Global income inequality in
the 21st 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
Inequality 1950-2010
The mother of all inequality disputes
China moves in
.75
India moves in
Concept 3
Gini coefficient
.55
.65
Concept 2
Concept 1
Divergence ends
.45
Divergence
begins
1950
1960
1970
1980
year
1990
2000
2010
With new PPPs
Graph in interyd\dofiles\defines.do
Concept 2
Gini coefficient in percent
.55
.6
.65
International unweighted and population- weighted
inequality, 1952-2010
India as new
engine of
equalization
Concept 2 without China
.45
.5
Concept 1
1950
1960
1970
Graph in interyd\dofiles\defines.do; using gdppppreg.dta
1980
year
1990
2000
2010
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)
What does Gini of 70 mean?
.7
World
.5
.6
Brazil
.3
.4
USA
.2
Sweden
1970
1980
1990
year
2000
2010
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 1/5th of
global income?
5
1.7
4
4.1
3
6.2
2
13
1
75
0
From forpogge.xls
10
20
30
40
50
60
70
80
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
Real PPP income change 1988-2008
70
60
50
40
30
20
10
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
Percentile of income distribution
80
85
90
95
99
100
Global Lorenz curves in 1988 and 2008
100
80
60
40
20
2008
1988
0
0
20
40
60
80
100
Shape of global growth vs. US growth
90
80
World, 1988-2008
70
Real PPP income change 1988-2008
United States, 1990-2008
60
50
40
30
20
10
0
5
10
15
20
25
30
35
40
45
50
55
60
65
Percentile of income distribution
70
75
80
85
90
95
99
100
US pattern is not unusual: in most
countries increasing gains for the rich
Mexico and Colombia
250
200
150
100
COL
2
3
4
5
6
decile
7
8
9
10
50
1
MEX
PHL
120
130
140
150
combined real_growth 1 and 2
BGD
300
160
Philippines and Bangladesh
1
2
3
4
5
6
decile
7
8
9
10
Increasing gains for the rich with a
widening urban-rural gap
Urban and rural Indonesia
210
200
190
180
170
200
250
300
350
combined real_growth 1 and 2
400
220
450
Urban and rural China
1
2
3
4
5
6
decile
From key_variables_calcul2.do
7
8
9
10
1
2
3
4
5
6
decile
7
8
9
10
Average real growth (in $PPP) across
country deciles (population-weighted)
Real $PPP growth 1988-2008, in percent, by decile
120
100
population-weighted
Real growth
80
60
40
20
0
1
2
3
4
5
6
Income decile
7
8
9
10
Global inequality over the long-run of
history
Global income inequality, 1820-2008
100
(Bourguignon-Morrisson and Milanovic; 1990 PPPs )
80
Theil
0
20
40
60
Gini
1820
1860
1900
1940
1980
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"))
2020
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
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
Theil 0 index (mean log deviation)
80
60
Location
Location
40
Class
20
Class
0
1870
Based on Bourguignon-Morrisson (2002), Maddison data, and Milanovic (2005)
2000
From thepast.xls
Gaps between countries today
USA
Brazil
Russia
China
India
1
percentile of world income distribution
10 20 30 40 50 60 70 80 90 100
Different countries and income classes in global income distribution in
2008
1
From calcu08.dta
20
40
60
country percentile
80
100
• 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
100
Spain and the rest of the world
percentile of world income distribution
20
40
60
80
Germany
Spain
Argentina
Ecuador
0
Ivory Coast
1
5
10
country ventile
15
20
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 70-80th 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.
.75
Concept 3
Gini coefficient
.55
.65
Concept 2
.45
Concept 1
1950
1960
1970
1980
year
1990
2000
2010