Global income inequality in the 21 st century

Global income inequality in the 21 st century Branko Milanovic I Congreso Internacional de Estudios de Desarollo Santander Nov. 2012

Global inequality today and in the last 25 years

Three concepts of inequality defined Concept 1 inequality Concept 2 inequality Concept 3 (global) inequality

.45.55.65.75 Gini coefficient Inequality 1950-2010 The mother of all inequality disputes Concept 2 Concept 1 Divergence begins China moves in Concept 3 India moves in Divergence ends 1950 1960 1970 1980 1990 2000 2010 year With new PPPs Graph in interyd\dofiles\defines.do

.45.5.55.6.65 Gini coefficient in percent International unweighted and population- weighted inequality, 1952-2010 Concept 2 India as new engine of equalization Concept 2 without China Concept 1 1950 1960 1970 1980 1990 2000 2010 year Graph in interyd\dofiles\defines.do; using gdppppreg.dta

Population coverage 1988 1993 1998 2002 2005 2008 Africa 48 76 67 77 78 75 Asia 93 95 94 96 94 98 E.Europe 99 95 100 97 93 92 LAC 87 92 93 96 96 95 WENAO 92 95 97 99 99 97 World 87 92 92 94 93 94 Non-triviality of the omitted countries (Maddison vs. WDI)

.2.3.4.5.6.7 What does Gini of 70 mean? World Brazil USA Sweden 1970 1980 1990 2000 2010 year twoway (scatter gini_disposable year if contcod=="swe", c(l)) (scatter gini_disposable year if contcod=="usa, c (l)) (scatter gini_gross year if contcod=="bra" & source=="sedlac", c(l) legend(off) text(0.30 2005 "Sweden") text(0.42 2004 "USA") text(0.63 2001 "Brazil")) (scatter gini_disposable year if contcod=="wrl", c(l) text (0.72 2005 "World")) Using data_voter_checked.dta to which I added the world from my global data

How many people (ranked from the poorest to the richest) you need to get to each 1/5 th of global income? 5 1.7 4 4.1 3 6.2 2 13 1 75 0 10 20 30 40 50 60 70 80 From forpogge.xls

How the world has changed: between the fall of the Berlin Wall and the fall of Wall Street

Real income growth at various percentiles of global income distribution, 1988-2008 (in 2005 PPPs) 80 70 Real PPP income change 1988-2008 60 50 40 30 20 10 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 99 100 Percentile of income distribution

Global Lorenz curves in 1988 and 2008 100 80 60 40 20 0 2008 1988 0 20 40 60 80 100

Real PPP income change 1988-2008 Shape of global growth vs. US growth 90 80 World, 1988-2008 70 United States, 1990-2008 60 50 40 30 20 10 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 99 100 Percentile of income distribution

50 120 130 140 150 160 combined real_growth 1 and 2 100 150 200 250 300 US pattern is not unusual: in most countries increasing gains for the rich Philippines and Bangladesh Mexico and Colombia BGD MEX PHL COL 1 2 3 4 5 6 7 8 9 10 decile 1 2 3 4 5 6 7 8 9 10 decile

combined real_growth 1 and 2 170 180 190 200 210 220 Increasing gains for the rich with a widening urban-rural gap Urban and rural China Urban and rural Indonesia 200 250 300 350 400 450 1 2 3 4 5 6 7 8 9 10 decile 1 2 3 4 5 6 7 8 9 10 decile From key_variables_calcul2.do

Real growth Average real growth (in $PPP) across country deciles (population-weighted) 120 Real $PPP growth 1988-2008, in percent, by decile 100 80 population-weighted 60 40 20 0 1 2 3 4 5 6 7 8 9 10 Income decile

Global inequality over the long-run of history

0 20 40 60 80 100 Global income inequality, 1820-2008 (Bourguignon-Morrisson and Milanovic; 1990 PPPs ) Theil Gini 1820 1860 1900 1940 1980 2020 year twoway (scatter Gini year, c(l) xlabel(1820(40)2020) ylabel(0(20)100) msize(vlarge) clwidth(thick)) (scatter Theil year, c(l) msize(large) legend(off) text(90 2010 "Theil") text(70 2010 "Gini"))

A non-marxist world Over the long run, decreasing importance of within-country inequalities despite some reversal in the last quarter century Increasing importance of between-country inequalities (but with some hopeful signs in the last five years, before the current crisis), Global division between countries more than between classes

Theil 0 index (mean log deviation) Composition of global inequality changed: from being mostly due to class (within-national), today it is mostly due to location (where people live; betweennational) 100 80 60 Location 40 Location 20 Class 0 Class 1870 2000 Based on Bourguignon-Morrisson (2002), Maddison data, and Milanovic (2005) From thepast.xls

Gaps between countries today

Different countries and income classes in global income distribution in 2008 1 10 20 30 40 50 60 70 80 90 100 percentile of world income distribution Russia USA China India Brazil From calcu08.dta 1 20 40 60 80 100 country percentile

Almost non-overlapping distributions of India and the US: less than 10% of people in India better-off than the poorest percentiles in the US But this is not true for Brazil and China: more than ¾ of the population of Brazil better off than the poorest Americas; about ½ of the Chinese. Brazil within itself spans the entire global distribution China dominates India at any point of income distribution Russia dominates Brazil. Americans (richest 10%), Brazilians and Russians (for both, just the highest national percentile) all in the top global percentile

Spain and the rest of the world 0 20 40 60 80 100 percentile of world income distribution Germany Ecuador Spain Argentina Ivory Coast 1 5 10 15 20 country ventile

Problems of migration

The XXI century trilema A. Globalization of ideas, knowledge, Communication, awareness of others living standards B. Increasing differences in mean incomes among countries C. No movement of people If A and B, then no C. Migration is the outcome of current unequal globalization. If B and C, then no A. Unequal globe can exist if people do not know much about each other s living conditions or costs of transport are too high. If A and C, then no B. Under globalization, people will not move if income differentials are small.

Growing inter-country income differences and migration: Key seven borders today

Concluding comments Are the increase around the median and the dip around the 70-80 th global percentile related? Are China/India growth spelling the doom of the Western middle class? Will within-inequalities increase as betweencountry inequalities go down? Role of migration as an engine of development

The key difficulty How to manage: (1) Rise of the emerging market economies and rich world middle class (2) Rising domestic inequalities (3) Migration, while recognizing its potential for global poverty alleviation

From the point of view of Spain or any advanced country, this means Increased competitiveness in the age of globalization Protection of welfare state and lower domestic inequality Openness of borders and managed migration Often these objectives might go against each other.

.45.55.65.75 Gini coefficient Concept 2 Concept 1 Concept 3 1950 1960 1970 1980 1990 2000 2010 year