Transcript Inequalities, inequalities…..

Global income inequality
today
Branko Milanovic
Perugia, June 2009
Email: [email protected]
Based on the book Worlds
Apart, 2005 and updates
BM note: this is an update of moscow2.ppt
1. Inequalities today
Three concepts of inequality defined
Concept 1 inequality
Concept 2 inequality
Concept 3 (global) inequalty
Inequality, 1950-2006:
The mother of all inequality disputes
0.7
Global inequality (Concept 3)
Gini coefficient
0.6
Weighted international inequalty
(Concept 2)
Weighted international
inequality without China
0.5
Unweighted international inequality
(Concept 1)
0.4
Three concepts of inequality using the
new 2005 PPPs (1950-2007)
1990
2000
1990
2000
.45
.55
.65
.75
1982
1950
1960
1970
global_gini2
1980
year
2010
Global Concept 1 inequality
Graph in interyd\dofiles\defines.do
The impact of new PPPs
• Concept 2 inequality increases by almost
10 Gini points (a level shift)
• Somewhat steeper decline of Concept 2
inequality in the last decade (because
India and China now appear poorer)
• About 5 Gini points increase in Concept 1
inequality (shift effect; no trend effect)
• About 5 Gini points increase in global
inequality
(cont.)
• World poorer than thought, Asia in
particular
• Inequality (in all formulations) greater
• Two engines of “global equalization”:
China and India
Concept 1 and Concept 2 inequality
.6
.65
Concept 2
.55
Concept 2 without China
.45
.5
Concept 1
1940
1960
Graph in interyd\dofiles\defines.do
1980
year
2000
2020
2. Inequality between world
citizens today
Methodological issues
• GDI per capita or HS mean
• Definitional difference (H&E, undisbursed profits)
and
• Practical difference (under-surveying of the rich
and under-reporting of property Y)
• Mixing of the two biases both poverty and
inequality down
• Moreover, movements in NA and HS statistics
are different
• If HS mean is it HSY or HSX?
Methodological issues (cont.)
• Even if HS welfare indicator is selected
definitions of X,Y vary in time & btw.
countries
• Issues: self-employed Y, home C,
imputation of housing, treatment of
publicly provided H&E, use of top coding,
under-estimation of property incomes
• What PPP to use
• Equivalence scales & intra-HH inequality
The difficulty stems from
contradictory movements
• (1) Greater inequality within nations
• (2) Greater differences between countries’
mean incomes (think of US vs. Africa)
• (3) But catching up of large and poor
countries (China and India)
• All of these forces determine what
happens to GLOBAL INEQUALITY (but
they affect it differently)
3. First calculations of global
inequality from household survey
data alone
Population coverage
1988
1993
1998
2002
Africa
48
76
67
77
Asia
93
95
94
96
EEurope
99
95
100
97
LAC
87
92
93
96
WENAO
92
95
97
99
World
87
92
92
94
Non-triviality of the omitted countries (Maddison vs. WDI)
GDI (US dollar) coverage
1988
1993
1998
2002
Africa
49
85
71
71
Asia
94
93
96
95
EEurope
99
96
100
99
LAC
90
93
95
95
WENAO
99
96
96
100
World
96
95
96
98
Number of surveys (C-based)
1988
1993
1998
2002
Africa
14(11)
30(27)
24(24)
30(29)
Asia
19(10)
26(18)
28(20)
26(18)
EEurope
27(0)
22(0)
27(14)
26(16)
LAC
19(1)
20(4)
22(2)
21(1)
WENAO
23(0)
23(0)
21(3)
21(2)
102(22)
121(52)
World
122(63) 124(66)
Global inequality (with 2005 PPPs)
(distribution of persons by $PPP or US$ income per capita)
1988
1993
1998
2002
International dollars ($PPP)
Gini
index
Between
compnt
US dollars
Gini
index
68.4
(2.0)
61.8
70.0
(1.4)
62.6
69.4
(1.8)
62.1
70.8
(1.4)
63.9
77.8
(1.5)
80.4
(1.4)
79.6
(1.3)
81.0
(1.1)
4. Importance of the differences
in countries’ mean incomes
Concept 1 inequality in historical perspective:
Convergence/divergence during different
economic regimes
60
NEOLIBERAL
FIRST GLOBALIZATION
DEGLOBALIZATI
ON
WAR
DEVELOPMENT
AL STATE
50
40
30
Gini
20
10
Theil
0
1820
1870
1890
1900
1913
1929
1938
1952
1960
1978
2000
How are Concepts 2 and 3 related?
