Palekhova Viktoriya, Associate Professor of the Department of Economics and Business, Petro Mohyla Black Sea National University, Mykolayiv, Ukraine

ORCID ID: 0000-0002-8481-6669
e-mail: viktoria.palehova@chmnu.edu.ua

Galenko Viktoria, Student of the 3rd course, specialty 072 «Finance, banking and insurance», Petro Mohyla Black Sea National University, Mykolayiv, Ukraine

ORCID ID: 0000-0001-9224-371X
e-mail: vikagalenko28@gmail.com

The Degree of Inequality in Income Distribution: the Dimensions and Consequences

Abstract. Introduction. Problems of economic inequality never lose relevance. Moreover, economic crises only exacerbate their importance because they create anticipation and reasonable fears of a yet less fair post-crisis world. Although domestic income inequality has risen in many advanced economies, social stratification is particularly evident in countries with former command economies.

Purpose. The purpose of the article is to analyze the indicators of economic inequality (Gini index, Kaitz index, Palma ratio, percentage of income attributable to each quintile or decile of the population) and correlate them with the results of a selective survey of Ukraine’s households on their self-perceived income, conducted by the State statistics service in 2019.

Results. As a result, the study shows the inconsistency between idealizing picture of a moderate income differentiation, which is created in the analysis of official Ukrainian statistics data on one side, and excessive economic inequality, as evidenced by the self-perception of households on the other side. The proportion of households that can make savings is less than 10%. This demonstrates the depth of poverty and, at the same time, explains severe problems with the replenishment of the commercial banks’ resource base. The depth of poverty is also reflected by statistics on targeting of imaginary extra income: 20–25% of respondents would spend it on food. An important characteristic of economic inequality is the practical absence of the middle class. In essence, less than 1% of households are self-assigned to the middle class, while more than 70% perceive themselves as poor. Thus, income differentiation in Ukraine creates a pyramid in the structure of society.

Conclusions. An excessive income polarization, a scanty middle-class share, and predominance of a poor population in society have many negative consequences. First of all, it is the narrowing of aggregate demand, the reduction of economic potential due to the lack of funds for investing in human capital, which all impede economic growth. In addition, economic inequality induces an exodus of highly skilled labor, the strengthening of retention sentiments, and the spread of populism. It is particularly acute when high incomes are obtained via power and corruption.

Keywords: income inequality; income differentiation; poverty; middle class; Gini index; pyramid structure of society.

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