Todd Arthur Bridges

Social Stratification:

Social stratification lies at the core of society and of the discipline of sociology. Social inequality is a fundamental aspect of virtually all social processes, and a person's position in the stratification system is the most consistent predictor of his or her behavior, attitudes, and life chances. Social stratification links almost all aspects of society together, and therefore understanding what is happening to social stratification helps us understand a wide range of other changes in society.

Social Inequality:

The richest 1% of the world have income equivalent to the poorest 57%. Four fifths of the world's population live below what countries in North America and Europe consider the poverty line. The poorest 10% of Americans are still better off than two-thirds of the world population. The assets of the 200 richest people in 1998 were more than the total annual income of 41% of the world’s people. Three families – Bill Gates, the Sultan of Brunei and the Walton family – have a combined wealth of some $135 billion. Their value equal the annual income of 600 million people living in the world’s poorest countries. The richest 20% of the world population now receives 150 times the income of the poorest 20%. The share of the poorest 20% of the world's people in global income now stands at a miserable 1.1%, down from 1.4% in 1991 and 2.3% in 1960. It continues to shrink. And the ratio of the income of the top 20% to that of the poorest 20% rose from 30 to 1 in 1960, to 61 to 1 in 1991 - and to a startling new high of 78 to 1 in 1994.


What Exactly is Inequality?

People around the world are becoming more aware of – through the growth in radio, television and other media – and more vocal about the gap between the rich and the poor. Policy makers, researchers and academics are also increasingly recognizing the links between inequality and other social and economic phenomena. Despite the predictions of Kuznets (1955), high levels of inequality persist in many high income countries today and, in some of them, they have in fact recently risen further (see OECD, 1995). In addition, the links between inequality and economic performance are being investigated through models that incorporate voting behavior, imperfect capital markets and uncertainty over property rights, where the causality runs from inequality to growth, rather than the reverse. This combination of increased social and political pressure and academic interest, together with the considerable recent expansion in the availability of household survey micro-data, means that the study of income distributions has more recently gained enormous impetus.

But what exactly is inequality? How is it measured? How can we make meaningful comparisons over time, or across space? How can we begin to analyze the underlying structure of inequality? What policies can successfully reduce inequality? These questions are fundamental to any study of income distribution. 

Basic Concepts: Inequality, Poverty, and Welfare:

Inequality means different things to different people: whether inequality should encapsulate ethical concepts such as the desirability of a particular system of rewards or simply mean differences in income is the subject of much debate. Here we will conceptualize inequality as the dispersion of a distribution, whether that be income, consumption or some other welfare indicator or attribute of a population.

Poverty reduction takes place inherently within a broader process of distributional dynamics. Obviously, poverty and inequality are very closely linked – for a given mean income, the more unequal the income distribution, the larger the percentage of the population living in income-poverty,

Inequality is often studied as part of broader analysis covering poverty and welfare, although these three concepts are distinct. Inequality is a broader concept than poverty in that it is defined over the whole distribution, not only the censored distribution of individuals or households below a certain poverty line. Incomes at the top and in the middle of the distribution may be just as important to us in perceiving and measuring inequality as those at the bottom, and indeed some measures of inequality are driven largely by incomes in the upper tail. Inequality is also a much narrower concept than welfare. Although both of these capture the whole distribution of a given indicator, inequality is independent of the mean of the distribution (or at least this is a desirable property of an inequality measure) and instead solely concerned with the second moment, the dispersion, of the distribution. However these three concepts are closely related and are sometimes combined in composite measures such as those proposed by Amartya Sen.


Why should we be interested in Inequality?

There is a renewed interest in inequality for a number of reasons. First, recent empirical work re-examines the link between inequality and growth. If at all, it tends to find a negative relationship, especially when looking at the impact of asset distribution and growth. They assert that the more equal the distribution of assets such as land, the higher growth rates tend to be. Second, with poverty reduction in many countries being slow at best, the scope for public policies to have a poverty-reducing impact through redistributive effects – from safety nets to social expenditures – needs to be examined. Third, several empirical studies also examine the impact of inequality – independent of the poverty level – on health outcomes, such as morbidity or mortality rates, or as a cause for violence.

There are several channels through which inequality influences economic and social outcomes. With imperfect capital markets, citizens with low incomes and little ability to provide collateral may find their access to capital curtailed. This will hinder them moving out of poverty while at the same time distorting resource allocation within economies – and thereby lowering growth rates. Economic growth prospects can also be negatively influenced by inequality through the tax system. This would be the case if -- from a political economy perspective -- inequality leads to an inefficient tax structure. Further, it is now discussed to what extent income differences between (and within!) households create psychological stress for the relatively poor and are factors that explain higher morbidity, mortality and violence rates.

Today, understanding the links between inequality and the performance of an economy has become an integral part of understanding the very process of development and the effects of different policies. Some of the questions pertaining to inequality are: 

  • Do more equal societies grow faster than less equal ones?
  • What are the linkages between income distribution and poverty?
  • Do different ‘types’ of growth promote poverty reduction differently?
  • How does inequality affect the effectiveness of anti-poverty programs?
  • Is macroeconomic stability related to inequality in any way?
  • Are more unequal societies and localities likely to be more violent?
  • Does inequality have a direct and independent influence on health outcomes, such as morbidity or mortality?
  • How do gender roles and public policy influence intra-household inequalities?