Why Does Income Inequality Exist?

BY DR. ANNE BRADLEY

Vice President of Economic Initiatives

 

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EXECUTIVE SUMMARY

The Bible speaks at length about our uniqueness. We are created in God’s image and are matchless, just like a snowflake. We are also commanded to use our unique combination of skills and abilities to glorify God and serve others. Our unique skills allow us to make a special contribution to the world we live in, not just in the church or on the mission field, but through our work.

Because we are uniquely created, we are endowed by Christ with a specific set of gifts. We can further the Kingdom of Christ by knowing our gifts and pursuing them with excellence. Economists refer to this as comparative advantage. People are served best when they focus on the production of things that they can produce most efficiently (at the lowest opportunity cost) and avoid engaging in the production of goods or services for which they are costly producers.

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INTRODUCTION

There is a lot of talk in today’s world about income inequality and most of that talk casts income inequality in a negative light. Many do not understand the true economic picture or some of the reasons why income inequality exists from a Biblical or economic standpoint.

This paper will seek to better define what income inequality is, how it emerges in society and its impact. Based on that understanding, we can better understand today’s income inequality in light of Biblical teachings and what our response should be as Christians, particularly in our own vocation.

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PART ONE: Income Inequality from an Economic Perspective

Income inequality is a measurement of the distribution of wealth across households. It is a relative comparison of the gap in household incomes across a given region, country or the world. Income inequality is measured using the “Gini coefficient” and calculates the extent to which the income distribution in a country deviates from perfect equity. A Gini coefficient of zero indicates perfect equality (everyone earns the same income) and a coefficient of one indicates perfect inequality (one person holds all the income and everyone else has zero). Formally measuring income inequality is often used as a benchmark for the welfare of a society or country—the relative poverty or prosperity of a society—and used as a justification of policy attempts at income redistribution.

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PART TWO: Income Inequality from a Biblical Perspective

Income inequality, as described above, is a fact of economic life. Different people are born with different gifts and choose to pursue them differently. Those gifts carry unequal earthly rewards, one of which is in the form of income. The market is an earthly construct which can dole out only earthly rewards. In other words, the market will not reward you in the eternal realm for curing cancer. It will reward you monetarily for curing cancer, and the lure of that monetary reward is an important motivator to innovate.

The market rewards contributions to consumer demand through profit. The market punishes those who do not successfully satisfy consumer demand through losses. Profits and losses serve as signaling devices that are critical feedback mechanisms. They alter behavior. They serve as incentives for creativity and innovation.

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