Trends in global income inequality and their political implications Branko Milanovic LIS Center; Graduate School City University of New York Autumn 2014 Branko Milanovic
A. National inequalities mostly increased Branko Milanovic
Ginis in the late 1980s and around now 1985-90 After Change 2008 Average Gini 36.3 38.8 +2.5 Pop-weighted 33.9 37.3 +3.4 Gini GDP-weighted 32.2 36.4 +4.2 Gini Countries with 32.0 36.2 +4.5 higher Ginis Countries with 42.8 39.5 -3.3 lower Ginis Branko Milanovic From final-complete3.dta and key_variables_calcul2.do (lines 2 and 3; rest from AlltheGinis)
Ginis in the late 1980s and around now 70 60 GTM COL HND BRA PAN CHL 50 CRI MEX MEX MEX CHN DOM ECU BOL BOL BOL SLV SLV USA USA PER NGA MYS SGP URY ARG CIV UGA UGA MKD ISR GEO TUR 40 IRN MRT RUS KOR THA VEN IDN PHL GBR LVA BGR PRT JOR LKA LKA KGZ IND CAN ITA ITA LTU POL GRC FRA MLI MDA ESP ESP ROU JPN BGD EST EST EST TWN TWN AZE IRL 30 TJK DEU DEU DEU HRV PAK AUS BEL BEL NLD FIN FIN FIN AUT HUN KAZ ARM NOR SVK DNK UKR SWE CZE BLR SVN Branko Milanovic 20 20 30 40 50 60 Gini between 1985 and 1990 twoway (scatter bbb aaa if year==2000, mlabel(contcod) msize(vlarge)) (function y=x, range(20 60) legend(off) xtitle(Gini between 1985 and 1990) ytitle(Gini after 2008)) using allginis.dta
Ginis in 1988 and 2008 (population-weighted countries) 60 BRA NGA 50 MEX USA RUS CHN-R 40 CHN-U IND-U 30 IND-R Branko Milanovic 20 20 30 40 50 60 Gini in 1988 From twenty_years /… key_variables_calcul3.do
Convergence of countries’ Ginis: an empirical observation without theoretical explanation 20 GTM ECU 10 ARG CHL CHN BGR USA GBR SYC HUN NZL JAM DOM POL HKG SGP PAN CZE VEN IND PRI ISR COL IDN SDN IRN ZMB TWN 0 LKA BEL CAN FJI KOR THA SLV BRA AUS GRC CRI BOL NLD ESP IRL SWE PAK MEX BHS JPN BGD PRT DEU MYS ITA NOR FIN EGY BRB DNK HND PHL TUN -10 PER TTO FRA TZA TUR SLE NPL GAB -20 20 30 40 50 60 average country Giniall before 1980 twoway (scatter change_gini gini_pre1980 if nvals==1, mlabel(contcod)) (lfit change_gini gini_pre1980, yline(0, lpattern(dash)) ytitle(change in Gini after 1980) legend(off)) Using Allthe Ginis.dta Branko Milanovic
Market, gross and disposable income Ginis in the US and Germany USA Germany .5 .5 .45 .45 .4 .4 .35 .35 .3 .3 .25 .25 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 year year Define_variables.do using data_voter_checked.dta Branko Milanovic
Issues raised by growing national inequalities • Social separatism of the rich • Hollowing out of the middle classes • Inequality as one of the causes of the global financial crisis • Perception of inequality outstrips real increase because of globalization, role of social media and political (crony) capitalism (example of Egypt) • Hidden assets of the rich Branko Milanovic
Some long-term examples set in the Kuznets framework Branko Milanovic
Inequality (Gini) in the USA 1929-2009 (gross income across households) 50.0 48.0 46.0 44.0 42.0 40.0 38.0 1929 1939 1949 1959 1969 1979 1989 1999 2009 From ydisrt/us_and_uk.xls
Kuznets and Piketty “frames” Ginis for England/UK and the United States in a very long run 70 60 50 USA 40 30 England/UK 20 10 0 1600 1650 1700 1750 1800 1850 1900 1950 2000 2050 From uk_and_usa.xls 11
Contemporary examples of Brazil and China: moving on the descending portion of the Kuznets curve China, 1967-2007 Brazil 1960-2010 60 60 50 Gini Gini 50 40 40 7.5 8 8.5 9 9.5 5 6 7 8 9 ln GDP per capita ln GDP per capita updated Giniall Fitted values updated Giniall lowess Giniall lngdpppp twoway (scatter Giniall lngdpppp if contcod=="CHN" & year>1960, connect(l) ylabel(40(10)60) twoway (scatter Giniall lngdpppp if contcod=="BRA", connect(l) ylabel(40(10)60) xtitle(2000 xtitle(2000 6000 12000) ytitle(Gini) xtitle(ln GDP per capita)) (qfit Giniall lngdpppp if 6000 12000) ytitle(Gini) xtitle(ln GDP per capita)) (qfit Giniall lngdpppp if contcod=="BRA", contcod=="CHN" & year>1960, lwidth(thick)) lwidth(thick)) From gdppppreg4.dta From gdppppreg4.dta 12
B. Between national inequalities remained very high even if decreasing Branko Milanovic
Distribution of people by income of the country where they live: emptiness in the middle (year 2013; 2011 PPPs) 30 India, Indonesia China 20 10 Brazil, Mexico, Russia W.Europe, Japan USA 0 0 10000 20000 30000 40000 50000 GDP per capita in 2005 PPP From defines.do in interyd
