Economic inequality typically describes conditions that separate individuals in terms of wealth or income. All nations and economic systems have some type of inequality. A few of the biggest factors that affect this situation include demographic, political, and macroeconomic factors. Not always a bad thing, economic inequality helps create an environment where individuals desire to reach the top rung of the economic ladder. The presence of inequality factors and how much they suppress an economy can dictate the environment by which individuals succeed or fail.
Demographic factors are one of the most common in terms of inequality. The factors may be sex, age, education, race, or any other type of demographic in a region. Inequality can exist when either one or more of these factors are present. Essentially, demographic factors play a role in terms of labor in the overall economic environment. For example, when a working class comprises a large part of a particular group, there may be a lower probability for success in terms of economic growth.
Political factors also play a large role in economic inequality. Command or planned economies may restrict the growth of individuals, creating inequality. This occurs when one group is more favored than another, allowing this group to succeed better economically. Market economies can have this problem as well, though the freer the market can help restrict government intervention and the possibility for economic inequality. Another problem here is that a particular political group may pander more to individuals in a specific economic category, allowing inequality to foster.
Macroeconomics represents the larger policies and constructs a nation implements to help grow its economy. Poor fiscal or monetary policy, however, can create economic inequality due to misguided intent. For example, allowing increases to the money supply through loose central banking can create rampant inflation, which eats away at the purchasing power of a nation’s currency. Lower-income individuals can experience more problems with inflation as they have fewer dollars by which to create a standard of living. Forced inequality can be a result from this and other macroeconomic policy problems.
Again, economic inequality is not always a bad thing. It can create a desire to improve one’s life and move from one economic class to another. On the other hand, it may also drive individuals into the political arena, where they become involved in voting and changing poor macroeconomics policies that restrict economic freedom.