Questions for Branko Milanovic, Economist, City University of New York

Describe the difference between wealth inequality and income inequality.

It’s useful to think about three types of inequality: Wealth inequality, income inequality and consumption inequality. Wealth inequality can be simply defined as ‘differences in the total amount of marketable assets that people possess’. Your wealth is calculated as the total amount of money that you would receive if you sold all your assets — your house, car, financial assets, etc. It does not include ‘accrued assets’, such as pension rights, because they cannot be sold. On the other hand, when we talk about income inequality, we generally mean differences in disposable income — that is, aftertax income.

The key difference between income and consumption measures is that lots people can have zero income over a particular period, but your consumption can never be at zero — or you would not survive. If you have zero income, there are other ways to finance your consumption: Government programs provide assistance to the poor, so consumption inequality is muted relative to income inequality. Also, the rich can lend to the poor through the financial system, keeping the spending of the poor (i.e. their consumption rate) relatively high, at least in the short term. In this sense, the number of poor, according to consumption measures, is often lower than according to income measures.

Greater participation of women in the workforce reduces inequality