Different countries and income classes in global income distribution in 2008 90 100 percentile of world income distribution USA 70 80 Brazil 50 60 20 30 40 Russia China India 10 Branko Milanovic 1 1 20 40 60 80 100 country percentile From calcu08.dta
100 10 20 30 40 50 60 70 80 90 1 1 Denmark 5 country ventile 10 Mozambique 15 Tanzania Mali Uganda 20
Countries with more than 1% of their population in top global percentile (above $PPP 72,000 per capita in 2008 prices) 14 12 12 10 9 9 8 7 7 6 6 5 4 3 3 2 2 2 2 2 2 2 0 CYP DEU IRL KOR NLD TWN FRA NOR GBR JPN CAN LUX CHE SGP USA Branko Milanovic From summary_data.xls
C. Global inequality is the product of within- and between-county inequalities How did it change in the last 60 years? Branko Milanovic
Essentially, global inequality is determined by three forces • What happens to within-country income distributions? • Is there a catching up of poor countries? • Are mean incomes of populous & large countries (China, India) growing faster or slower that the rich world? Branko Milanovic
Global and international inequality after World War II .75 Concept 3 .65 Concept 2 .55 Concept 1 .45 1950 1960 1970 1980 1990 2000 2010 year Concept2: 1960-1980 from Bourguignon & Morrisson Branko Milanovic Defines.do using gdppppreg5.dta
Concept 2 inequality with 2011 PPPs and without China and India .65 all countries .6 .55 Without China .5 Without India and China 47 .45 1940 1960 1980 2000 2020 year Branko Milanovic Defines.do using gdppppreg5.dta
Population coverage 1988 1993 1998 2002 2005 2008 2011 Africa 48 76 67 77 78 78 71 Asia 93 95 94 96 94 98 89 E.Europe 99 95 100 97 93 92 87 LAC 87 92 93 96 96 97 97 WENAO 92 95 97 99 99 97 95 World 87 92 92 94 93 94 88 Branko Milanovic Non-triviality of the omitted countries (Maddison vs. WDI)
Three important technical issues in the measurement of global inequality • The ever-changing PPPs in particular for populous countries like China and India • The increasing discrepancy between GDP per capita and HS means, or more importantly consumption per capita and HS means • Inadequate coverage of top 1% (related also to the previous point0 Branko Milanovic
The issue of PPPs Branko Milanovic
The effect of the new PPPs on countries’ GDP per capita (compared to the US level) 150 SAU 100 SDN SDN ZMB JOR IDN GHA MNG SUR OMN KWT PAK EGY KAZ FJI BGD AZE QAT NPL YEM DZA CPV 50 CIV LAO THA MAC MDG LKA GTM PHL BRN VNM NER MAR RUS MLI VEN GNQ COG ARE TCD HTI MYS IND MDV MRT TGO KEN LSO NGA MDA NAM AGO BRA KGZ CHN SLE UGA SWZ LVA SGP BDI CHL MNE NOR CMR PRY TUR GEO BTN UKR BIH CHE LUX GIN KHM URY HUN SEN BGR MEX DNK ARM COL EST LTU TTO DOM BLR ITA CAF TUN MKD ETH BOL ZAF NZL MWI BEN BLZ PER MUS HRV MLT ECU HND SLV AUS GNB NIC SRB POL FRA TJK SVK FIN BEL JAM PRT GRC ESP TWN SWE RWA GAB DEU AUT 0 CRI IRL USA BFA TZA PAN NLD CAN ISL SVN ISR HKG DJI ALB CZE JPN MOZ GBR KOR LBR BWA CYP GMB BHS -50 COM 50000 100000 150000 gdppc in 2011ppp C:\Branko\worldyd\ppp\2011_icp\define Branko Milanovic
The effect of new PPPs Country GDP per capita GDP per capita increase (in %) increase population- weighted (in %) Indonesia 90 --- Pakistan 66 --- Russia 35 --- India 26 --- China 17 --- Africa 23 32 Asia 48 33 Latin America 13 17 Eastern Europe 16 24 WENAO 3 2
Global income inequality using nominal dollars .85 Concept 3 .8 .75 Concept 2 .7 .65 Concept 1 63 .6 .55 1970 1980 1990 2000 2010 Year From two_concepts_exrate.do using Global_new5.dta
The gap between national accounts and household surveys Branko Milanovic
Both the level and change: Use of GDP per capita gives a lower lever and a faster decrease of global inequality .65 HS means--countries in HS sample .6 usual Concept 2 Gini .55 GDPs pc countries in HS sample .5 .45 1990 1995 2000 2005 2010 2015 year Branko Milanovic Defines.do based on gdppppreg5.dta
How global inequality changes with different definitions of income 72 71 Step 2 70 69 Step 1 68 GDP ppp 67 Consumption 66 Survey mean 65 64 63 62 Global inequality Branko Milanovic
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