Chicago’s South Side. These communities are more likely to be populated by minorities and have less education than the nation as a whole. The gaps in earnings and wealth are further enlarged by racial discrimination in education, employment, housing and the criminal justice system. These gaps can persist over time and can be difficult to close.