What are the driving forces behind inequality?
Globalization and liberalization
Globalization and liberalization have played a paradoxical role in recent decades. They have reduced global (inter-country) inequalities but reinforced intra-country inequalities by creating winners and losers within each country. The intensification of trade has also given rise to unprecedented competition between the middle classes in high-income countries and those in other countries, to which production has been exported. Finally, globalisation has given rise to new financial arrangements aimed at avoiding taxes that are often considered too high by capital owners, which has necessarily had negative repercussions on income distribution.
Although globalization and technological progress have played an important role in the widening of inequalities, the main causes of this widening remain linked to country-specific factors and policies.
Technological change
Globalization has also played a key role in accelerating technological change. Technological change has empowered some production chains, causing a whole unskilled faction of society to lose their jobs. As the demand for skilled workers is now higher than the supply of skilled workers and the demand for unskilled workers is lower than the supply of unskilled workers, the wages of unskilled workers have necessarily fallen, leading to an increase in income inequality. This reasoning is also known as the “skill premium”.
The business model
Inequality is generally higher in economies centred on extractive industries than in economies centred on agriculture or manufacturing. Inequality may also be the result of path dependency where asset concentration is rooted in the socio-institutional legacy of countries.
Demographic dynamics
Inequality is often associated with high fertility rates. However, a high birth rate is problematic for reducing inequality because a higher population often means less investment in human capital (especially in children's schooling, which is one of the most effective tools for reducing inequality). However, population ageing may also increase inequality in the absence of any universal non-contributory pension system, as the share of the vulnerable population will necessarily increase. Finally, migratory movements may also impact on inequality. However, this theory remains under debate.
Social and cultural norms
Marginalization and discrimination of entire segments of society (women, ethnic and religious minorities, people with disabilities), often linked to social and cultural norms, lead to inequalities in access to basic services.
Institutional weaknesses
High levels of inequality can result in the concentration of wealth and power and, ultimately, the political capture of institutions. However, this mechanism usually operates when institutions are weak.