Inequality is a slippery concept – hard to measure and define and even harder to make value judgements about. It is connected to and important for our understanding of poverty but is bigger than this specific element in that inequality does not necessarily indicate or create poverty. It is quite possible, for example, for a society to be unequal and have no one living in poverty, or for an equal society in which everyone lives in abject poverty. Too often we elide poverty and inequality in ways that muddy the particular problems and analysis of inequality on it own terms. This is why this section on inequality sits adjacent to the main discussion on poverty.
In this context inequality refers to the differences between people and countries in their ability to access and utilise economic resources as well as the pattern of ownership of those resources. For individuals and countries most studies divide measures of inequality into two areas – income and wealth.
Most simply, the former is largely concerned with money derived from wages and salaries, but can also, depending on the study, include income from a range of other sources such as welfare payments like the pension or interest earnings from savings accounts, dividends, rent and the like. The latter is concerned with value caught up in ownership of a variety of assets such as real estate, shares, trusts, partnerships, business assets and bank accounts. (The value of these is calculated by outright ownership i.e. minus any other financial liabilities). (ACOSS Report) Though more complicated and at a larger scale, similar measures are used to calculate inequality between nations.
A Global Picture
There are is a wide range of ways global inequality can be measured but to keep it simple and provide a big picture overview the two used here are a discussion of the world’s wealth and how it is concentrated overall, as well as a snapshot of how evenly countries distribute their income.
A 2017 report from Global Suisse, The Global Wealth Report 2017, found the globe’s richest 1% own half the world’s wealth that now stands at $280tn USD. The world’s pooorest 70% of working age own just 2.7% of that wealth; that is 3.5 billion people who own assets valued at less that $10 000 USD.
Most of the richest people live in the US followed by Japan and the UK, while the poorest tend to come from developing countries. In some cases almost the entirety of a country’s population will come from the bottom 70%. The map above shows the amount of wealth owned per adult person across the globe. While the one below gives a regional outlook on the percentage of wealth owned compared to the percentage of the world population, which shows quite starkly the inequality of wealth holdings.
It is easy to see that globally, and regionally, the world’s wealth is distributed extraordinarily unequally. But this picture is a little more complex if we drill down into the distribution of income within countries. Though income is different to wealth, for a broad global glimpse this data is a useful reminder that a country’s overall wealth does not tell us much about how individuals are faring.
To look at income distribution the Gini co-efficient is a useful indicator. The Gini determines income or wealth distribution of a nation’s residents with 0 representing a perfectly equal society and 1 total inequality.
The graph below shows the Gini co-efficients for OECD countries between 2014-15. Australia is faring better than comparable countries like New Zealand and the US, but it has still seen a rise in inequality. Within the OECD nations Mexico has the highest Gini at 0.45 and Iceland the lowest at 0.25. The OECD has a great interactive comparison map to explore Ginis and other markers of inequality here. For further information about the flow and concentratin of wealth and inequality across the globe, economist Thomas Piketty’s landmark study Capital in the Twenty-First Century is very useful.
An Australian Picture
As the world picture above indicates, Australia is amongst the world’s richest nations – you can see in more detail how we compare to the rest of the world here. But neither its income or wealth is enjoyed equally amongst Australians.
Wealth is an important marker of inequality because it contributes to a whole range of other factors that affect overall quality of life, as well as risk for poverty. Wealth is not income but the value of owned assets like property, superannuation, shares and so on. Having wealth provides financial security and a buffer to financially difficult circumstances such as serious illness, unemployment, family breakdown or the birth of a child resulting in one parent taking time away from paid work. Wealth also increases peoples choices that may improve earning potential as well as life quality, choices such as investing in further education or to purchase further assets which in turn usually increases income. The Australian household average net wealth in 2016 was $936 000 with most (39%) of that coming from the family home, and the next largest portion from superannuation at 20%.
However, when we look closely at distribution we see that that wealth is not equally spread. Instead, the wealthiest 20% of households own more than half of the wealth at 62%. The lower 50% owns just 18%. In this Australia mirrors the global trend of the most wealth being concentrated in fewer people’s hands. It’s also especially important to note that because of the very high cost of housing compared to wages in Australia this inequality is noticeably tempered by age, with Millenials (roughly those born between 1982-2000) being far more likely to have significantly less wealth than their parents. We can expect that if housing prices do not become more affordable and/or wages do not rise to meet the cost of living we will continue to deepen inter-generational inequality. While the cost of housing in Australia is a key piece of wealth inequality, especially for the young, Credit Suisse noted in 2017, and other Australian reports concur, that this is a global trend, and that the lack of wealth held by this generation is also exacerbated by increasing permanent exposure to unstable labour markets, and worsening labour conditions. The Report has called this the ‘Millenial disadvantage’ and suggests this will be the first generation in many that will likely be financially worse off that their parents.
