Economic inequality is a global issue, but country-specific factors also play a role. For example, in the United States, income growth among the richest 0.01 percent of households has been over 1,003 times the growth of the bottom 20 percent after accounting for taxes and government benefits such as social security and means-tested assistance programs. Meanwhile, wages have failed to keep pace with inflation. In addition, racial and gender inequality—which is exacerbated by the COVID-19 pandemic—is a major problem. People on the left are more likely than those on the right to see inequality as a big problem and to name racial discrimination, wealth gaps, and gender bias as important causes.
A widening gap in income and wealth between rich and poor can damage the economy, erode public trust in institutions, and undermine democracy. In many countries, inequality is growing faster than economic growth, which is dangerous for everyone.
PIIE brings together research on trends and causes of economic inequality around the world. This guide focuses on policies to mitigate rising inequality (mostly for the United States, with lessons for other advanced economies). It includes research from the Peterson Institute’s 2019 conference on “Combating Inequality” and subsequent work by participating experts, including a book of essays edited by Olivier Blanchard and Dani Rodrik published by MIT Press.
Income inequality has become more pronounced in the United States and other rich countries, mainly because business is replacing less-skilled workers with automation and outsourcing labor to low-wage economies. Meanwhile, structural racism and exclusionary homeownership policies limit the wealth accumulation of Black families. Research shows that reducing inequality can be as effective as increasing economic growth at reducing poverty, but reducing inequality requires governments to act more forcefully.