The evolution of the distribution of income among individuals within countries and across the world has been the subject of considerable academic and popular commentary in the recent past. Works such as Thomas Piketty’s Capital in the 21st Century or Joseph Stiglitz’s The Price of Inequality have become unlikely bestsellers, garnering a startling degree of both academic and popular interest.
The last few decades have seen a sharp increase in global integration with its attendant benefits and anxieties. Concerns about the distributional effects of cross-border flows of trade and finance have grown and are central issues in political debates worldwide. At the same time, massive global inequities, dysfunctional polities, and the most egregious outcrops of these-civil breakdowns and mass migration have become the staple of mass media.
Also in the last couple of decades, for the first time in human history, we have the raw materials to measure the living standards of individuals across the world in comparable terms. The careful collection of survey information from almost every country in the world, led by national statistical offices and multilateral organizations, and the simultaneous collation and harmonization of price data by the International Comparison Project has made it possible, in principle, to truly understand and compare the fortunes of individuals in any country or region in the world with others from elsewhere.
Figure 1 (using data drawn from the Global Consumption and Income Project) provides a simple snapshot of the distribution of income. The height of the ‘skyscrapers’ represent average incomes in purchasing power (PPP) terms in 2005 for each population decile for over 150 countries in the year 2014. That is the height of each building represents the average income in 2014 in dollars for 10% of the population of a country, correcting for the fact that prices differ across countries. The height of each bar in the chart varies along two axes: the first, the horizontal axis is a ranking of countries from the poorest (the Democratic Republic of Congo) on the left of the figure to the richest (Luxembourg) on the right; the second, from the front to the back of the figure, shows the distribution of income from poorest to richest within each country. Note that the skyscrapers for some countries such as India and China are wider. This indicates their relatively large size of population.
As is evident, most of the ‘mass’ of income is on the right-hand side and at the back, indicating that most of world income is held by the rich in the rich countries. A relatively rich US individual sitting on his income skyscraper looks down on a world that is very far below him in terms of living standards.
As starkly as this image shows how the global income distribution is skewed towards the rich, it does not capture the ways in which the growth in Chinese and Indian incomes in the last two decades has led to an overall reduction in global inequality, even if intra-country inequality has risen in many countries. This is better seen in figures 2a and 2b (again using data drawn from the Global Consumption and Income Project) which shows the density of the income per capita in 2005 PPP terms in 1990 and 2010 respectively for the world and its constituent regions. In the first figure (1990), the world seems to have two peaks, with a grouping of the mass of poor countries to the left and richer countries to the right.
This global inequality is substantially reduced in the second panel (2010), with a large mass of both East Asian and South Asian populations catching up with parts of Europe and South Asia.
China, in particular, has moved on to becoming relatively richer in the global distribution. Figure 3 a and 3b show the relative position of people from six large countries in the world and income distribution in 1990 and 2010 in $2005 $PPP terms. The horizontal axis shows the percentile of the country’s distribution from poorest to richest while the y axis shows the same percentile in the global income distribution. So, for example, even if you were in the poorest percentile of the US income distribution, you were around the 80th percentile of the global income distribution in both years.
Figure 3a: Individuals Position in Country Percentile and World Percentile for selected countries, $2005 PPP terms in 1990. Image by Rahul Lahoti, used with permission.
In 1990, the Chinese poor (as measured by the poorest percentile) were the poorest in the world, with the relatively poor of every other country being richer than them. Indeed, for the countries we chose, every percentile of the Chinese distribution was poorer than every equivalent percentile from the other countries. The richest Chinese were only at 40th percentile of the world distribution overall. By 2010 however, the situation had changed quite dramatically. While the Chinese poor are still among the poorest in the world, the richest Chinese are now at the 80th percentile of the global income distribution.
The last twenty years have seen great churn in the global economy and have generated both winners and losers within and between countries. If we take the world as a whole and measure the differences in purchasing power of individuals wherever they happen to be, global inequality has fallen in the last two decades because of the relatively rapid growth of the previously very poor Indians and Chinese. But inequality continues to remain stubbornly high. While there has been progress, a lot more remains to be done to ensure that the world does not continue to experience the inexcusable differences in income and welfare that we currently see.
Featured image credit: Currencies by 16:9clue. CC-BY-2.0 via Flickr.