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A world of differences

1 Introduction

Camden and Cherry Hill are adjacent municipalities of similar population size in southern New Jersey in the United States (US), just six miles apart. As far as lived experience is concerned, however, they might as well be in different worlds.

In 2019, the median household income in Cherry Hill was $105,022. The high school graduation rate was above 94%, and the overwhelming majority of high school graduates went on to college. Just 1.5% of the adult population was unemployed, and less than 5% had no health insurance. Among those aged 25 and older, 54% had a bachelor’s degree or higher. And over the six-year period 2013–2018, there were two murders in this community.

In the same year, in neighbouring Camden, median household income was $27,015. The high school graduation rate was below 70%, and just a third of high school graduates went on to college. More than 8% of the adult population was unemployed, and 12% had no health insurance. Among those aged 25 and older, less than 10% had a bachelor’s degree or higher. And over the six-year period 2013–2018, there were 214 murders in this community.

Now consider two children born on the same day, one in Camden and the other in Cherry Hill. Over the course of their lives, they will likely face very different conditions at home, at school, and in their neighbourhoods. To some degree their own talents and efforts will shape the course of their lives, but the flourishing of these talents and the rewards for their efforts will depend a great deal on circumstances outside their control. The degree to which their family and social networks will enrich their development will vary substantially, and even their likelihood of survival into adulthood will differ. And if they both make it through high school, their prospects for higher education and later employment are unlikely to be the same.

accidents of birth
Differences in life prospects that arise from factors beyond your control, such as the wealth or educational attainment of your parents.

Differences in life prospects that arise from such factors as the wealth or educational attainment of your parents are called accidents of birth—accidents because you have no control over them. Where you were born is another accident of birth. You have no control over the country in which you were born, and yet, it is an important determinant of the type of life you will lead. Today, the country in which you are born is one of the strongest predictors of your future economic well-being. And within countries, as the example of Camden and Cherry Hill illustrates, the neighbourhood in which you were born can play a major role in determining the opportunities that become available to you over the course of your life.

For more details on how income inequality within and between countries has increased over time, see Section 1.1 of The Economy 1.0.

Other accidents of birth include the ethnicity and religion of the family into which you were born, your assigned sex at birth, your height, and the primary language spoken at home, all of which can shape your experiences and outcomes. Being born at a time and a place that values certain innate abilities over others is another way an accident of birth can translate into economic inequality: being a natural at moviemaking doesn’t help if you’re in a society without movies.

Section 19.2 of The Economy 1.0 gives further examples of inequality related to accidents of birth.

In this Insight, we start with a set of basic questions about economic inequality: What is inequality? What are the reasons to be concerned about it? And how do economists measure inequality?