• In Gini terms:
n
n
1
i1 Gi pii   i
n
 y  y ) p p  L
j
i
i j
j i
Concept 2
• where Gi=individual country Gini, π=income share, yi
= country income, pi = population share, μ=overall
mean income, n = number of countries, L=overlap
term
A non-Marxist world
• Over the long run, decreasing importance
of within-country inequalities despite the
reversal in the last quarter century,
• Increasing importance of between-country
inequalities (with some hopeful signs in
the last five years, before the current
crisis),
• Global division between countries more
than between classes
Composition of global inequality changed: from being
mostly due to “class” (within-national), today it is mostly
due to “location” (where people live; between-national)
90
2000
80
1870
70
60
Location
Location
50
40
30
C lass
20
Class
10
0
1870
Based on Bourguignon-Morrisson (2002) and Milanovic (2005)
2000
A literary illustration: Elizabeth’s
dilemma (from Pride and Prejudice)
Income in
1810 (£ pa)
Approx. position in 1810
income distribution
Income
around Y2K
(£ pc pa)
10,000
Top 0.1%
270,000
Elizabeth’s 3000/7~430
family
Top 1%
57,000
Elizabeth 50
alone
Median
6,500
Mr.
Darcy
Gain
100 to 1
20 to 1
1810 position estimates based on Colquhoun 1801-3 data. Y2K data from LIS (UK1999), and for 0.1% from Piketty
(Data-central).
Define four worlds:
• First World: The West and its offshoots
• Take the poorest country of the First World
(e.g. Portugal)
• Second world (the contenders): all those
less than 1/3 poorer than Portugal.
• Third world: all those 1/3 and 2/3 of the
poorest rich country.
• Fourth world: more than 2/3 below
Portugal.
Four Worlds in 1960
Four Worlds in 2003
Growth over 1980-2002 period as function of
initial (1980) income
40
Population according to income of country
where they live (2007): an empty middle
India, Indon, Bgd
20
10
Percent
30
China
W Europe, Japan
USA
0
Brazil, Russia,
Mexico
0
10000
20000
30000
GDP per capita in 2005 PPP
40000
50000
histogram gdpppp [w=popu] if year==2007 & gdpppp<50000 & Dcont==1, bin(20) percent ylabel(0(10)40) xtitle(GDP per capita in 2005 PPP)
The key borders today
• First to fourth world: Greece vs.
Macedonia and Albania; Spain vs.
Morocco (25km), Malaysia vs. Indonesia
(3km)
• First to third world: US vs. Mexico.
In 1960, the only key borders were Argentina and Uruguay (first) vs.
Brazil, Paraguay and Bolivia (third world), and Australia (first) vs.
Indonesia (fourth)
Year 2007
Approximate % of
foreign workers in
labor force
Greece
(Macedonian/
Albanians)
Spain
(Moroccans)
Year 1980
Ratio of real GDI per capita
7.5
4 to 1
2.1 to 1
14.4
7.4 to 1
6.5 to 1
United States
(Mexicans)
15.6*
3.6 to 1
2.6 to 1
Malaysia
(Indonesians)
>14.0
3.7 to 1
3.6 to 1
* BLS, News Release March 2009; data for 2008 inclusive of undocumented aliens.
5. Global inequality (cont.)
More than fifty-fifty world (new PPPs)
Cumulative % of Cumulative % of PPP
world population world
income/consumption
5
0.24
10
0.6
25
2.1
50
6.6
75
17.8
90
42
Top 10
58
Top 5
38.6
In a single
country
(UK)
2.0
25.0
71.5
28.5
18.4
How big is a Gini of 70? (Year 2002, 2005PPPs)
Top
Bottom
Ratio
In PPP dollars
5 percent
38%
0.24%
165-1
10 percent
58%
0.6%
95-1
5 percent
45%
0.15%
300-1
10 percent
67.5%
0.45%
150-1
10 top countries
31,850
580
55-1
In current $
USA
Germany
Russia
Brazil
India
1
10
percentile of world income distribution
20 30 40 50 60 70 80 90 100
Different countries and income classes in global
income distribution (year 2002; new PPPS)
1
10
20
30
40
50
60
country percentile
70
80
90
100
Note…
• Richest people in India barely intersect with
poorest people in Germany
• Bottom 20% of Americans worse off than
equivalent people in Germany
• But this is not true for Brazil and Russia: about
half of the population of Brazil better off than the
very poorest percentile in Germany; for Russia,
it is 4/5.
