Measuring and understanding inequality

The dimensions of inequality

Commonly studied forms of inequality relate to income and wealth. Nevertheless, the impacts of inequality transcend questions of gender, education, health, access to justice and environmental degradation. Discussions around inequality have generally been explored through two lenses: inequality of opportunity and outcomes. The former occurs when individuals do not have access to the same opportunities - education, employment, income and environmental protection – due to certain circumstances such as age, gender, family background, socio-economic status, place of birth or ethnicity. The latter refers to individuals with unequal levels of material wealth, such as the level of income, educational attainment and health status.

Inequality is a core tenet of the Beyond GDP debate, because none of the dimensions of inequality within populations are reflected by GDP. High GDP or GDP growth can exist alongside inequality. Statistical tools which assess inequality are needed to reveal the limitations of a focus on growth without considering how inclusive the growth is.

A growing area of research explores pollution inequality, or the interaction of economic inequality and environmental quality, often showing a negative correlation. Richer and more unequal countries contribute more to climate change through emissions, generating carbon inequality. Research from Oxfam estimates the average carbon footprint of the richest 10% of people in the world to be 11 times higher than the poorest 50% - see Figure 1. Similarly, climate change has been shown to exacerbate poverty and the poor are likely to be more exposed to climate change impacts.

How to assess and measure inequality

Despite its multidimensionality, most methodologies focus on measuring income and wealth inequality. An approach applied at the EU level consists of dividing the population into quintiles and reporting on the income level for each (i.e. S80/S20). The Gini coefficient is a popular statistical measure which uses household surveys to track income and consumption expenditure, providing a single number between 0 and 1. A key development has been the application of fiscal data to show that household surveys can underestimate wealth and income at the top end (World Inequality Report 2018).

Evidence shows that weak performance on income inequality does not preclude good performance elsewhere. For example, Rwanda and Bolivia were the only countries in 2017 in which half of their parliaments were female.

A number of indices and datasets have been developed to measure inequality – see Table 1.

Table 1 – Examples of tools to measure inequality

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Inequality and the Sustainable Development Goals

The Sustainable Development Goals provide a global agenda to address inequality across its dimensions. Goal 10 “Reduce inequalities within and across countries” is dedicated to income inequality and inequality in a broad sense, and has allowed an international recognition of the issue, although there are concerns on the limitations of the proposed measurements. Target 10.1 “By 2030, progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average” focuses on the left side of the income distribution so the target could be achieved even if the share of the income at the top has increased. Also, goal 10 focuses on income inequality potentially ignoring wealth – which is often higher.

Other goals integrate different facets of the issue, including Goal 5 on gender equality. Goal 1 on poverty includes income inequality recognising that poverty alleviation does not necessarily guarantee equality of income distribution. Reducing inequality may also improve health and wellbeing (Goal 3), support climate change mitigation (Goal 13), relieve pressure on the environment (Goal 15) and contribute to peace (Goal 16).

Inequality and Europe

Different indicators suggest that economic inequality is increasing in Europe.

The European Pillar of Social Rights, introduced in 2017, defines the EU’s policy agenda on social policy and sets out a number of principles and rights which relate to addressing inequality in its various dimensions. Equal opportunities are addressed explicitly in relation to access to labour market, social protection and social services. The Social Scoreboard allows for a comparison of Member State performance in the three areas covered by the Pillar: equal opportunities and access to the labour market; fair working conditions; and social protection and inclusion.

The European Commission published a factsheet on Addressing Inequalities to support the European Semester process which identifies policies to reduce inequality. Work is ongoing with the Member States to define a comprehensive framework for monitoring inequalities, building on the headline Scoreboard Indicator. Eurostat apply inequality indicators in the context of monitoring EU progress towards the SDGs.

According to the World Inequality Database, in 2016, the richest 1% earned 13% of the national income - this compares to 19% of the national income earned by the entire bottom 50% of the population. Since 1980, the ratio of the share of income held by the top 1% compared to the bottom 50% has been steadily growing. Elsewhere in the world, income inequality is more severe, globally and for the USA the top 1% earn over 20% of the income.

EU initiatives at national level also address inequality. In 2015, the French Government and the National Institute of Statistics and Economic Studies introduced 10 new wealth indicators which include income inequality. The political foundation Friedrich-Ebert-Stiftung, published the Inequality in Germany report on socio-economic disparities. In 2017, Iceland adopted a mandatory Pay Equality Certification System which requires any organisation with more than 25 employees to obtain a certificate of gender pay equality.

International agendas on inequality

Beyond Europe, different stakeholders are active in developing measures of inequality. In Africa, innovative methods for monitoring include using night light luminosity to verify regional data. The UNDP published the first detailed report on income inequality in Sub-Saharan Africa in 2017. For Latin America, Oxfam developed the Public Eye Inequality Calculator, which allows citizens to compare their income with that of billionaires in their own country. In Indonesia, the Ministry of Health collaborated with the WHO to assess the state of health inequality.

Inequality is one of the major challenges of our time, and income inequality continues to grow in all regions of the world. Though the EU often out performs other parts of the world, different forms of inequity (in particular on gender, income, environment, health and wealth) are increasing and hamper sustainable development objectives. Applying data and new metrics to better understand the differences between countries will help to illustrate how policies and institutions can shape and reduce inequality in the future.