AP Syllabus focus: ‘Sources of inequality include tax structures, human and social capital, inheritance, discrimination, financial access, mobility, and bargaining power.’
Income and wealth can become unevenly distributed when market outcomes and institutions reward some people more than others. This page explains the main mechanisms in the syllabus and how each can widen gaps over time.
Foundations: what drives unequal outcomes?
Human capital: Productive skills and knowledge (such as education, training, and health) that raise a worker’s productivity and earnings.
Differences in opportunity, productivity, and market power can translate into persistent differences in income (a flow, like wages) and wealth (a stock, like assets).
This Lorenz curve compares an equal distribution (the 45° line) with an unequal distribution (the bowed curve). The farther the Lorenz curve lies below the line of equality, the more concentrated income/wealth is among higher-ranked households. The shaded “gap” between the two is the geometric intuition behind summary inequality measures like the Gini coefficient. Source
Many causes interact: for example, inheritance can fund education, which raises human capital, which increases bargaining power.
Key causes of income and wealth inequality
Tax structures
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FAQ
Loopholes and uneven enforcement can reduce effective tax rates for higher-income households.
This can shift the burden towards wage earners and weaken redistribution.
If higher incomes grow faster (higher percentage or absolute gains), the distribution can become more unequal.
Wealth can also pull away faster due to compounding returns on assets.
Housing can appreciate and be leveraged, increasing wealth via capital gains.
It can also provide collateral that improves borrowing terms, amplifying financial access gaps.
Changes in employer concentration, union coverage, or outside options can shift wage negotiations.
Even with the same productivity, weaker bargaining can mean lower wage growth and fewer benefits.
Networks can be transmitted through family, neighbourhoods, and schools.
Displacement, unstable housing, or exclusion from professional networks can disrupt social capital formation.
