Statistics on Income Inequality

Content

1. The Gini measure
2. Other measures
3. Evolution of inequality
4. Relative and absolute poverty
5. Inequality BETWEEN countries
6. Does Public Social Spending reduce income inequality?
7. Wealth v. income inequality
8. Inequality and social mobility

1. The Gini measure

The inequality of wealth or income in a particular country is traditionally measured by the Gini coefficient (named after Corrado Gini). A complete list of countries’ Gini scores is here. Details about the calculation method are here. This is an example of Gini scores for 2004:

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The Gini coefficient is a measure of inequality in which zero corresponds to everyone having the same income and one means the richest person has all the income.

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2. Other measures

Another way to measure income inequality – or relative poverty – within a country is to calculate the proportion of a population with income less than 50% of the median income. Here’s how this measure compares to Gini:

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By the way, this graph also shows how government policy – taxation and redistribution – manages to reduce inequality.

Here’s an example counting the number of children living in households with an income smaller than half of the median income:

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Or you could compare average income for the 10% of the population with the lowest income, to the average income for the 10% of the population with the highest income:

According to the same measure, inequality in the U.S. is higher than in other developed countries (the same is true for the Gini measure):

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And, finally, you can calculate the share of total income that goes to the top 1% earners:

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3. Evolution of inequality

Income inequality has been increasing in many countries, including the wealthiest ones. In OECD countries, the Gini coefficient increased by almost 10% from 0.29 in 1985 to almost 0.32 in 2008:

Not all OECD countries have seen the same evolution:

This trend is caused by earnings: the pay of the richest 10% of employees has increased at a far greater rate than that of the poorest 10% of employees. Within the upper echelons, the top 1% have reaped the greatest gains. Technology has disproportionately benefited high-earning workers, who also spend far longer at work than do low-earners. High earners marry other high earners. And governments are doing less to redistribute wealth than they have done in the past. (source)

Here’s another way to represent the evolution:

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Inequality evolved in different ways in different parts of the world, but globally it came down:

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However, when you compare global inequality to inequality within countries, you’ll see that it’s still higher than the inequality in the most unequal countries:

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The situation in the U.S. – one of the highlighted cases in the graphs above – is also illustrated by the graph below, which merely compares total income levels for different subsets of the U.S. population (another possible measure of income inequality):

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More or less the same but presented in growth rates:

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The following graph, presenting income shares in the U.S. rather than absolute income levels or growth rates, is perhaps even more telling:

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A graph for Latin America, comparing income inequality between 1990 and 2008 (again, countries below the diagonal have less inequality now, and the higher on the graph the more unequal the country is now compared to others):

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Here are some numbers on income inequality in Africa:

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Like many indicators, income inequality does not evolve at the same rate in different parts of a country. Here’s the case of the U.S. again:

(source, click on the image to enlarge; a higher Gini value means more inequality)

You can clearly see the maps becoming darker over time, and also the shifting of inequality across the country.

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4. Relative and absolute poverty

Measures of inequality give an indication of relative poverty. The people at the bottom end of an unequal distribution in a particular country, can still be better off materially than the average person in another country because, according to absolute measures of poverty, this person earns less and can buy and consume less.

There seems to be a correlation between relative and absolute poverty, or between income inequality and levels of absolute poverty. The more unequal a society, the larger the numbers of people suffering from poverty:

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5. Inequality BETWEEN countries

Of course, there’s not only inequality within countries. The following graph, from the Special Studies series of the World Trade Organization, shows the differences in annual per capita GDP growth between rich and poor countries. The vertical axis shows the average annual per capita growth between 1960 and 1990, and the horizontal axis the per capita GDP in 1960.

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Had the per capita incomes of the poorer countries (left side of the graph) been converging with that of the richer ones (right side), or had, in other words, the income inequality between poor and rich countries been decreasing, then the countries would have lined up from left to right along a downward-sloping line with the poorest country growing the fastest. This is not the case.

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6. Does Public Social Spending reduce income inequality?

I think it does. But first, perhaps, a word on public social spending. What is this? It’s government support for those in need. This can be financial or other types of support. It can be cash benefits such as unemployment checks, tax advantages (e.g. to poor families with children), or “in-kind” goods and services such as free wheelchairs for the disabled. “Public” means that the government provides this support. (There’s also private social spending: e.g. companies can voluntarily pay their employees an additional amount for child support or old age pension).

The graph below shows that there is a correlation between relatively high levels of public social spending (measured as a percentage of total N.N.I.) and relatively low levels of income inequality (measured with the Gini-coefficient):

(source, click on the image to enlarge)

So we can assume that helping the needy does indeed push their income upward, and reduces inequality. This of course corresponds to a widely shared intuition about the importance of a social safety net and income distribution.

The same conclusion results from the following graph, correlating levels of government spending and Gini:

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A government that captures more of GDP can do more against inequality.

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7. Wealth v. income inequality

If you think income inequality is a problem – and leads to a number of human rights violations – wait until you see the numbers for total wealth inequality. Take the example of the U.S.:

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And then remember that income inequality is a problem because of the differences in wealth it generates. It’s apparent from these graphs that income is just one determinant of wealth (a very ill person may have a high income but low wealth; someone owning three different houses may have a retirement income very much below a large young family struggling to remain afloat on a considerably higher income etc.).

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8. Inequality and social mobility

One can argue that high levels of income inequality aren’t problematic when social mobility is easy. Inequality is then the result of skills and effort, the absence of skills and effort or lifestyle choices. In other words, inequality is what people deserve. If there are few or no obstacles to mobility, people basically choose their position in society: they choose to develop their skills and invest effort, or they don’t. However, the opposite seems to be true: the more unequal a society, the less social mobility.

(source, the “intergenerational earnings elasticity” is a measure of correlation between the income of grown children and their parents—higher values suggest less mobility)

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What is the mechanism here? In part, high levels of income inequality make social mobility more difficult: when income inequality is relatively high, people at the wrong end of inequality can offer less opportunities to their children than the people at the right end – less quality schooling, less quality healthcare etc. The children of wealthy parents have relatively more advantages compared to poor children then they would have in a less unequal society, and they are therefore more likely to end up in a high income group as adults.

More data on income inequality are here.

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