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IB DP Economics Study Notes

3.4.2 Causes of Inequality

Inequality within an economy often emerges due to several interconnected factors. Disparities in wages, varying levels of education, and pervasive gender discrimination are all significant contributors to widespread inequality, impacting societal structures and economic frameworks.

A chart illustrating wage gap in the US

Image courtesy of statista

Wage Disparities

Wage disparities are crucial elements contributing to overall inequality within societies.

- Determinants of Wage Disparities

  • Skill Level and Experience
    • Different skill levels and work experience result in varied wage levels, often benefiting those with advanced skills and extensive experience.
    • Investing in skills development and continuous learning is crucial for mitigating these disparities.
  • Industry Sector
    • Industries like finance and technology typically offer higher wages than sectors like hospitality or retail, accentuating wage differences.
    • Diversification of skills across various sectors can aid in mitigating such disparities.
  • Geographical Location
    • The regional economic climate and cost of living significantly impact wage levels, with urban areas often offering higher wages than rural regions.
    • Developing regional economies and ensuring balanced growth is crucial to address these disparities.
  • Labour Market Conditions
    • Supply and demand dynamics within the job market determine the wage levels for specific skills and occupations.
    • Labour market interventions and adjustments are essential for maintaining balance and equity in wage structures.

- Consequences of Wage Disparities

  • Social and Economic Impact
    • Wage disparities lead to a stratified society, causing friction and disparities in living conditions and opportunities.
    • Comprehensive policies are needed to manage the economic and social impacts of these disparities.
  • Effects on Economic Growth
    • Disparities can stifle economic growth by reducing consumer spending and hindering the development of human capital.
    • Proactive measures to stimulate economic growth and equal distribution of resources are essential.


Education serves as the backbone of individual and societal development, and disparities in educational attainment can significantly impact inequality levels.

- Access to Quality Education

  • Economic Constraints
    • Economic background plays a pivotal role in access to education, with affluent backgrounds often providing better educational opportunities and resources.
    • Ensuring equal access and providing financial support to underprivileged students are key to addressing this inequality.
  • Quality and Resources
    • The quality of schools and availability of educational resources vary widely, affecting students' academic achievements and future opportunities.
    • Improvements in educational infrastructure, particularly in underserved areas, are crucial for ensuring equal opportunities.
  • Policy Interventions
    • Governments and educational bodies must implement policies to reduce disparities in educational quality and access.
    • Effective policy formulation and implementation are key to achieving educational equity and reducing resultant inequalities.

- Impact of Education on Inequality

  • Employment and Earning Potential
    • Educational attainment directly impacts employment prospects and earning potentials, benefiting those with higher educational qualifications.
    • Bridging the educational divide is essential to ensure equal employment and earning opportunities for all.
  • Societal Mobility
    • Education acts as a social elevator, enabling individuals to ascend societal and economic strata, thereby reducing inequality.
    • Ensuring widespread access to quality education is key to promoting social mobility and societal advancement.

Gender Discrimination

Gender discrimination remains a pervasive issue, significantly contributing to societal and economic inequalities.

A chart illustrating wage disparity in selected countries

Image courtesy of statista

- Gender Pay Gap and Occupational Segregation

  • Wage Disparities
    • Women often earn substantially less than men in similar roles, accentuating gender-based economic inequalities.
    • Addressing and rectifying wage disparities are crucial for achieving gender equality and economic equity.
  • Sectoral Concentration
    • Women predominantly find employment in lower-paying sectors and occupations, reinforcing gender-based economic disparities.
    • Encouraging sectoral diversification and ensuring equal opportunities in all sectors are pivotal for addressing this issue.
  • Career Advancement
    • Women often face barriers to career progression, limiting their earning potential and reinforcing gender inequalities.
    • Promoting equal career advancement opportunities and addressing structural barriers are key to mitigating gender-based inequalities.

- Impact and Solutions

  • Economic and Societal Repercussions
    • Gender discrimination has far-reaching economic and societal impacts, hindering economic growth and reinforcing stereotypical gender roles.
    • Addressing the root causes of gender discrimination is essential for fostering societal progression and economic development.
  • Legislative and Societal Interventions
    • Enforcing gender equality laws and promoting societal awareness are crucial for combating gender discrimination.
    • Empowering women through various programmes and interventions can significantly contribute to reducing gender-based inequalities.

