Economic inequality is a global issue, with a widening gap in most advanced and emerging economies. Some inequality is necessary in a market-based economy as a result of differences in talent and effort, but excessive inequality can damage social cohesion and contribute to political instability and low economic growth.
Many factors influence trends in economic inequality. Some are global, including technological progress and shifts in commodity prices. In addition, country-specific policies—such as tax policy and labor markets—have also played a role in shaping distributional dynamics. Finally, societal preferences can influence whether or not people accept the idea of high levels of inequality.
Inequality can also be influenced by structural barriers, which reduce the ability of individuals to earn income. These might include an inability to access financial services or affordable housing, or the existence of a culture that prevents women from earning outside the home. A lack of education can limit the skills of an individual, while poverty can inhibit the ability to invest in learning. Poorer groups may also have less time to spend on political activities because they must devote more of their resources to meeting their basic needs.
While some degree of inequality is inevitable in a market-based system, it can be reduced with policy changes that boost wages and expand opportunities for savings. For example, expanding access to liquid savings through raising asset limits in public benefits programs is one way to increase wealth-building among low-income households.