Economic Inequality and Disadvantage

Understanding the causes and consequences of inequality and disadvantage
The origins of inequality and disadvantage have been debated for centuries. Economists use powerful quantitative tools and the widespread availability of rich micro and macro data to study the dynamics of inequality and disadvantage within and across countries, and the effectiveness of public policy in promoting economic mobility.

Inequality occurs when there is an unequal distribution of important resources including income, wealth, health, skills, and educational opportunities within society.

Social and economic inequalities exist in every country in the world to varying degrees: some people (or countries) may be extremely well off, while others may be struggling to get by on a day-to-day basis.

Inequality widens the rungs of the socio-economic ladder, reducing social and economic mobility by making it harder for people to overcome the circumstances of their birth. The consequence is that severe forms of social and economic disadvantage are surprisingly persistent.

Persistent disadvantage is not only inefficient but it is also seen as unfair which undermines social cohesion.  Addressing economic inequality and disadvantage is one of the critical challenges of our times.

Addressing this challenge is particularly pressing in the case of children. Children living in families trapped around or below the poverty line may struggle to climb up the socioeconomic ladder.

They are much less likely to obtain the education that would lead to labour market success.  Poor children’s early life experiences are often accompanied by physical and mental health problems, financial constraints, and involvement in high-risk activities such as gambling and illicit drug use.

These are some of the reasons why intergenerational disadvantage can be so highly persistent over time. As recent experience shows, global shocks to economies – the coronavirus pandemic, the global financial crisis, wars, and climate-related disasters – can exacerbate existing inequalities within and across countries. The advancement in communication and financial systems, while facilitated economic development, has also led to the growth of high-risk activities, such as online gambling that can have a negative  impact, especially on disadvantaged adolescents.

Researchers working in this theme answer these questions both from a macroeconomic perspective (aggregated country data), and a microeconomic perspective (individual and firm level data).

Macroeconomic researchers address questions such as:  How does economic inequality evolve across and within countries over time? Can investments in human capital reduce economic inequality? What are the consequences of human-capital-induced productivity growth for inequality? What is the role of macroeconomic business cycle stabilization policies, like fiscal and monetary policy, in reducing economic inequality? What is the role of global financial systems in determining inequality across individuals and countries? Is too much debt a poverty trap? Can multilateral organisations help in reducing global inequalities?

Our microeconomic researchers investigate questions such as: How persistent are social and economic inequalities over time at the individual level? What are the consequences of social and economic disadvantage over a person’s lifetime? How effective is public (welfare, health, family, and education) policy in reducing disadvantage for individuals and families? What can we learn from behavioural economics and psychology to address early life health and skill development inequalities? Can preferences be changed so that people make smarter choices for themselves and their children to break the cycle of intergenerational disadvantage?

Our researchers in this theme combine the power of economic analysis with rich data sources, state-of-the-art econometrics methods and computing software to pave the way towards answering some of the most important questions of our times.