Synthesis: Addressing Inequality

Addressing the multifaceted nature of inequality necessitates a comprehensive and integrated approach, focusing on reducing wage disparities, ensuring equal access to quality education, and combating gender discrimination. Implementing robust policies and fostering societal awareness are key to promoting equality and social cohesion, ultimately leading to more inclusive and equitable societies. By addressing the root causes of inequality, societies can ensure equal opportunities for all individuals, regardless of their background, and enable them to contribute meaningfully to societal and economic development.


Societal norms and values play a pivotal role in shaping gender roles, and they can perpetuate gender discrimination and ensuing wage disparities. Societal expectations and traditional gender roles can limit women’s access to education and career opportunities, or pigeonhole them into lower-paying, ‘feminine’ sectors. This discrimination is ingrained in societal structures, often devaluing women’s work and contribution, and is reflected in the gender pay gap. Addressing these norms and fostering a culture of equality and respect is crucial to combat gender discrimination and its economic ramifications effectively.

No, the gender pay gap is not the sole reflection of gender discrimination in the labour market. While it is a significant and measurable aspect, gender discrimination manifests in various forms such as unequal employment opportunities, limited access to promotions and career advancements, occupational segregation, and unequal treatment within workplaces. Discrimination is also reflected in the disproportionate representation of women in part-time or temporary jobs and their underrepresentation in leadership and decision-making roles. Addressing gender discrimination requires a holistic approach targeting all its manifestations to ensure genuine gender equality in labour markets.

Globalisation can exacerbate wage disparities as it fosters a 'race to the bottom' in labour markets, where countries might reduce labour standards and wages to attract foreign investment. Furthermore, it intensifies competition, benefiting skilled workers involved in globally competitive sectors while potentially disadvantaging lower-skilled workers. Also, the relocation of manufacturing jobs to countries with cheaper labour can depress wages in developed countries. Conversely, globalisation can also aid in reducing wage disparities by facilitating technology transfer and boosting productivity, hence it is paramount to manage globalisation effectively to harness its benefits while mitigating adverse impacts.

Labour market imperfections, such as information asymmetry and market power, play a significant role in causing wage disparities. When information about job vacancies or candidate qualifications is imperfectly distributed, it can lead to mismatched employment and subsequently wage inequalities. Employers having market power can suppress wages below the competitive equilibrium, causing disparities. This imbalance often affects lower-skilled workers more severely, perpetuating inequalities. Governments can address these through regulatory frameworks ensuring transparent and fair employment practices and policies enhancing labour market flexibility and competitiveness.

Yes, taxation policies can effectively mitigate wage disparities. Progressive tax systems, where higher incomes are taxed at higher rates, can redistribute wealth from the rich to the poor, thus reducing income inequalities. Moreover, government programmes funded by tax revenues can provide support to lower-income individuals, through education, healthcare, and social services, allowing them opportunities to uplift their economic conditions. However, the efficacy of these policies depends on the correct identification of income levels and the government’s ability to implement these policies without creating disincentives to work or invest.

Practice Questions

Evaluate how disparities in education can contribute to wage inequalities and elucidate the role of government intervention in mitigating such inequalities.

Disparities in education significantly contribute to wage inequalities as they create a divide in the quality and level of skills and knowledge acquired by individuals, thereby impacting their employment and earning prospects. Those with access to quality education often secure well-paying jobs, while others with limited access are confined to lower-paying roles. Government intervention is critical in addressing these disparities through policies aimed at ensuring equal access to quality education, providing financial assistance, and implementing educational reforms, which can help in creating a more level playing field and reducing wage inequalities.

Discuss the impact of gender discrimination on economic inequality and propose potential solutions to address this issue.

Gender discrimination exacerbates economic inequality by enforcing a gender pay gap and limiting career advancement opportunities for women, thereby contributing to their economic disadvantage. It perpetuates stereotypical gender roles, and its implications are far-reaching, affecting economic growth and societal structures. To alleviate gender discrimination and its ensuing inequalities, the enforcement of gender equality laws is crucial. Societal interventions such as awareness programmes, and the promotion of gender equality in every aspect of society, including workplaces and educational institutions, are paramount. Moreover, empowering women through education and career opportunities is a substantive step towards achieving gender equality and reducing economic disparities.

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Written by: Dave
Cambridge University - BA Hons Economics

Dave is a Cambridge Economics graduate with over 8 years of tutoring expertise in Economics & Business Studies. He crafts resources for A-Level, IB, & GCSE and excels at enhancing students' understanding & confidence in these subjects.

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