| Wealth and income inequality : Present or perceived substantial differences in the distribution of assets, wealth, or income within or between countries, resulting in material differences in related economic outcomes. Includes, but is not limited to: growing or persistent poverty and economic polarization. The question in this article is what risks wealth and income inequality entails. To this end, I examine this phenomenon from a socio-economic-societal, (geo-)political and demographic perspective. The question thus becomes: ‘What are the socio-economic-societal, (geo-)political and demographic implications of wealth and income inequality?’ | In this text I write in my own capacity, not that of any organization. The 2025 Global Risk Report – WEF gives this definition (quotes from documents have been translated using a translation program) |
Author: Manu Steens
Contents
What are the social risks of wealth and income inequality?
Definitions:
Social fragmentation:
Social Fragmentation is the process by which society increasingly breaks down into separate social groups. These have minimal interaction with each other. The common bond decreases. There is:
- Spatial segregation (This means separate residential areas for rich and poor population groups). Meeting places differ according to the difference in socio-economic class.
- Institutional separation. Everything is separated: education, health care, social contact opportunities…
Polarization:
Polarization is the sharpening of contrasts between social groups. There are:
- Ideological contradictions due to a growing gap in vision of society, the emergence of mutual distrust between social groups and a growing unwillingness to talk and compromise.
- Communicative alienation due to the difference in information channels used, a limitation of understanding for the other, hardening of one’s own positions due to the ‘great right’.
Social Mobility :
Social Mobility is the ability to change the socio-economic position of an individual or their family, usually to move up in the social hierarchy.
There are two main forms:
Vertical Social Mobility:
- An upward movement indicates an improvement in socio-economic status, a downward movement indicates a decline.
- Influencing factors are education, networks and economic opportunities.
Horizontal Social Mobility:
This is a movement in which one remains within the same socio-economic stratum, for example by changing profession or sector without a change in status.
Social Fragmentation and Polarization
A growing economic divide is leading to greater social division. Various income groups live different and more separated . ( OECD : ‘Income Levels And Inequality In Metropolitan Areas’ writes : “The higher the income inequality explained by differences in income between locations, the higher the extent to which households live concentrated, or “segregated”, in different municipalities according to their levels of income.”) As a result, there is less interaction between them. This in turn leads to less or no understanding for the other. ( Noteworthy : Sanaz Talaifar , Michael Buhrmester, Ozlem Ayduk and William B Swann in ‘Asymmetries in mutual understanding: People with low status, power, and self-esteem understand better than they are understood’ write : “low status, low power individuals understand more than they are understood”.) As a result, (mainly one-sided) distrust increases. Social cohesion deteriorates.
Reduced Social Mobility and Health
Increasing inequality limits the opportunities for upward vertical mobility. As a result, the underprivileged have fewer opportunities to access quality education, good health care and to climb vertically in social networks. As a result, people remain in the same status across generations , have higher stress levels, feelings of powerlessness and lower life expectancy.
It therefore results in health inequality and poorer living conditions, depending on gender, ethnicity, education, early retirement…
Increased Crime
Economic exclusion limits opportunities and perspectives. As a result, people sometimes seek a way out in crime . This results in higher crime rates. People start to see criminal activities as an alternative survival strategy.
Economic Inefficiency
Lower incomes hamper economic growth due to limited domestic consumption, among other things. But also due to poorer education there is less human capital investment, which also leads to underutilization of talents in society.
Blended families and socio-cultural transformations
Psychological stress will lead to an increase in blended households through more divorces and new partnerships. This increases the complexity of family structures which is influenced by and has an impact on economic pressures .
Due to economic pressure, traditional social norms are shifting . Traditional family ideals are making way for new forms of coexistence. People are beginning to expect different things from society and its culture.
What are the political risks of wealth and income inequality?
Undermining Democratic Legitimacy
When extreme economic inequality occurs between social groups, with social and political polarization , this can undermine trust in democratic institutions through echo chambers . Citizens perceive that political systems serve the interests of wealthy elites. That the little man gets to pay for it all. (Martin Gilens and Benjamin I. Page write on the Cambridge University Press website in ‘Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens’: “…that economic elites and organized groups representing business interests have substantial independent impacts on US government policy”.) As a result, faith in political representatives decreases. Skepticism about the decisions of the political elite increases.
As a result, populist and extremist movements are gaining more members. (In ‘The rise of populist radical right parties in Europe’ on the website of International Sociology Murat Aktas writes: “They present a binary narrative of the ‘pure people’ versus the ‘corrupt elite’, undermining democratic systems and eroding the rule of law by portraying legislative and judicial bodies as obstacles to the expression of popular sovereignty.”)
Economic frustration and feelings of powerlessness can therefore not only promote crime, but also radical political ideologies.
Populist leaders use this to influence the underprivileged by promoting polarization between population groups and a low willingness to compromise. (In ‘Political Polarization In The American Public’, Michael Dimock, Jocelyn Kiley, Scott Keeter and Carroll Doherty write on the Pew Research Center website that “The nation’s increasing ideological polarization makes political compromise more difficult, in part because those at opposite ends of the ideological spectrum see less benefit in meeting the other side halfway.”)
