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The Pros And Cons Of Economic Inequality

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Multiple studies have shown that there is a significant increase in economic inequality over the last 25 years in several regions in the world. Economic inequality is a measurement of the income distribution that puts emphasis on the gap between the incomes of a household or an individual in a certain country. The distribution of income and wealth has become increasingly unequal since 1970 (Morris and Western, 1999). Between 2003 and 2013, income inequality even grew in well developed countries such as Germany, Denmark and Sweden. The top ten percent of earners raced ahead, while the bottom ten percent fell further behind. The aim of this paper is to explain the advantages and disadvantages of economic inequality and after that relating it to the …show more content…

The first method is dividing the population by deciles or quintiles. Families are then divided into groups of percentiles. Deciles are divided into groups which each represent ten percent and quintiles each represent twenty percent. After dividing the population into groups, an indication of the income distribution is made. The main goal is to find out how incomes are distributed in an economy. This can be found by comparing the difference in income between the lower decile or quintile to the top decile or quintile groups. If there is a major difference between those numbers, the wages of that country are unequally divided. Another way to measure economic inequality is to plot a Lorenz curve. A Lorenz curve shows the relationship between the cumulative percentage of households and the cumulative percentage of income (Mankiw and Taylor, 2014). A Lorenz curve always contains a straight line of 45˚. This line represents absolute equality. Figure 1 shows the Lorenz curve of Bolivia and Thailand. It can be concluded that the economy of Bolivia contains more economic inequality than Thailand, because the curve of Bolivia is further away from the line of absolute

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