Economic inequality: concept and approaches to measurement

Abstract

The study of economic inequality has evolved from the classical works of S. Kuznets and A. Atkinson to the modern approaches of A. Sen, J. Foster, A. Shorrocks, G. Palma, and T. Piketty, which take into account the impact of globalization, technological changes, and political decisions. Economic inequality is understood as the uneven distribution of economic opportunities and resources, including income and wealth, among individuals and population groups. Two primary forms of economic inequality are distinguished: income inequality (which reflects differences in current income) and wealth inequality (which focuses on disparities in already accumulated income). Horizontal and vertical dimensions of inequality are identified. The key factors include global factors (globalization, technological progress) and specific ones (macroeconomic conditions, labor market regulation, demographic changes, and redistribution policies). The specific mechanisms for measuring wealth and income inequality are presented. By analyzing the advantages and disadvantages of methodological approaches to measuring economic inequality, it is established that, due to the absence of a universal methodological approach, using a combination of survey data, tax statistics, and national accounts allows for a more comprehensive analysis of inequality. The assessment of the advantages and disadvantages of the Gini index, mean log deviation, Theil index, Palma ratio, and quantile ratios demonstrates that combining simple percentile ratios with complex indices fosters a deeper understanding of the structure and dynamics of inequality. Quintile ratios or the Palm ratio estimate the income gap between the richest and poorest groups, and the Gini ratio and the Theil index reflect changes in income across all segments of the population. It is emphasized on the need to adapt existing inequality indicators in Ukraine to international practices, particularly regarding wealth inequality.