Statistics on Income Inequality

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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
9. Inequality and GDP

1. The Gini measure

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

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. There are large differences between countries: the U.S. for instance currently has a score of 0.41 whereas Sweden and Japan only have 0.25.

Although the Gini coefficient is usually calculated for individual countries in order to track the degree of inequality within countries, it is also available for the world as a whole:

Global inequality—the income gaps between all people on the planet—has begun to fall as poorer countries catch up with richer ones. Two French economists, François Bourguignon and Christian Morrisson, have calculated a “global Gini” that measures the scale of income disparities among everyone in the world. Their index shows that global inequality rose in the 19th and 20th centuries because richer economies, on average, grew faster than poorer ones. Recently that pattern has reversed and global inequality has started to fall even as inequality within many countries has risen. (source)

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Here are some country data:

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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:

(source)

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

Here are the numbers for the OECD countries:

(click image to enlarge)

These are the numbers of children living in households with an income smaller than half of the median income:

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Sometimes, 40 or 60% are used instead of 50%:

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This system for measuring inequality is actually often used as a system to measure poverty. In that case, poverty is seen as a relative measure rather than an absolute one (see below).

Yet another way to measure income inequality: 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):

(source)

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Sometimes, the top 20% is compared to the bottom 20:

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Over the most recent full business cycle (from the late 1990s to the mid-2000s), average incomes fell by close to 6 percent among the bottom fifth of households while rising by just 1.2 percent among the middle fifth, by 8.6 percent among the top fifth. (source)

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

Including capital gains, the share of national income going to the richest 1% of Americans has doubled since 1980, from 10% to 20%, roughly where it was a century ago. Even more striking, the share going to the top 0.01%—some 16,000 families with an average income of $24m—has quadrupled, from just over 1% to almost 5%. That is a bigger slice of the national pie than the top 0.01% received 100 years ago. (source)

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And there’s also this eye-catching way of putting things: the income of the world’s 500 richest billionaires exceeds that of its poorest 416 million people. In the US, the Walmart family has as much wealth as the bottom 40% of Americans combined.

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3. Evolution of inequality

Let’s stick with Gini for now, and have a look at the evolution of countries’ scores. Two thirds of the world’s population live in countries where income inequality has risen since 1980.

America’s Gini for disposable income is up by almost 30% since 1980, to 0.39. Sweden’s is up by a quarter, to 0.24. China’s has risen by around 50% to 0.42 (and by some measures to 0.48). The biggest exception to the general upward trend is Latin America, long the world’s most unequal continent, where Gini coefficients have fallen sharply over the past ten years. But the majority of the people on the planet live in countries where income disparities are bigger than they were a generation ago. (source)

Some more data on Latin America:

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Another graph for Latin America, comparing income inequality between 1990 and 2008 – 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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Apart from many Latin American countries and a few elsewhere in the world, income inequality has been increasing, including in some of the wealthiest countries. 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 the fact that the incomes 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). Those are, of course, only some of probably many different reasons why income inequality has risen in many countries.

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

(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.

Here are some numbers on income inequality in Africa:

(source)

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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, the latter person earns less and can buy and consume less.

Take the case of China and the US:

(source)

There are very few Chinese who are richer than the poorest Americans. Some conclude from cases such as these that income inequality is not important and that absolute measures of poverty and income are all that count. Why should we worry about income inequality in the US when the poorest in the US are as wealthy as people from the top class in China? Should we not rather focus our efforts at raising the poorest of the world to the level of the poorest US citizens? Maybe, but we should also remember that people do conceptualize poverty as a relative thing and can suffer from low self-esteem, fatalism and absence of willpower when they are locked into a system that perpetuates inequality.

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.

Consider also this piece of information: the minimum wage for some of the best jobs in Haiti is US$6.97/day whereas the U.S. poverty line for 1 adult is US$30.60/day.

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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:

(source)

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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The top 1% of Americans control 20% of the wealth, twice what they had in 1973.

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.).

Whereas wealth disparities between individuals are always – on average – larger than income disparities, the opposite is true for consumption disparities: people save and borrow when their incomes drop, and both activities tend to smooth living standards. This is why you can have increasing income inequality and yet slower increases – or no increases at all – in consumption inequality. Some argue that we should therefore look at consumption inequality rather than income inequality.

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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)

(source)

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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9. Income inequality and GDP

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