inequality effects essay

13 Ways Inequality Affects Society

In every society, certain groups have more wealth, education, job opportunities, access to healthcare and other advantages. This creates inequality on a local, national and global scale. Inequality is like a spider’s web touching every part of society – from gender equality to housing to conflict – and when one strand is plucked, the effects reverberate through institutions, communities and the lives of individuals. In this article, we’ll explore 13 of the most significant ways inequality affects society:

Inequality has a significant effect on how people of different genders get treated. According to UNICEF, discrimination can start as soon as girls go through puberty . Adolescent girls do more unpaid labor, experience more sexual and gender-based violence and receive fewer educational opportunities. As discrimination and human rights abuses increase around the world, women and girls suffer the most. According to the UN, legal equality for women could take 300 years to achieve if progress doesn’t speed up. While inequality affects women and girls to a significant degree, trans and gender-diverse people face challenges, too. Research shows that trans and gender-diverse people experience stigma, discrimination and violence in a variety of settings, including housing and employment .

Gender inequality manifests in many ways. Here are 15 examples of everyday inequality .

Race is a social and political construct, but unscientific and hateful views about its definition have led to rampant inequality. According to stats from the United Nations, racial discrimination is one of the most common forms of discrimination worldwide. Both men and women experience racial discrimination, along with related discrimination based on color, language and ethnicity. Racial inequality affects every sphere of society, such as employment , education and public health . Inequality can also fuel racism. For example, systemic inequalities that impoverish certain groups can encourage untrue beliefs about their intelligence, abilities and willingness to work. This stigma then reinforces inequalities, creating a vicious cycle.

#3. Poverty

Inequalities of all kinds affect poverty . Income and wealth inequality are the two big causes. According to a 2023 Oxfam report, the wealth of the world’s richest billionaires increased by a massive $2.7 billion every day while at least 1.7 billion workers lived in countries where inflation grew faster than wages. Over two years, the richest 1% hoarded almost twice as much wealth as the rest of the world combined. This kind of inequality fuels poverty. In 2022, 712 million people were living in extreme poverty, which is 23 million more than in 2019. Inflation inequality matters, too. When prices rise faster for those on the bottom of the income ladder, it increases the number of people living in poverty .

#4. Education

Inequality and education have a reinforcing relationship. According to the Economic Policy Institute, research names social class a significant predictor of a child’s educational success in the United States. In the report’s words, “children who start behind stay behind.” It’s not that these kids are less intelligent. Their schools get less funding. The Urban Institute found that in nearly half of US states, students from low-income families got less state and local funding than their higher-income peers. Globally, gender inequality impacts education. 122 million girls are out of school compared to 128 boys. Of the 763 million adults who don’t have literacy skills, almost ⅔ are women .

#5. Employment

Inequalities based on gender, race, wealth and more affect employment. Let’s take a closer look at gender. The International Labour Organization calculated that while 72% of men participate in the labor force, just under 47% of women do . This isn’t because women don’t want to work. Many do work, but they work in the informal economy, which isn’t regulated by the government. In South Asia, 80% of women who don’t work in agriculture work in the informal economy , while 74% work there in sub-Saharan Africa and 54% in Latin America and the Caribbean. These jobs often pay much less than formal employment and lack legal protections. Women also face higher risks of sexual harassment and exploitation in informal and formal employment. While gender inequality is just one factor in employment, it has a global effect.

#6. Health equity

“ Health equity ” is the absence of unjust and avoidable health differences between groups. Discrimination based on gender, race, class and other characteristics threatens health equity, and while some discrimination is unintentional, it still impacts millions of people every day. For example, a 2021 systematic review found that trans and non-binary people experience “erasure” when they seek healthcare. The CDC also states that due to factors like lower-quality healthcare, Black women in the US are three times more likely than white women to die from a pregnancy-related cause.

Inequality breaks down into numbers and statistics, but it can be seen with the naked eye, too. In my town, there’s a cluster of lower-income apartments. Renters struggle to get the owner to fix dishwashers and clean up mold. Just a few blocks away, there are pristine, brand-new houses selling for millions of dollars. If you open your eyes, inequality is never far from sight.

#7. Disease burden

Inequality doesn’t only affect access to healthcare; it also affects who is more likely to get sick. Consider income inequality. According to one study, low-income and middle-income countries have around double the burden of infectious diseases and non-communicable diseases. Gender plays a role, too. That same study found an association between gender inequality and that double disease burden. Another study found that low-income and middle-income countries have around triple the rates of people living with hypertension compared to high-income countries. Several factors contribute to who gets sick and who doesn’t, but various inequalities drive a lot of those differences.