Related to to wealth inequality is income inequality which refers to the disparities in wages (including salaries) between those earning the most and those earning the least. In 2018 both the McKell Institute and the Australian Council of Social Services (ACOSS) in partnership with University of New South Wales (UNSW) released reports on the state of income inequality across the country. They both highlighted the stagnancy of real wages (income adjusted for inflation) over recent years and a widening gap between top and bottom earners. The McKell report notes that the despite almost 25 years of sustained economic growth, inequality in this country is at a 75 year high, with close to 3 million people living below the poverty line. Our unequal income distribution has seen our ranking in OECD countries fall from closer to the top to 20th out of 25th countries in 2015; overall we are more unequal than the avergae in the OECD but more equal than most of the other major English-speaking countries. Our Gini coefficient has risen from 0.27 in 1981-92 to 0.33 in 2013-14, illustrating the growing inequality gap.
The highest 20% received as much income as the lowest 60% combined
The ACOSS and UNSW report puts it this way: ‘[In 2016] a person in the highest 20% income group lives in a household with five times as much disposable (after tax) income as someone in the lowest 20% ($3978 per week on average compared with $735 per week)’. And for a view of the more extreme ends: ‘people in the highest 1% live in households that have an average weekly disposable income of $11,682 per week, 26 times the income of a person in the lowest 5% ($436). This means the highest 1% earns as much in a fortnight as the lowest 5% receives in a year’. While there are many reasons for this stark inequality one key one amongst them has been the reduction or freezing and other changes in social security payments, most especially the Age Pension. Cuts to family payments and the shifting of many sole parents and people with disabilities to the woefully inadequate Newstart Allowance has contributed. These changes have had such an effect because most people in the lowest 20% income group rely for their income mainly on social security payments of some kind, and very often they have other challenges or barriers to well-paid, if any, employment. Other factors which have contributed include the rise in housing costs, the rising inequality in wealth, and growing inequality in the rate of hourly wages.
Wondering where your wages sit in the national scheme of things? You can check it out using this ‘Compare Your Income’ interactive tool produced by the OECD. And for a longer, deeper read on inequality in Australia have a look at Andrew Leigh’s Battlers and Billionaires: The Story of Inequality in Australia.
Why Does Inequality Matter?
There are a range of ethical and moral arguments around inequality, and without getting into those it is important to reiterate that the Church teaches that work is to be in the service of human dignity and that wages ought to allow for a modest but dignified life. And more specifically, the principle of the universal destination of goods reminds us that we do not own the Earth, it is a gift given to us by God for each and every person to be able to live a dignified life but that does not allow for greed or the wanton destruction of Creation. To take more than we need to do so is not right, and even more so when our taking more deprives others of their fair share.
We also ought to keep in mind that a genuinely human society, one genuinely ordered to the common good, is one in which we support and encourage every person to grow into a truly mature humanity, or what the Church commonly refers to as ‘integral human development’. When we think about inequality we ought to be evaluating it through questions about whether it allows, recognises and supports this God-given dignity and its full development. Given what we know about how inequality, especially gross inequality, is terrible for our society in a whole host of practical ways, we must be deeply concerned for the way it is degrading our dignity, especially for those left so far behind.
In a practical sense there is some evidence, though it is complex and inconclusive in some ways, that inequality may affect performance on a whole range of social indicators such as the quality and length of life, educational outcomes and crime rates. More broadly though we know that inequality erodes social cohesion and stability, especially when it is also linked to a lack of social mobility and a hollowing out of the middle class and the more complex cross-class social ties that result. This lack of social cohesion and economic stability often leads to deeply polarising political conflict such as we are witnessing in many Western democracies at present, and at times even violent conflict. Related to this is that high inequality undermines and skews our democratic political system by concentrating decision making power in the increasingly fewer hands of those who own most of the wealth and can buy political influence. Historians, scholars and other writers have shown that severe enough inequality, in income but especially property ownership, has resulted in mass warfare, violent and transformative revolutions, state collapse and catastrophic epidemics. In short the more equal a society the better it is for all of us.
What Can We Do?
The World Inequality Report suggests that there are some key ways countries can reduce inequality. One of the key ones is to create a fairer tax system, with a focus on a system of income tax progression which it notes ‘is a proven tool to combat rising income and wealth inequality at the top’. Related to this is a strong tax system that reduces and holds to account tax evasion, both by wealthy individuals and large corporations. In Australia, the introduction of inheritance or death taxes may play a key role in reducing inequality. Another key redress is to create fairer labour laws that tilt the balance of power back towards employees, with a focus on higher minimum wages to reduce earnings dipsarities. Other ways to address the problem include improving access to education, including managing the debt burden that follows any education, but especially at the tertiary level. At an individual level advocating around any of these issues to your elected representatives and just having conversations and sharing your experiences will be useful ways to contribute in this area. Also check out some of the resources and suggestions on our poverty page for some specific campaigns or issues you might want to get involved in.