Income Inequality - Explained
What is Income Inequality?
Written by Jason Gordon
Updated at March 17th, 2023
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What is Income Inequality?
Income inequality compares the share of the total income (or wealth) in society that different groups receive. For example, compare the share of income that the top 10% receive to the share of income that the bottom 10% receive.
The labor markets that determine the pay that workers receive do not take into account how much income a family needs for food, shelter, clothing, and health care. Market forces do not worry about what happens to families when a major local employer goes out of business. Market forces do not take time to contemplate whether those who are earning higher incomes should pay an even higher share of taxes.
However, labor markets do create considerable income inequalities.
Government policies seek to reduce inequality, and the danger of a tradeoff that too great a reduction in inequality may reduce incentives for producing output.