Inequality - Activity

This Activity will aim to guide you through some of the issues relating to inequality and attempt to identify some of the causes of inequality in its different manifestations.

The Mind Map above shows the wide range of areas that inequality can refer to. Inequality refers to a position where an individual or group or nation has less of something (cash, assets, etc.) than another. That much should be fairly obvious but why is this a problem?

It does not have to be a problem and in some cases it might be viewed as fair that some people have more income, for example, than others - on account of the level of responsibility, skills, qualifications and so on. However, there will come a point where people will feel that the degree to which inequality can occur will be somehow unfair. If a premiership football star is earning £90,000 per week, many might feel that such a sum is way beyond the value that such individuals provide. However, if 60,000 supporters are prepared to pay up to £5 per week to watch that player is the player underpaid? Should he therefore be paid £300,000 per week?

Images: Top: Favela in Brasil © Julio Babin, Stock.Xchng
Bottom: Mansion in Florida © Jeremy Doorten, Stock.Xchng
What are the main causes of the inequalities that exist in our society? How closely linked are income and wealth in determining the extent of inequality?

The issue can be viewed from the perspective of income on the one hand and wealth on the other. Income is a flow of money accruing to an individual or region or country as a result of economic activity. Wealth represents a stock of assets that may have arisen for a variety of reasons.

Task 1

Identify factors causing differences in incomes of:

An individual
A region
A country

Identify factors causing differences in the degree of wealth of:

An individual
A region
A country

Having identified some of the factors that may cause inequalities in income and wealth, we can use these to get a greater degree of understanding of the issues related to inequality. There is some implication by the very word 'inequality' that it is somehow 'wrong' - a pejorative term.

Let's now turn to the question of to what extent 'inequality' can be seen as undesirable. Take the issue of inequality in income. We could view this inequality in different ways:

There are other aspects to inequality that relate to the notion of 'equity'. Should an individual who has worked hard (whatever that means) all their life be hit hard by inheritance tax - part of which will be used to provide support for someone who may be unemployed or who may be considered to have squandered their life chances?

Task 2

Under what circumstances would you argue that vertical inequality is justifiable?
What economic arguments can be put forward to support a greater degree of income and wealth distribution?
To what extent is the argument that inequality drives an economy valid?

What has happened to inequality in the UK?

We now know some of the causes of inequality and have explored some of the issues surrounding inequality. What has been happening to the level of inequality in the UK over the past few decades? Are the rich getting richer and the poor getting poorer?

To make any judgement on this, we need to have some accepted measure of inequality. A common method is to use the Gini-coefficient. The Gini-coefficient is found by using a Lorenz curve. The formula is:

Gini-coefficient =	Area between the Lorenz curve and the 45° line
	Total area under the 45° line

Taking the Gini-coefficients of the last 20 years or so, the pattern looks like this:

Income Inequality - Gini-coefficient for equivalised disposable income, UK

Source: Office for National Statistics (Crown copyright material is reproduced with the permission of the Controller of HMSO and the Queen's Printer for Scotland.)

Task 3

What conclusions can you draw from the graph regarding the changes in inequality in incomes in the UK over the last 25 years?
What further information would you require before being able to come to a definitive answer?

Other studies on the changes in inequality in the UK may arrive at different conclusions when just looking at one piece of data. The final task encourages you to look into some of the evidence in more detail and use it to enable you to arrive at an informed conclusion.

The Institute of Fiscal Studies(http://www.ifs.org.uk), amongst other things, carries out research into the extent to which inequality is increasing or decreasing in the UK. Two such papers are provided via the links below. Look at these two papers. When viewing them, you may not have time to read through the whole report. A study tip in this regard is to look at the conclusions being drawn first. Then go back through the paper and skim read it. You can do this by reading the first and last line of each paragraph. Where you spot a paragraph that may be useful to you in your research read that paragraph in full.

Task 4

'The living standards of the majority in the UK are declining whereas the few are experiencing a dramatic improvement in their living standards.'

To what extent is there evidence to support this view?

Other Tasks

You can extend the work done in this section by looking at the Activity on Poverty, Inequality and Income Distribution(http://www.bized.co.uk/educators/16-19/economics/development/activity/poverty.htm) which looks at some of the methods governments might use to tackle the issue of poverty and inequality.

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