Unequal Political Influence and Political Instability
Any inequality, especially economic inequality , leads to disproportionate political power. For example, there is greater lobbying capacity for the rich and limited political participation for the underprivileged.
Polarization also makes it easier to create legislation that primarily favors the interests of the rich . This leads to a poorer functioning, non-functioning or incorrect functioning of democratic checks and balances.
This creates a disbelief among the underprivileged in their own opportunities and equal opportunities within the prevailing political system. (Timothy M Smeeding writes in the article ‘Multiple Barriers to Economic Opportunity for the “Truly” Disadvantaged and Vulnerable’ that “Finally, the belief in the opportunity to achieve the American Dream is in question today.”)
Such issues can lead to an increased risk of social unrest. ( According to Ines A Ferreira, Rachel M Gisselquist and Finn Tarp in the article ‘On the Impact of Inequality on Growth, Human Development, and Governance’ on the Oxford Academic website , according to Alesina and Perotti (1996) : “social unrest—resulting from social discontent caused by income inequality—can lead to an increasing probability of political violence”) This manifests itself first in demonstrations and protest movements , later in a social disruption . After that, it becomes impossible for the government to reach consensus due to increasing populism, radicalization and resistance to existing political systems.
Erosion of Institutional Trust
On a smaller scale, socio-economic disparities undermine equality in social and medical care and safety nets.
The associated social fragmentation also creates local differences and undermines national identity. (In the article ‘Social Integration and Fragmentation: Holding Societies Together’ on the website of Humanity on Trial, Ton Bührs writes : “Social integration is an ongoing challenge that provokes different and ambivalent responses. On the one hand, it provides grounds for an emphasis on the importance of language and culture, history and traditions, and ideas about the existence of ethnic or national identity.”) The social groups focus more on themselves and want to separate from each other, partly due to dissatisfaction with political decision-making.
Geopolitical Vulnerability
Economic inequality also has international consequences because it may lead to lower national competitiveness. ( IMF mentions that “Trade has been an engine for growth in many countries by promoting competitiveness and enhancing efficiency.”) This results in greater sensitivity to external economic shocks, making people from lower classes more willing to take on economic migration challenges. (Jeffrey G. Williamson and Tim Hatton write in the article ‘Global economic slumps and migration’ that “International migration has always responded to the ebb and flow of the business cycle.” ) The weaker economic position creates dependencies on all kinds of areas of the state, such as external health aid, education, etc., which puts the state in a weaker diplomatic position. The state becomes dependent on the whims of other states.
Limitation of Political Participation
Due to reduced lobbying from vulnerable groups, they have less political representation. (At least where elections are not mandatory.) This limits the economic opportunities of this population, which facilitates political ideological polarization.
This in turn leads to a hardening of the positions of each of the social strata, with all the known consequences.
People start to doubt the possibilities for social mobility. Peter Saunders writes in ‘ Social Mobility Truths ‘: “If the number of middle class jobs expands over time, and the size of the working class contracts, absolute mobility rates will rise, but this does not necessarily mean that the relative chances of middle class and working class children ending up in middle class or working class jobs has changed. Changes in absolute mobility rates do not therefore necessarily indicate changes in social fluidity. ”
What are demographic risks of wealth and income inequality?
Population composition and family formation
Robert I. Lerman writes in ‘ Marriage and the Economic Well – Being of Families with Children: A Review of the Literature ‘ that : “The results reveal that marriage significantly and substantially reduces the likelihood of poverty, holding constant for family background, race and ethnicity, age, education, and marital vs. non-marital childbearing.”
Migration patterns
There are internal migration flows from poor areas/neighborhoods to rich ones. ( E.g . in China: Priya Deshingkar wrote in March 2006 in ‘ Internal Migration, Poverty and Development in Asia ‘: “There has been a continuous outflow of laborers from more populous agricultural areas to the industrializing regions in China. While half of these movements are inter-provincial from the underdeveloped parts of the country to the east coast, the rest are intra-provincial rural–urban movements within the eastern provinces.”) But there is also an increase in migration pressure internationally. There is a migration of talent and skills from the economically less strong areas. However, the migrants often provide for those left behind by sending money .
Generation-Specific Vulnerabilities and Health-Related Demographic Impacts
Younger generations are dependent on older generations for social mobility. This results in diminished future prospects for Gen Z and millennials. There is intergenerational transmission of economic hardship, as well as physical and mental health across generations
Lower life expectancy in economically weaker groups occurs due to higher infant mortality caused by poorer health care .
Ultimately, there will be an ageing population, resulting in a shortage of youth, a shortage of care capacity for older generations. This will put pressure on social security and the associated systems .
Urban and Regional Demographic Dynamics
Economically promising areas will urbanize and economically weaker regions will depopulate through economic internal migration .
This leads to spatial segregation with differences in wealth and poverty across geographical areas.
Demographic inequality causes the most enterprising individuals to migrate from disadvantaged regions or social groups to better economic areas. This in itself results in new challenges as Nagesha B writes in the article ‘ An Economic Analysis of Internal and International Migration – Some Issues and Challenges ‘: “Problems related to migration are challenging, such as Rapid Growth in Population, Challenges of High Labor Migration Cost, Inadequate Resource Allocation, and Lack of Skilled Human Resource.”