What Is Happening with Inequality I: The Global Story

The indispensable Branko Milanovic has a new post up on his blog where he summarizes trends from the latest available global-coverage income data (up through 2013). There are both some very positive developments and some negative ones:

"[T]he striking and important thing is what we cannot see from National Accounts but can see from household surveys: the dramatic increase in the global median income (income at the 50th global percentile). This positional income which reflects high growth rates of the relatively poor populations in Asia (China, India, Vietnam, Indonesia etc.) has throughout the past 25 years always increased faster than the global mean income, and in the most recent period (2008-13) the gap between the median and mean growth has soared: the median income went up by an average rate of 6% pc pa while the mean income grew by only 1%.

The shrinkage of the distance between the mean and the median is often taken as an indicator of reduced inequality (for asymmetric distributions). And this is indeed the case here. In 1988, the mean per capita income of the world was just over $PPP 4000 and the median just over $PPP 1000; a quarter-century later, these amounts were respectively $PPP 5500 and $PPP 2200. So the mean-to-median ratio has decreased from 4-1 to 2.5-1. The global Gini coefficient went down from 0.69 to 0.62; the global Theil index from 0.92 to 0.73."

But:

"We thus have only apparently paradoxical developments over the past 25 years: on the one hand, strongly rising global median income and the shrinkage of global inequality when measured by the synthetic indicators like the Gini or Theil; but, on the other hand, the rising share of the global top 1% and increasing number of people in relative poverty (mostly in Africa). The last point opens up again the vexed question of lack of convergence of Africa and its growing falling behind Asia (and of course the rest of the world).

So, is the world becoming better, as Bill Gates wants us to believe? Yes, in many ways, it is: the mean income in 2013 is almost 40% higher than in 1988, and global inequality is less. But is there a bad news too? Yes: the same share of the world population is being left behind and the top 1% are getting ever further away and richer than everybody else. So, we have, at the same time, the growth of the global “median” class and an increase in world-wide polarization."

Simultaneously heartening and worrying.