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The Inefficiency of Inequality

Thirty-Seventh Session of ECLAC (Havana, 7-11 May 2018)

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Inequality is inefficient because it hinders learning, productivity, innovation and growth. Equality is, then, not only an ethical principle inherent to development, but also a key tool for achieving it. This document examines the mechanisms by which inequality erodes dynamic efficiency in the Latin American and Caribbean economies. It analyses and measures the productivity and income effects of unequal access to health and education, as well as the consequences of inequality of opportunities arising from gender-, race- or ethnicity-based discrimination. It also examines how these inequalities play out at the level of territory, infrastructure and urban dynamics, where their costs not only weigh on productivity, but also worsen energy inefficiencies and environmental degradation, thereby compromising the development possibilities of present and future generations. ECLAC proposes strategic guidelines for increasing the dynamic efficiency of the Latin American and Caribbean economies on the basis of equality.

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Inequality is inefficient and unsustainable

One of the guiding principles in the thinking of the Economic Commission for Latin America and the Caribbean (ECLAC), and likewise a feature of the 2030 Agenda for Sustainable Development, is the positioning of equality as a core development value. ECLAC studies have shown how inequality “spreads and strengthens in the labour and social spheres and becomes intertwined in various ways with inequalities based on gender, ethnicity, race, life cycle and territory” (ECLAC, 2017a). Rather than addressing the normative aspects dealt with by earlier documents, the present chapter analyses inequality by reviewing its economic and social costs and consequences, adopting a strictly instrumental and economic perspective in order to explore the question: why reduce inequality?

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