Tools like the Gini coefficient give us an easy way to compare the inequality levels between different countries. New research from the University of Michigan suggests that these tools might not always be effective, however, as they base their measures on income inequality rather than wealth inequality.
The researchers argue that when wealth inequality is assessed, we get a very different picture of inequality levels between nations. Indeed, the study suggests that there is almost no correlation between income inequality and wealth inequality.
For example, when we look at income-based inequality, we find that Scandinavian countries score very well and are considered egalitarian, but this is not true when those countries are looked at through the lens of wealth inequality.
“While national levels of income inequality and wealth inequality tend to be largely independent from each other, a notable exception is the United States, which combines very high levels of income inequality with even higher and more exceptional levels of wealth inequality and concentration,” the authors say.
Lack of association
This lack of any meaningful association between income inequality and wealth inequality has significant implications, not least because most of our methods for understanding inequality focus on income inequality.
The researchers examine the various aspects of national wealth that underpin their wealth inequality. The analysis shows that cross-national variation in wealth inequality is hugely related to the national distribution of housing.
The researchers used harmonized measures of a household’s net worth, including housing equity, financial assets, and other non-housing real assets, such as vehicles and business equity. From this, they deducted any debts and other financial liabilities. They assessed 15 countries between 2012 and 2014, including Norway, Sweden, the UK, the US, Australia, and Germany.
Housing wealth was calculated as the difference between the value of the house and the remaining mortgage debt on it. The findings clearly show that cross-national differences in wealth inequality and concentration chiefly reflect the level of inequality in and concentration of housing equity. A country’s distribution of housing equity is thus central to its overall level of wealth inequality.
“Housing equity should be the central building block of the comparative analysis of wealth inequality,” the researchers conclude. “Our study provides a first step toward connecting the study of wealth inequality to emerging work on housing markets and financialization that can help us understand why countries’ levels of wealth inequality are so much higher and different from income inequality.”
