Economic inequality interactive: a worked example of how much of a wealth gap comes from pay and how much from inheritance
How much of a wealth gap comes from inheritance?
Two households save from their pay for 40 years. Household A earns more, and may also inherit. Change A’s inheritance and see how much of the wealth gap at 65 comes from pay and how much from inheritance in this example. In real data the answer is contested: the Productivity Commission (2021) found inheritances add to dollar gaps but slightly reduce some measures of relative wealth inequality in Australia.
Wealth gap at 65
Inheritance $200k
Illustration: A earns $110k and B $70k a year; both save 15% of pay at a 4% real return for 40 years. A inherits at 50, so the inheritance grows for 15 years.
Gap $930k · 39% from inheritance in this example
$0$200k$400k$600k$800k
Gap from inheritance
$360k
Gap from pay
$570k
The gender pay gap measures the difference between average male and female earnings, typically expressed as a percentage of male earnings. Part of the raw gap is explained by differences in occupation and industry (occupational segregation into lower-paid sectors), hours worked and career breaks for unpaid care. The part left after controlling for those factors points to discrimination and other factors that are hard to measure. The gap widens after childbirth and compounds over a lifetime, directly feeding into retirement wealth inequality. Measurement matters: full-time equivalent vs actual earnings, mean vs median, and whether superannuation is included all shift the headline figure.
Know This
Inequality has three causes — market forces, institutions, and inheritance — and policy can target each with a distinct tool.