CHAPTER3:

What is meant by
the term
‘INEQUALITY’
 LEARNING OBJECTIVE

AT THE END OF THE LESSON,

YOU SHOULD BE ABLE TO
- write short explaination of inequality
- Differentiate between income and wealth
- Explain three different ways of measuring
inequality.
 TABLE OF CONTENTS

01 03
MEANING OF INEQUALITY GROSS DOMESTIC
PRODUCT
INCOME,WEALTH PER CAPITA,VALUES

INEQUALITIES BETWEEN
02 04
TYPES OF INEQUALITY COUNTRIES

INDIVIDUALITY,REGIONAL, INCOME
INTERNATIONAL DISTRIBUTION,INEQUALITY…
 INTRODUCTION
Inthis chapter we are going to look at
the idea of income inequality and how
it is measured and consider the effect
of globalisation on inequality.
PRIOR KNOWLEDGE
WHAT DO YOU MEAN BY THE TERM INEQUALITY?
WHAT DO KNOW ABOUT RICH AND POOR?
WHAT IS GLOBALISATION?HOW CAN WE
INTERRELATE INEQUALITY WITH IT?
 Opening activity
Each group have to discuss about
the top paid celebrities by seeing the
bar graph mentioned.
OPENING ACTIVITY
MEANING OF
INEQUALITY
You can enter a subtitle here if you need it
01
INCOME..
• INEQUALITY refers to a situation where an individual, group of
people, region or country have a different amount of income,
wealth or assets than another individual, group, region or country.
• Income refers to a flow of money over a period of time, in other
words, it is the amount of money that an individual or organisation
earns in a specified time period.
• For example, Hareb might earn a wage of 2000 AED per week and
Fahed may earn a salary of 185 000 AED. In this example, Hareb's
income is the amount he earns in a week whereas Fahed's income
is the amount he earns in a year.
• Wealth refers to a stock of assets at a point in time. In other words, if
you calculated the value of all the things you own right at this
moment, this would represent your wealth.
• Assets are things that people own such as cars, houses, TVs, and
land.
When looking at issues surrounding inequality you will see the terms 'rich'
and 'poor' used regularly. It is important to remember that these are what
are called relative terms. To make a comparison you have to be aware of
what you are relating the comparison to. For example, Khaled is a multi-
millionaire business person. Most people would agree that Khaled is 'rich.
Mansour works as a construction engineer and earns a salary of 750 000(7
h fi) AED a year. In comparison to Khaled, Mansour is not 'rich' but
compared to Ramy who works in a vehicle repair garage and earns 80
000 AED a year, he is 'rich.
EXAMPLE;

THIS IS DHARAVI
(MUMBAI,INDIA)
THIS CITY DIVIDES BETWEEN
THE INCOMES AND LIVING
STANDARDS OF SOME OF ITS
POPULATION.
THIS IMAGE SHOWS VERY
DIFFERENT LANDSCAPES
WITHIN THE CITY
IS YOUR PARENTS INCOME
AND WEALTH DIFFERENT?
IF SO,WHY?
Types of
inequality
• Individual Inequality
This refers to the differences in
incomes and wealth of individuals
as highlighted in the examples of
Khaled, Mansour and Ramy above.
REGIONAL INEQUALITY
Regional inequality occurs when there
are differences in incomes and wealth
between regions in a country.

For example, parts of South Africa are

relatively wealthy whereas other parts
are very poor, the north of Italy is more
developed than the south and in
England, the South East is wealthier than
the North East of the country.
INTERNATIONAL INEQUALITY
International inequality refers to the
differences in income and wealth between
different countries.
Some countries are relatively rich compared to
other countries.
 GROSS DOMESTIC PRODUCT
If we want to look at the effects of globalisation on
inequality, we re to have some way in which we can
measure inequality and to assess how globalisation
has affected Inequality. Typically, we might look
International inequality and the differences between
countries. We therefore need a measure of income
for a country and that is done in two ways.
• One is by measuring gross domestic product
• and the other, gross domestic product per capita
 GDP
GDP or gross domestic product is the total value of
goods and services generated inside a country over
an accounting period. In simpler words, it reflects a
nation’s total domestic production and foreign
balance of trade
. It considers factors like demand and supply,
inflation, and per capita income in the calculation
 GDP PER CAPITA

GDP per capita It is a relatively simple step to go from GDP to

GDP percapita.