#8. Mental health

According to the World Health Organization, around 970 million people lived with a mental health condition in 2019. Mental health is complex, but research shows that inequality plays a part. One review of studies suggested a link between income inequality and mental health issues, especially depression , while another study found links between racial discrimination and depression, anxiety, PTSD and other mental health conditions . Considering how poverty, a lack of education and discrimination affect a person’s opportunities and daily life, it’s no surprise inequality would also impact their short and long-term mental health.

#9. Housing

Housing is a human right, but the world is facing a crisis. Around 1.6 billion people can’t access decent housing and basic services, and if things don’t change, 3 billion people could be in crisis by 2030 . Housing prices are rising faster compared to income. In the United States, the median home cost rose 30% while incomes rose just 11% in the last 10 years . Unequal income increases make the situation even worse. According to Inequality.org, the average income of America’s richest 1% grew 17 times faster between 1979 and 2020 compared to the income of the bottom 20%. This makes it much easier for wealthy families to buy houses, which drives up prices and reinforces inequality.

#10. Economic growth

What happens to the economy when there’s inequality? According to the International Monetary Fund, inequality between the highest and lowest income classes can ‘directly hurt short- and long-term growth.” An Economic Policy Institute report found that the rise in American income inequality between 1979 and 2019 reduced growth in aggregate demand . This measures the total amount of demand for finished goods and services. As the report describes, inequality shifts income from lower-income households (who spend more money to pay for living expenses) to higher-income families (who save more money). When people don’t spend as much, it hurts economic growth.

To learn more about fighting inequality and discrimination, here’s our list of 10 online courses .

#11. Climate change effects

Inequality determines who gets hit hardest by climate change. According to the World Economic Forum, while the lowest-income countries generate just 1/10 of all greenhouse gas emissions , they endure the worst climate change effects. Other inequalities play a role, too. According to one paper, things like gender and racial inequality put certain groups in the path of climate change, which in turn worsens existing inequality. It’s a “vicious cycle,” as the paper’s authors put it. As an example, women fill 43% of the jobs in agriculture, which is impacted by climate change effects like flooding, drought, hot temperatures and more. Women, who already endure more gender discrimination than men, suffer worse inequality thanks to climate change.

#12. Immigration

According to the International Organization for Migration, global inequalities reflect migration . Wage and job inequality are the most obvious reasons. When people can’t find decent work that pays well, they’re more likely to migrate somewhere within their home country or beyond it. Discrimination and a lack of access to justice can also increase migration. Unfortunately, many migrants face inequality no matter where they go. In the United States, which has more immigrants than any other country, people move into a system infected with gender, racial and income inequality. Inequality and immigration reinforce each other.

#13. Conflict

The drivers of conflict are varied and complex, but while there’s rarely one cause, inequality plays a big role. According to the International Monetary Fund, inequality can damage trust and social cohesion , which are key to preventing conflict. Consider wealth inequality. When there are wide gaps between classes in society, the wealthy enjoy unfair advantages like more political influence, land, natural resources and basic services. That creates a recipe for polarization and discontent. When crises develop, it’s much harder for an unequal society to come together to solve anything.

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Income and Wealth Inequality

Introduction

There are many different types of inequality among people: educational attainment, work experience, and health—to name a few. This essay discusses economic inequality: its causes, measurement, and the potential impact of its growth in the U.S. economy.

Economists directly link differences in educational attainment and work experience, also known as human capital, to differences in economic outcomes. That is, formal education and job skills determine how likely a person is to find and hold a stable job that pays good wages. The flow of money from wages is the most important source of income for most people. Over time, regular income from employment allows people to own assets such as a home or a retirement financial portfolio. That stock of assets is called wealth .

Data collected by federal organizations such as the Census Bureau and the Board of Governors of the Federal Reserve System (BOG) allow us to measure how unequal the distributions of income and wealth are in the United States. Those data show that, since the 1970s, some individuals and families are earning much more income and accumulating much larger amounts of wealth than the typical family does.

Data reported by the World Bank allow us to compare the distribution of income across countries. As of 2018, the available data show large international differences in income inequality. Although not all countries in the world have data on income inequality, among those that do, the United States ranks among the top 25% most unequal.

What Causes Inequality?

