Global Income Inequality by the Numbers: In History and Now An Overview. Branko Milanovic

Global Income Inequality by the Numbers: In History and Now An Overview. Branko Milanovic

Usually inequality looked at within a state (for govt program access e.g.) Also, across countries (the poor, the rich) Here looking at it across individuals across the world. Harder to look at individuals as need to have household surveys. Need to make surveys comparable across countries Questions, measures, units Done from Mid 80s (in any reliable form)

Three concepts of inequality: 1. Across Countries 2. Across Countries weighted by population size 3. Across Individuals.

Ginis

Definition of Gini coefficient: Line everyone up from poorest to richest. Horizontal Axis Take proportion of income/wealth (or anything) held by everyone up to that point on vertical axis. The numerator is the area between the Lorenz curve of the distribution and the uniform distribution line; the denominator is the area under the uniform distribution line.

Meaning? A Gini of about 70, which is the value of global inequality (see Figure 2). One way to look at it: take the whole income of the world and divide it into two halves: the richest 8% will take one-half and the other 92% of the population will take another half. US income, the numbers are 22 and 78. Or using Germany, the numbers are 29 and 71.

Different trends in 1. v. 2. under globalization Real decline in 3. over last two dots. (maybe first time ever?) Largely due to China and India (picked up in 2) poor and large countries catching up Happened despite increase in within country inequality (not in graph) almost across the board

Section 2. From 1990-2010 (GLOBALIZATION): Who gained and who lost?

Two main winners of globalization the global top 1% and the middle classes of the emerging market economies The top 1% has seen its real income rise by more than 60% over those two decades. Largest increases around the median: 80% real increase at the median itself There, between the 50th and 60th percentile of the global income distribution 200 million Chinese, 90 million Indians, and about 30 million people each from Indonesia, Brazil and Egypt. Bottom third of the global income distribution have also made significant gains, with real incomes rising between more than 40% and almost 70%. Allowed the proportion World Bank s absolute (extremely) poor (less than 1.25 PPP dollars per day) to go down from 44% to 23% over same 20 years

Losers from Globalization Poorest 5% of the population s real incomes have remained the same. Between the 75th and 90th percentile of the global income distribution real income gains were essentially zero. Global upper- middle class, Many from former Communist countries and Latin America, Citizens of rich countries whose incomes stagnated

To which countries and income groups do the winners and losers belong? India and China were the big winners People in Africa, some in Latin America and post-communist countries were the big losers. The average Kenyan went down from the 22nd to the 12th percentile globally, the average Nigerian from the 16th to 13th percentile. Different way to see this is to look at how far behind the global median was an average African in 1988 and twenty years later. In 1988, an African with the median income of the continent had an income equal to two-thirds of the global median. In 2008, that proportion had declined to less than one-half.

Global inequality over the long run Hard to say with any precision (no household surveys) But best guess from mid 19th century global inequality has kept increasing Due to IR launching a bunch of European countries onto high growth paths Flattening perhaps increasing throughout most of 21st century Falling towards the end of it

Relative contributions Class v. Location (last lecture it was cross-country v. within country) C19-who you were born matters, C21-where you were born matters

Citizenship explains 50 percent or more of variability in global incomes If Global inequality is seen as a problem then there are three possible solutions 1. High growth rates of poor countries. 2. Global redistributive schemes 3. Migration. Migration is likely to become one of the key problems or solutions, depending on one s viewpoint of the 21st century.

2. Global redistributive schemes? Currently, development assistance is a little over 100 billion a year. Or five times more than the bonus Goldman Sachs paid itself during one crisis year. So we are not really talking about very much money that the rich countries are willing to spend to help poor countries. But the willingness to help poor countries is now, with the ongoing economic crisis in the West, probably reaching its nadir.

3. Migration? If you classify countries, by their GDP per capita level, into four worlds, going from the rich world of advanced nations, with GDPs per capita of over $20,000 per year, to the poorest, fourth, world with incomes under $1,000 per year, there are 7 points in the world where rich and poor countries are geographically closest to each other, whether it is because they share a border, or because the sea distance between them is minimal. All these 7 points have mines, boat patrols, walls and fences to prevent free movement of people. The rich world is fencing itself in, or fencing others out. But the pressures of migration are remaining strong.

Looks like we are left with 1. Development of the poorest places in the world.