• GDP per capita is found by taking the GDP of a country and

dividing this figure by the population of the country. The
words 'per capita' means each head' so the GDP per capita
tells us the average income per head of the population in a
year
 INEQUALITY BETWEEN COUNTRIES
Some countries in the west might be considered 'rich'
developed countries whilst others in parts of central America
and Africa are considered 'poor undeveloped countries.
Looking at the total wealth of the citizens of a country through
GDP figures and GDP per capita can, however, be deceiving. To
explore the idea of inequality further, we need to have some
understanding about how incomes are distributed between the
population. GDP per capita gives an indication about the
average income per head of the population but this does not
mean that every person in the population earns that amount
per year
INCOME DISTRIBUTION
Looking at the way income is distributed amongst the
population can help to reveal the extent of inequality
between countries.
Income distribution refers to how the total income of a
country is divided between its population. In some
countries, a relatively small number of people earn a
large proportion of the total income of the country and
are relatively rich and the remainder of the population
are relatively poor. An example is the best way of
highlighting this.
 For example, if everybody in the market has the
same income, then we can say that there is a
perfectly equal distribution of income in the
market. On the other hand, if nobody apart from
one person in the market has all the income, then
there is a perfectly unequal distribution of income.
Our next question is to ask how the income of the
two countries is distributed amongst its
population? To do this imagine taking the
population of each country and dividing these
people into ten equal parts, with each group
representing 10% of the total. Because we are
dividing each population into ten equal parts, we
call each group a decile. You then look at the
amount of income each decile earns.
 Country X: Total Income = $5 trillion

Decile 1 2 3 4 5 6 7 8 9 10
(10% of
Population)

Income 2.0 1.5 0.9 0.2 0.2 0.04 0.03 0.02 0.06 0.05
Earned
 Country Y: Total Income = $3 trillion
Country 1 2 3 4 5 6 7 8 9 10
Y: Total
Income
= $3
trillion

Income 0.5 0.3 0.4 0.1 0.3 0.4 0.3 0.2 0.2 0.3
Earned
Compare this to Country Y, which has a total income of $3 trillion per
year. In Country Y, the top 10% of the population together earns $0.5
trillion, which is around 17% of the total income of the country. The
bottom 10% earns $0.3 trillion, 10% of the total income of the country.

In this example, Country X has a relatively small number of people

who are very wealthy but a large number of people who are very poor
in comparison. In Country Y, the distribution of income amongst the
population is much more even. The top 10% do earn more than the
bottom 10% but not that much more.
 Income Distributions and Inequality

When looking at figures in this way, we get a different

picture. Country X is clearly the richer country but in terms of
its income distribution it is very unequal in comparison to
Country Y.
If we look at countries around the world we see similar stories.
Some countries are rich, but the income in the country is
concentrated in the hands of a relatively small number of
people who are extremely wealthy, whilst the majority of the
population live in poor conditions.
Discussion Point
The Walton family in the US, who have derived their
wealth from the development of the Walmart
supermarket business, collectively own more wealth
than over two-fifths (42%) of the entire US population
put together, is this fair? Some would say that building
Walmart took many years and lots of hard work and
the wealth they have is a deserved reward for that
hard work and enterprise. Do you agree?
The Gini Coefficient A Measure of
Inequality
In addition to looking at GDP data, we can also look at a
measure of inequality called the Gini coefficient. This
measure was developed by an Italian statistician called
Corrado Gini (1884-1965) in 1912. The coefficient is a number
between 0 and 1. If the Gini coefficient was 0, a country
would have perfect equality - every citizen would have an
equal share of the total income of the country. A coefficient
of 1 means perfect inequality - all the income of a country
would be in the hands of just one household. The lower the
coefficient, therefore, the more equal a country is and the
higher the coefficient, the more unequal is the country. The
coefficients are often expressed as an index where the
coefficient has been multiplied by 100. For example, a Gini
coefficient of 0.256 would be expressed as 25.6.
COUNTRY GINI COEFFICIENT

