What is income inequality?

Income inequality measures the gap between the rich and the poor. It tells us how well incomes are shared out amongst us.

There are many different measures of income inequality, some are more accepted than others. The most common is called the Gini index, a number between 0 and 1 representing the distribution of income in a country. If a country had a Gini index of 0 that would mean everyone received exactly the same income; a Gini index of 1 would mean that just one individual received all the income. You can see how New Zealand’s Gini index has changed over time here.

Income is the amount of money we earn each year in our work, from welfare support or from our investments.

Wealth measures the things we own, such as houses, possessions and money we have in the bank or investments, less any loans or other debts we have.

People with higher incomes find it easier to save and therefore buy more assets (such as investments or houses) and these in turn give income through rent or interest. This means large income gaps also further increase wealth gaps. Wealth inequality in New Zealand is roughly twice as high as income inequality.

People on lower incomes find it hard to save and often find themselves in debt. This means they are not building wealth (unable to buy a house or to save for retirement) and have little or nothing to fall back on if things go wrong.