Definition
Income inequality measures how unevenly income is spread across the people in an economy. It is not about average income but about the gap between the top and the bottom — how large a share of total income flows to high earners compared with low earners.
Economists summarize it with tools such as the Gini coefficient, which ranges from zero (everyone earns the same) to one (one person earns everything), and with income-share ratios that compare, for instance, the richest tenth to the poorest tenth.
Why it matters
How it works
Income inequality arises from differences in wages, returns on capital, and the reach of taxes and transfers. Wage gaps widen when demand shifts toward high-skill workers, when technology rewards some tasks over others, or when trade exposes certain industries to competition. Capital income — profits, dividends, rents — is usually distributed more unequally than wages, so concentrated wealth tends to amplify the gap. Governments offset some of this through progressive taxes and transfer payments. The key debate is balance: enough reward to keep incentives alive, without gaps so wide that opportunity narrows.