• Russian better-off than Brazilians except at the
top (note convexity at the top in Brazil)
• Important later for rules re. global transfers
0
20
40
60
80
100
Distribution of percentile of global income
distribution across five world regions (02 WYD)
Africa
Asia
Latin America Eastern Europe
. graph box inc_c if maxgroup==20, over(region); use world2002.dta
West
percentile of world income distribution
1 10 20 30 40 50 60 70 80
90 100
Germany
Italy
Hungary
Serbia
Russia
1
5
10
country ventile
15
20
40
GEO
30
MKD
TJK
RUS EST
LVA
POL
MNE
ROM
UZB
MDA
ALB
BIH KAZ
KGZ
BLR
SRB
BGR
ARM
UKR
LTU
HRV
SVN
SVK CZE
HUN
20
gini
50
60
GDP per capita and Gini
1000
2000
10000
gdp per capita, PPP (Constant 2005 international $)
40000
Global inequality of opportunity
• How much of variability of income person’s
global income can we explain with two
circumstances only: person’s country of
citizenship and income class of his/her parents?
• Both circumstances basically given at birth
• With citizenship person receives several public
goods: income of country, its inequality level,
and its intergenerational income mobility.
The answer is: about 80 percent!
(dependent variable: HH per capita income in $PPP )
Base case
Optimistic
Pessimistic
0.99
(0)
0.99
(0)
0.99
(0)
Gini index
-0.019
(0)
-0.019
(0)
-0.019
(0)
Parents’ national
income class (from 1 to
20)
0.105
(0)
0.100
(0)
0.110
(0)
Adj. R2
0.81
0.80
0.83
Mean country income
($PPP; in logs)
Based on 116 countries, 20 ventiles for each, year 2002
Base (optimistic, pessimistic) case about intergenerational income mobility in
different parts of the world
6. Global financial crisis and
global inequality
15 largest annual GDP per capita declines in
the United States history
0
1946
1932
1908
1930
1914
1931
1893
1945
1894
1938
1921
1917
1896
1947
-0.05
-0.1
Financial crisis 1893-96: 16%
-0.15
Great Depresssion: 25%
-0.2
-0.25
End of war economy, 34%
-0.3
1904
Plutocratic and people’s
recessions are not the same
thing
Plutocratic and people’s global growth rate
in years of plutocratic recessions
0.080
People's growth
rate
0.060
0.040
0.020
0.000
1930
1931
1932
1954
1958
1960
1975
-0.020
Plutocratic growth rate
-0.040
-0.060
-0.080
1982
1991
Shrinking GDPs
People living in countries with negative growth rates (in milion)
(years of plutocratic recession in yellow)
2500
2000
1500
1000
500
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
0
Who is affected more: poor or
rich countries?
1.1
The financial crisis 1890-95: relationship
between initial GDP per capita and its
change during the crisis
D EU
AD
UN
TK
S W EF R A
F IN
1
ES P
NO R
US A
GBR
B EL
CA N
PR T
CHE
NL D
NZ L
.8
.9
IT A
A US
1000
2 0 00
3000
4000
G D P p e r c a p it a in 1 8 9 0
5000
1.2
The Great Depression 1928-33: relationship
between initial GDP per capita and its
change during the crisis
F IN
1.1
NO R
SW E
DNK
G RC
PR T
G BR
IR L
1
IT A
D EU
A US
B EL
ES P
NZ L
.9
CHE
NL D
.8
FRA
A UT
2000
US A
CA N
3000
4 0 00
5000
G D P p e r c a p it a in 1 9 2 9
6000
7000
-.2
-.1
growth rate
0
.1
World, by population, in the crisis 1930
6
7
8
GDP per capita in 1929
twoway (scatter dlngdpppp laggdpppp if year==1930 [w=pop]) (lowess dlngdpppp laggdp
> ppp if year==1930), yline(0) ytitle(growth rate) legend(off) xtitle(GDP per capita
> in 1929) [from maddison_polity2.dta
9
Unweighted correlation coefficient between growth rate and
GDI per capita (in years of global recession)
0.20
0.15
0.10
0.05
0.00
1930
1931
1932
1954
1958
-0.05
-0.10
-0.15
-0.20
-0.25
Negative coeff: rich countries decline more.