The root cause of differences in income and wealth across individuals and households is a combination of personal and social factors. Personal factors are unique to individuals and include talent, effort, and luck. Such factors can be either nurtured or hindered by the family upbringing of the individual. Social factors affect groups of people and include education policies, labor market laws, tax codes, and financial regulations. At any moment in time, social factors can overpower personal factors to determine individual prosperity and increase inequality among people. 2

For example, as gradually more married women started working outside the home between 1960 and 2000, their family incomes increased and the differences in income between households became larger depending on whether they had one or two people earning wages. At the same time, differences in the types of jobs women and men tend to hold also contribute to income inequality between genders. 3

Because wealth is accumulated over time, older people are generally wealthier than younger people. For that reason, if there are many more young people than old people in the general population and the old hold more wealth than the young, overall wealth inequality will be high. 4

Finally, some people argue that the type of monetary policy used to ensure steady access to credit by households and businesses during recent economic contractions may contribute to higher levels of income inequality. However, that claim is hotly disputed. 5

How Is Income Inequality Measured?

There are different ways to measure how unequal income is in a country. The U.S. Census measures income inequality as the ratio of the mean, or average, income for the highest quintile (top 20 percent) of earners divided by the mean income of the lowest quintile (bottom 20 percent) of earners in a particular area. Let’s say a small county has 500 people earning an income. To measure how unequal those incomes are, the Census surveys and sorts each person’s income from highest to lowest, calculates the average income of the 100 people earning the most and the average income of the 100 people earning the least, and divides the first figure by the second figure.

Figure 1: Income Inequality by County

SOURCE: U.S. Census via FRED®, Federal Reserve Bank of St. Louis; 2022 Income Inequality by County (Ratio) , accessed June 23, 2021.

Figure 1 shows average county-level income inequality measured between 2016 and 2020. The Census considers the average income over a five-year period to account for the fact that peoples’ income changes from year to year. Measured this way, income inequality can be as high as 130 or as low as 5. These measurements mean that the most affluent households in a particular county can earn as much as 130 times or as little as 5 times as much as the least affluent households do.

Another way to measure income inequality in a population is to calculate the Gini index . The World Bank uses that index to measure how much the distribution of income among households deviates from a perfectly equal distribution. The Gini index can take any value between 0 and 100. A value of 0 represents perfect equality: All households earn the same income. A value of 100 indicates perfect inequality: One household earns all the income, and all other households earn nothing.

Figure 2: Gini Index by Nation

SOURCE: World Bank via FRED®, Federal Reserve Bank of St. Louis; 2018 GINI Index by Nation (Index) , accessed April 6, 2021.

Figure 2 shows country-level income inequality measured with a Gini index in 2018. The highest value is 54, and the lowest value is 25. It is important to note that two countries can have very similar Gini indexes despite having very different distributions of income. For example, in 2018, the Gini index for the United States was 41.4 and for Bulgaria was 41.3, despite the fact that those two countries’ economic and social histories are very different.

In the United States, since the 1970s, the Gini index has increased at a steady rate, indicating greater income inequality across families. 6 Some research suggests that this growing difference is related to the increased value of the stock market. Wealthier households hold more stocks than poorer households. So, when stock market prices rise, the income of wealthier households grows relatively more and overall income inequality increases. 7

How Is Wealth Inequality Measured?

The BOG combines information from two different surveys to measure how wealth is distributed among households: It takes the value of a household’s assets (e.g., the current market price of a home) and liabilities (e.g., the unpaid part of a mortgage for a home) and calculates the difference between the two, which is called net worth . Next, the BOG sorts household wealth from highest to lowest and reports the net worth of four different groups: the wealthiest 1% of the population, the next 9%, the next 40%, and the bottom 50%.

Figure 3: Share of Total Net Worth Held by Population Groups, 2021

SOURCE: Board of Governors of the Federal Reserve System via FRED®, Federal Reserve Bank of St. Louis; Share of Total Net Worth Held by Population Groups, 2021 , accessed April 6, 2021.

Figure 3 shows the share of total net worth held by each of those four groups. In 2021, the wealthiest 1% of the population (about 3.3 million households) held about one-third of total net worth; the next 9% (almost 30 million households) held a little more than one-third; the next 40% (about 133 million households) and the bottom 50% (about 166 million households) together held the rest—less than one-third of total net worth.

The data from the BOG show increasing wealth concentration since 1989, when the data first became available. 8 It is important to note that, over time, some individual households can move up or down between wealth groups, depending on the changing value of their assets. Also, some research suggests the particular nature of some economic fluctuations impacts some households’ net worth more than others. For example, the real estate crash associated with the 2007-09 recession resulted in large losses for the poorest 50% of the population. 9

Does Inequality Matter?

The economic impact of growing income and wealth inequality in the United States is an intensely studied question. Economists are debating how to answer that question by analyzing data and creating mathematical models to study it. Because this is ongoing work, there is no single answer.