BELARUS 26.7(2015)

BRAZIL 51.3(2015)

EGYPT 31.8(2015)

SOUTH AFRICA 63.4 (2015)

SAUDI ARABIA 45.9(2013)

UNITED STATES 40.0 (2014)

UNITED KINGDOM 32.6 (2012)

AUSTRALIA 34.9 (2010)

NORWAY 25.9 (2012)

JORDAN 33.7 (2010)

The Impact of Globalisation on Inequality

We looked at some of the advantages and disadvantages of

globalisation in Lesson 2. Having identified what is meant by
inequality and the different types of inequality, we are now in a
position to explore the impact of globalisation on inequality.
Has globalisation helped to reduce inequality or has it
contributed to making it worse? The answer to this question
depends on what definition of inequality we use and how we
measure inequality. Let's explore some facts to help you draw
some conclusions.
 This information comes from the
International Monetary Fund (IMF)".
1. Global trade has increased by 500% since 1980.

2. Global trade as a share of global GDP is now 55% compared to 36% in 1980
.
3. Using the Gini coefficient, inequality has risen in all low income countries
apart from two in the last 20 years.

4. Inequality has also risen in developing countries in Asia, Europe, Latin America and the newly industrialised
economies such as South Africa, Mexico, Brazil, China, India, Indonesia, Malaysia, Philippines, Thailand and
Turkey.

5. Inequality has declined in sub-Saharan Africa and the Commonwealth of Independent States. (Sub-
Saharan African states broadly include those in Africa which are located below the Sahara Desert. The
Commonwealth of Independent States includes Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan,
Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan).

6. Inequality in China has decreased substantially, whereas in India there are differences in how inequality
has changed. People living in Indian urban areas have seen inequality decrease but those living in rural areas
have not seen much change, if any.
7. Across all income levels, inequality has been rising, apart from countries classed
as low income countries. The richest 20% of the population has tended to get
ncher whereas the other 80% of the population has got poorer

. 8. In advanced, developed economies, imports from developing countries has

tended to reduce income inequality
9. In developing economies, the export of agricultural products and greater trade has helped improve
the distribution of income.

10. Because of the difficulties of collecting data and drawing comparisons between countries which
are very different and have different systems, it is not easy to establish a cause and effect
relationship between changes in Inequality and globalisation.
 *There are academics who state that
globalisation has increased inequality.
One such example is 2007 Nobel Prize for
Economics winner, Eric Maskin, a professor at
Harvard University in the United States Maskin
notes that globalisation has increased trade of
goods and services. This has led to an increase
in average global incomes. This increase in
income, however, is not shared equally
between countries and between people within
countries Maskin suggested there were two
versions of globalisation:
 Version 1: The less-worse
version. Globalisation
increases wages of the
workforce of countries, but
Version 2: The worse not every segment of the
workforce benefits. The gap
version. The wages of low- between those who benefit
skilled workers fall as and those who do not widens
demand for their labour and inequality increases.
falls, but the wages of high-
skilled workers increase,
which results in greater
inequality.
Maskin argues that the key to the effect of globalisation is the skill levels that
people in different countries possess. Those that have the skills that global
businesses want are more likely to benefit from globalisation than countries
where skills are low or not in demand.

The right thing to do is not to try to shop globohanon - that would be focu
because globalisation certainly does increase overage income in off cours

Eric Maskin, Adams University Professor at Harvard

 QUESTIONS
1. Define inequality?
2. Differentiate between income and wealth.
3. What are the different types of inequality? Explain.
4. What is called Asset?
5. Differentiate between G.D.P and G.D.P per capita.
6. Why are the terms such as ‘ rich and poor’ and ‘equal
and ‘unequal’ described as relative terms?
7. Explain Gini Co-efficient theory of measuring inequality
8. Briefly explain the Impact of Globalisation on inequality
THANK
YOU :)