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What is Income Inequality?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 03 December 2016
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    2003-2016
    Conjecture Corporation
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Income inequality is a term that is used to describe an uneven distribution of wealth within a defined geographic area. When this type of economic inequality is high, this means that a small number of individuals living in the area receive the majority of the income generated during a specified period of time, while a low rate of income inequality would mean that the overall income generated was more evenly distributed among each of the households established in the area. There are a number of different tools and strategies used to measure this type of economic disparity, with approaches like the Hoover Index, the Atkinson Index, the Gini Coefficient, and the Theil Index being some of the more common examples.

Measuring income inequality is extremely important to understanding the impact of various events on both the overall economy and on individuals who live within that economy. For example, assessing the wealth and income difference that exists in a given area during wartime can provide important data about the future direction of the economy, and how it will affect residents in various economic brackets. The same is true if new technology is developed that is anticipated to have an impact on the number of jobs available in the area, since this could either increase or decrease the level of income inequality that already exists.

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Many different factors are taken into consideration when looking at income inequality within a given area or sector of the population. The ratio of singles to those who are married or in committed relationships is often one of those factors. The incidence of emotional depression, the presence of certain types of industries within the community, and even factors such as the obesity rate or the crime rate may also be key elements in assessing the reasons behind income inequality within a given area.

Identifying factors of this type and learning how they lead to the economic disparity can often make it possible to develop programs and strategies that can reduce income inequality to some degree. Establishing health clinics to provide treatment for physical and emotional illnesses not only creates jobs, but also helps to minimize the impact of those conditions on the ability of households to generate income. At the same time, job training programs may aid people in securing employment that pays higher rates, which in turn also helps to minimize the degree of inequality that exists within the community.

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GreenWeaver
Post 1

This seems like an incredibly difficult thing to measure -- I mean, there are simply so many different factors to take into consideration. With all these different variables, is income equality really a strong indicator, statistically?

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