Economic inequality and its effects on development.

February 2026 by André Themudo

Economic inequality refers to how income, wealth, and access to opportunities are distributed among individuals and groups within a society. Despite global economic growth in recent years, many countries continue to face high levels of inequality, with significant implications for economic and social development. In practical terms, inequality translates into substantial differences in income and wealth accumulation, limiting many citizens' access to education, health, and other fundamental opportunities essential for full participation in the labor market and the development of human capital.

One of the most widely used indicators to measure these disparities is the Gini coefficient, which ranges from zero, corresponding to total equality, to 100, representing maximum inequality. In Portugal, official data indicate that this index stood at around 30.9% in 2024, maintaining the downward trend recorded in recent years and showing a relative improvement in income distribution.

Socioeconomic consequences

Inequality has profound and interconnected effects on society and the economy. At a social level, large disparities can undermine cohesion, generate divisions, and reduce trust in institutions, creating tensions that discourage productive investment and limit sustainable economic growth. At the economic level, inequality influences consumption capacity and aggregate demand. When wealth is concentrated in the highest segments of the population, these individuals tend to save a significant portion of their income, while lower-income groups allocate the majority of their resources to basic consumption. A more balanced distribution of income boosts domestic consumption, stimulates demand for goods and services, and fosters production and employment.

Inequality also affects human capital and social mobility. Families with lower incomes tend to have less capacity to invest in their children's education and health, resulting in a less skilled and less productive workforce, and compromising competitiveness and economic growth. In highly unequal societies, an individual's economic position tends to depend largely on their family background, perpetuating cycles of poverty and limiting intergenerational mobility. Underutilization of talent limits innovation and productivity in the economy as a whole.

Public policies and perspectives

The existence of pronounced inequalities significantly conditions the effectiveness of public redistribution policies. Social transfers, which include unemployment benefits, family support, pensions and other social protection mechanisms, play a fundamental stabilizing role, helping to reduce poverty and mitigate economic disparities between different segments of the population. These measures not only guarantee a minimum level of financial security for the most vulnerable families, but also contribute to social cohesion and long-term economic stability. Integrated strategies that combine cash transfers, incentives for inclusion in the labor market, vocational training, and facilitated access to education and health services have the potential to amplify the impact of these policies.

Strategically, rigorous monitoring of social and economic indicators provided by the INE (National Institute of Statistics), Eurostat, and other reference bodies is essential to guide public policies that promote inclusive and sustainable growth. Integrated approaches, combining education, vocational training, employment policies and effective redistribution, can mitigate the effects of inequality, strengthen social cohesion and maximize the potential for long-term economic growth.