Income Inequality

Income Inequality – A Natural Phenomenon

Pareto Distribution

Named after Vilfredo Pareto this distribution model is used to describe the social, economic, and scientific wonders of the world.

The model explains how items are distributed among elements within a system. It was initially used to describe the distribution of wealth in society but looking more depth the Pareto distribution can be applied to many elements in our life.

80-20 Rule

The 80-20 rule is an idea branched off the mathematical Pareto distribution model which states that 80% of outcomes are due to 20% of causes.

So, 80% of the wealth is owned by 20% of the population.

This rule is widely known and used to explain different phenomena and reasons for inequality. Although not all applications follow exactly 80-20, the equilibrium is close enough to where we can say that these aren’t random events and that the distribution equilibrium is due to the Pareto distribution 80-20 rule.

Applications

Some other applications of this rule include:

Population size and landmass, 80% of the population lives on 20% of the land.
Work and employees, 80% of the work is done by 20% of the employees.
Oil reserves and oil fields, 80% of oil comes from 20% of the oil fields.
Songs listened to and artists, 80% of songs listened to comes from 20% of artists.
Crimes and criminals, 80% of crimes are committed by 20% of criminals.
Accidents and drivers, 80% of accidents are caused by 20% of drivers.
Pollution and factories, 80% of pollution comes from 20% of factories.

There are many more applications than just these few. It applies to almost any situation where an equilibrium is met where the distribution of the many is controlled by the few. You can see this rule play out in almost all aspects of life where you almost have to think that it can’t be a coincidence but instead a rule of life.

Looking at the Pareto distribution and the 80-20 rule being applied in everyday life, we find that it shows up in a lot of applications.

It is undeniable that the Pareto distribution is a force of nature that cannot be changed or tampered with, this is because it is an equilibrium, it will always revert back to equilibrium.

What does this mean for the Pareto distribution for income and wealth inequality?

This means that the distribution of income will always revert to 80% of the wealth that will be owned by 20% of the population.

Some may think that using income redistribution policies it would be possible to change the distribution of income away from 80-20 but there will always be resistance to return back to 80-20 equilibrium.

No matter what economic system you have in place or strict income redistribution policies, wealth inequality will always show the 80-20 rule.

This natural phenomenon just shows that inequality isn’t always bad or unnatural, but in fact, is a status of being. That there will always be wealth inequality and there isn’t much we can do to prevent it.

What we should be aiming for is an equal and fair way to be distributed amount the unequal wealth distribution scale.