1960
1975
1982
1991
-.1
-.05
0
growth rate
.05
.1
World, by population, in the crisis 1991
6
7
8
GDP per capita in 1990
9
10
twoway (scatter dlngdpppp laggdpppp if year==1991 & dlngdpppp<0.1 & dlngdpppp>-0.1 [w=pop]) (lowess
dlngdpppp laggdpppp if year==1991), yline(0) ytitle(growth rate) legend(off) xtitle(GDP per capita in 1990) [from
maddison_polity2.dta]
But after 1973-75, the Third World took 25
years to recover
Average people-w eighted grow th rate in Third World (excl. China)
0.0600
0.0500
0.0400
0.0300
0.0200
0.0100
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
0.0000
Implications
• First negative effect will be mostly felt by rich
people (in particular, those with high financial
assets) and rich countries
• Rates of GDP will decline more in rich countries
• Then, the crisis will spread wider
• Difficult to predict next effects: prices of raw
materials, dependence on exports, amount of
debt
• Possible replay of the period 1980-2000 when
growth rate of Third World declined by more
than 1 percentage point
6. Globalization and income
inequality
Causal effect of globalization
(openness) on global inequality
• Channel 1. Different effect on within-national
income distributions (difference between poor
and rich countries; HOS and revisions)
• Channel 2. Different effect on growth rates of
poor and rich countries (the openness premium
should be higher for poor countries)
• Channel 3. Different effect on populous and
small countries
• Depends on history: are populous countries rich
or poor at a given point in time?
• Assume globalization is good for for poor,
populous countries, no effect on within-national
distribution
• In the current constellation, India and China
grow faster => global inequality ↓ (mean income
convergence, lower global inequality)
• Decouple poor and populous; let China and
India be rich
• No change in individual effects of gloablization;
mean convergence continues but global
inequality may now go ↑
• Conclusion. Even if effects are known and
unchanged, the outcome may differ.
Conclusion: “The age of
inequality”?
Within-country inequalities have increased
in many countries including in the largest (US,
UK, China, India, Russia)
Inequalities between countries have increased
Population weighted inequality between
countries went down thanks to fast growth in
China and India (Caveat: R/U differences in
China and India have global implications)
Inequality among people in the world is very
high (Gini around 70) but its direction of change
is not clear
7. Does Global Inequality
Matter?
• No one in “charge” of it; there is no global
government
• No one can do much about it
• No global taxation authority
Does global inequality matter?
• NO, according to Ann Krueger (2002):
“Poor people are desperate enough to
improve their material conditions in
absolute terms rather than to march up the
income distribution. Hence it seems far
better to focus on impoverishment than on
inequality.”
• YES, according to Kuznets (1954)
“…reduction of physical misery associated with
low income and consumption levels…permit[s]
an increase…of political tensions”
BECAUSE
“the political misery of the poor, the tension
created by the observation of the much greater
wealth of other communities…may have only
increased.”
What may be the effects of global
inequality?
• Globalization increases awareness of
differences in living standards (aspiration
level changes; empirical studies show it)
• Leads to migration
• Greater likelihood of conflict (Jennifer
Government)
We need some rules for global
transfers
• They should flow from a rich to a poor
country. That is easy.
• But they have to satisfy the same rules as
at the national level, i.e.
• transfers should be globally progressive,
that is flow from a richer person to a
poorer person.
In addition transfers have national income
inequality implications
Progressive transfer at the global level and
worsening national distributions (may not
be politically sustainable)
Income distribution in
poor country
Income distribution in rich
country
B
T
Income
Thus transfers have to satisfy
• Progressivity 1: reduce mean income differences
between rich and poor countries
• Global progressivity: tax payers should be richer
than beneficiaries
• National progressivities: in rich country, tax
payers should be relatively rich (reduce rich
country inequality) and in poor country,
beneficiaries should be relatively poor (reduce
poor country inequality)
• Book “Worlds Apart: Measuring
International and Global Inequality”,
Princeton UP, 2005
• Email: [email protected]
• Website:
http://econ.worldbank.org/projects/inequality
Extra slides
Share of between-country inequality in total
inequality (05 ICP)
Between
country Gini
(PPP dollars)
Share of total
inequality (in %)
Between
country Gini
(US dollars)
Share of of total
inequality (in %)
1988
1993
1998
2002
61.8
62.6
62.1
63.9
90
89
89
90
69.5
71.7
70.8
73.3
89
90
89
91
The rich and the poor
(equal total income)
3500
Top global 1%
57, 3316
3000
Poor people (in millaion)
Top US decile
2500
29, 2531
2000
1500
Top US percentile
1000
3, 990
500
0
0
10
20
30
Rich people (in million)
40
50
60
Percentage of global population living in countries
with negative growth (in years of global plutocratic
recession)
% of population living in countries with negative growth
70
60
50
40
30
20
10
0
1930
1931
1932
1954
1958
1960
1975
1982
1991