Some research shows that, in richer countries, more unequal income makes economic fluctuations more pronounced. 10 That finding means that the changes in overall income and employment known as business cycles become more dramatic. Moreover, statistical evidence suggests increased income inequality undermines economic growth due to lower educational achievements (and human capital) among poorer individuals and households. 11 As discussed earlier, education builds a person’s human capital and is rewarded with higher income from employment. Finally, research suggests the increasing income and wealth inequality can undermine the use of monetary policy (as we know it) to maximize employment and ensure price stability. 12

Inequality in individual economic outcomes arises from a combination of personal traits and social conditions. The distributions of income and wealth in a society can be measured in multiple ways: comparing the highest to the lowest earners, calculating an index describing how unequal income is among all individuals, and assessing people’s financial wellbeing according to the value of their wealth holdings. Regardless of how we measure income and wealth inequality, their distributions in the United States are becoming more unequal. This trend is likely to impact economic life as we know it. More research is needed to figure out precisely how that may happen.

Asset: A resource with economic value that an individual, corporation, or country owns with the expectation that it will provide future benefits.

Gini index: A statistical measure of income inequality in a population that ranges from 0 (indicating absolute income equality) to 100 (indicating a perfectly inequal income distribution).

Household: A group of people living in the same home, regardless of their relationship to one another.

Income: The payment people receive for providing resources in the marketplace. When people work, they provide human resources (labor) and in exchange they receive income in the form of wages or salaries. People also earn income in the forms of rent, profit, and interest.

Liability: A legal responsibility to pay back money from a loan or other type of debt.

Net worth: The value of a person's assets minus the value of his or her liabilities.

Quintile: Any of five equal groups into which a population can be divided according to the distribution of values of a particular variable.

Wealth: The value of a person's assets accumulated over time.

Obama, Barack. “Inaugural Address” . January 21, 2013.
For an example of how the use of city maps to assess lending risk after the Great Depression influenced homeownership rates across population groups for decades afterward, see the following article: Mendez-Carbajo, Diego. “Neighborhood Redlining, Racial Segregation, and Homeownership.” Federal Reserve Bank of St. Louis Page One Economics , September 2021.
For more on gender and labor markets, see the following article: Mendez-Carbajo, Diego. “Gender and Labor Markets.” Federal Reserve Bank of St. Louis Page One Economics , January 2022.
For more on aging and wealth inequality, see the following article: Vandenbroucke, Guillaume and Zhu, Heting. “Aging and Wealth Inequality”. Federal Reserve Bank of St. Louis Economic Synopses , 2017, No. 2.
For a contribution to the ongoing debate about the relationship between monetary policy and income inequality, see the following article: Bullard, James. “Income Inequality and Monetary Policy: A Framework with Answers to Three Questions” . Presented at the C. Peter McColough Series on International Economics, Council on Foreign Relations, New York, June 26, 2014.
The following FRED® graph shows the income Gini ratio of all families, reported by the U.S. Census Bureau since 1947: Income Gini Ratio of Families by Race of Householder, All Races: 19647-2022 .
Bennett, Julie and Chien, YiLi. “The Large Gap in Stock Market Participation Between Black and White Households”. Federal Reserve Bank of St. Louis Economic Synopses , 2022, No. 7.
Owyang, Michael T. and Shell, Hannah G. “Taking Stock: Income Inequality and the Stock Market”. Federal Reserve Bank of St. Louis Economic Synopses , 2016, No. 7.
For more about the change in wealth distribution over time, see the following post: Federal Reserve Bank of St. Louis. “Comparing the Assets of the Rich, Poor, and Middle Class” . FRED® Blog , October 21, 2019.
For more on how recessions impact household net worth, see the following article: Mendez-Carbajo, Diego. “How Recessions Have Affected Household Net Worth, 1990-2017: Uneven Experiences by Wealth Quantile”. Federal Reserve Bank of St. Louis Economic Synopses , 2020, No. 38.
For more on the relationship between inequality and economic fluctuations, see the following article: Iyigun, Murat F. and Owen, Ann L. “Income Inequality and Macroeconomic Fluctuations” . Board of Governors of the Federal Reserve System International Finance Discussion Papers , July 1997.
For more on the relationship between income inequality and economic growth, see the following article: Cingano, Federico. “Trends in Income Inequality and its Impact on Economic Growth”. Organisation for Economic Co-operation and Development OECD Social, Employment, and Migration Working Papers , 2014, No. 163.
For more on the relationship between income inequality and monetary policy, see the following article: Cairo, Isabel and Sim, Jae W. “Income Inequality, Financial Crises, and Monetary Policy” . Board of Governors of the Federal Reserve System Finance and Economics Discussion Series , July 2018.