Inequality and Economic Growth

Running Head: INEQUALITY AND ECONOMIC GROWTH
Inequality and Economic Growth
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1INEQUALITY AND ECONOMIC GROWTH
Inequality refers to a situation where the economic pie is not divided equally among all
the people in a society. Inequality can be identified either in wealth and income distribution or in
consumption. There are different quantitative indicators of inequality. Economic growth on the
other hand is defined as a situation where a nation accounts a continuous increase in total output
or income (Case and Deaton 2015). Economic growth often comes at the cost of an increasing
inequality in the nation.
The growing income inequality has now become a major threat to achieve a social
stability. Despite several initiatives by global leaders, there still exists an ever increasing gap
between rich and poor nation. Economic crisis of Spain has resulted in considerable in
considerable inequality in the nation. According to OECD report, the group of workers belong to
the lowest salary group in Spain experienced the greatest cut in their wage between 2010 and
2014 (Fehder, Porter and Stern 2018). The three main dimensions of inequality include
inequality in wealth, inequality in income and inequality in consumption. One commonly used
indicator of economic inequality is the Gini co-efficient.

2INEQUALITY AND ECONOMIC GROWTH
Figure 1: Economic inequality in Spain
(Source: Chartbookofeconomicinequality.com 2018)
Another indicator of income inequality is the share of population living below the
poverty line. Absolute poverty is a situation where people earn less than $1.25 per day (Oishi
and Kesebir 2015). The computation of absolute poverty include adjustment for an overtime
change in price and corresponding differences in price.
Economic growth of a nation is measured in terms of a persistent rise in Gross Domestic
Product. The Gross Domestic Product is a representative measure of total production, total
expenditure and total income of a nation. In order to compare GDP of different nations a CPI
adjusted measure known as purchasing power parity is used. Per capita GDP is a measure
obtained by dividing total GDP by total population (Mankiw 2014). In an emerging digital
economy, the use of GDP is flawed measure as these goods in most case have almost zero
marginal cost and hence, have a zero equilibrium price. Gross National Product also does not