I just completed my latest round of global inequality calculations
several days ago. The data refer to the benchmark year 2011. This is the
seventh benchmark year since I started working on global inequality. My first paper on the topic included only two years: 1988
and 1993. These were (as the title of the paper says) the first calculations of
global inequality based on household survey data alone. Afterwards, in my book "Worlds Apart", I added the year 1998. And then it went on with years 2002 and
2005 (discussed here), and finally with a panel of country/deciles created
specifically for the paper I wrote with Christoph Lakner. The quality of the
data improved significantly. While in 1988, I had micro data for less than
half of all surveys, in 2008 and 2011, all surveys (with the unfortunate exceptions
of China in 2011 and Japan in both years) are based on micro data.
Data coverage
But on the
other hand, the coverage of the world population has not improved much in the
past twenty five years. I still have data for about 92-95 percent of world population
and generally slightly more of world income. My own rule was that unless I have
more than 90% of world population and dollar GDP covered, and at least 110
countries included, I cannot claim to
have a global distribution. It is that yardstick that I
reached last week, and that’s why my 2011 numbers are now ready. For 2011, the population
coverage is 92 percent, income coverage (measured in current dollar terms) 90
percent, and the number of countries included is 112.
The missing
populations are generally people in poor countries. These countries do not conduct regular household surveys and
thus our global income inequality numbers are almost certainly
underestimates. There are two additional reasons why they are underestimates but
I will mention them below.
Is global inequality on the decline?
In a paper that discussed changes in global inequality between 1988 and 2008, Christoph
Lakner and I find a slight, but unmistakable, decrease in global Gini, from 72
points in 1988 and 1993 to 70.5 Gini points in 2008. These were panel data. On a more detailed sample for the benchmark
year 2008, I find an even lower Gini of 69. So, the decline in global inequality of about 2
to 3 Gini points was already present during the first decade of the 21 century.
The 2011 data
show that the decline has continued. The 2011 global Gini is 67, some 2 Gini
points lower than three years before. This is a remarkable change, driven, as before,
by the fast growth rates of China and India, and between 2008 and 2011 also by
the absence of growth in rich countries. The average real per capita income,
calculated from Chinese household surveys, has increased by 45 percent between
2008 and 2011; in India, the increase was
11 percent. But now global inequality is decreasing also because the rich
world is not growing. The US mean income in
2011 is lower than in 2008. That makes global convergence of people’s incomes easier.
What are the caveats?
There are three.
In addition to our imperfect coverage of
poor countries, global inequality is underestimated also by surveys’ non-inclusion
of the very rich and, when they are included at all, by the underestimation of their incomes, especially
of those derived from the ownership of capital. This has been a well-known
issue for years but has become more serious because of globalization that
allows people to move their assets more easily (we are speaking here of
legally-owned assets, income from which owners tend to “forget” when they fill
survey questionnaires). When Christoph Lakner and I made some rough adjustments
for the underestimate of top 1% incomes, it turned out that almost all but ½ of
a Gini point of global inequality decline dissipated. So, this is the second caveat: it could be
that the global inequality decline is significantly less if we were to account
better for the incomes of the very rich.
The third
caveat is similar to the second. There are (we are now much more aware of this after
the pioneering work by Gabriel Zucman) large financial assets that are not
included either in fiscal nor in household survey data. This is money held in
tax havens. Zucman estimates it at 8% of global financial assets. Information on
income from these assets is extremely unlikely to be reported since even the legality
of these assets (unlike those of the previous group) is questionable. Using some back-of-the envelope calculation,
income from the assets “parked” in tax havens could amount to 0.7-1 percent
of global GDP. Since it is very likely to be received by the global top 1%, we are
thereby further underestimating global inequality.
The issue of the new 2011 PPPs
The Gini
values I have provided so far are based
on the Purchasing Power Parity (PPP) dollar exchange rates derived from the 2005
International Comparison Project (ICP). One of the reasons I chose to update my global inequality data
for the year 2011 is that the new ICP was conducted in that year. When household surveys
are conducted in the same year as ICP, domestic currency incomes are divided by
PPP exchange rates which have also been calculated for that same year. One
source of error, projection of PPPs to the year when the global ICP is not conducted,
is thus avoided. The 2011 PPPs, as is by
now well-known, have resulted in some significant reassessment of price levels
in Asian countries (Indonesia, India, China). As their price levels were found to be lower than
previously thought, PPP exchange rates were reduced, and real incomes
accordingly increased. (If country's price level is lower then obviously with the same nominal income, you can buy more goods.) In global inequality calculations, higher real incomes of China, India and Indonesia (among the large
countries) translate into reduced global inequality.
The effect
of 2011 PPPs was essentially a level effect, meaning
that the changes and the trend were left more or less unaffected while the level
of global inequality was reduced throughout (that is, for all years) by about 3
Gini points. Thus, 2011 global inequality, measured in 2011 PPPs, is “only” 64 Gini points.
In 2011, the
emergence of the global “middle class”
continues. If we take one of the definitions of the middle class, made popular by
the World Bank’s work on Latin America, as people with incomes above $PPP10 per
day and less than $PPP50 per day, 29% of world's population belongs to that group and they control 43% of global income. In 1998, equally defined "middle class" included only 17% of world population. Unlike in 1988 and 1993, when global income distribution
showed two peaks with high percentages of people among either the extremely poor or
the very rich, today’s global income distribution is single-peaked with the “thickening”
of the distribution around the middle. (Note however that the global
median income of $PPP5.7 per day is still vastly below the minimum income that we use
to define our “global middle class”).
The global top 1%
The global top 1% is still heavily dominated by
the “old rich” OECD countries. There are just above 60 million people in the global
top 1%. One-half of them are Americans: the richest 11% of Americans are the members of this “club.” (If we look at the global 2%, the entire top
quintile of the US income distribution belongs there.) From other rich and
relatively populous countries (Germany, France, Japan, Great Britain) 4-5% of
the richest people belong to the global top 1%. Outside the “old OECD”, only Chile and
Taiwan have more than 1 percent of their populations in the global top 1%. Brazil, South Africa and Russia each have their
own top 1% also in the global top 1%, but not more than that.
National vices, global virtue?
There are two take-away messages. The first is that while many national income and wealth inequalities are increasing,
or are thought to be unacceptably high, global income inequality is charting a
modest decline. This is not surprising because the bulk of global inequality
depends on differences in mean incomes between rich and poor countries, and
these are now less than at any time since the end of World War II. But for this trend
to continue, fast growth rates of China and India are crucial. Second take-away
message is this: while many national middle classes in rich countries are being
“hollowed out”, a global “middle class” is emerging. The shape of the world distribution
has moved from being bi-polar, with one peak of the distribution among the very
poor and another among the rich, to being single-peaked with a more sizable
concentration of people into something that may be called “the global middle
class.”
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