Global income inequality: current trends, issues of justice and - - PowerPoint PPT Presentation

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Global income inequality: current trends, issues of justice and - - PowerPoint PPT Presentation

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Global income inequality: current trends, issues of justice and politics Branko Milanovic Luxembourg Income Study Center City University of New York May-June 2014 Branko Milanovic A. National inequalities mostly increased Branko Milanovic

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Global income inequality: current trends, issues of justice and politics

Branko Milanovic Luxembourg Income Study Center City University of New York May-June 2014

Branko Milanovic

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  • A. National inequalities mostly

increased

Branko Milanovic

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Ginis in 1988 and twenty years later

1988 2008 Change

Average Gini 36.0 38.5 +2.5

Pop-weighted Gini

33.9 37.3 +3.4

GDP-weighted Gini

32.2 36.4 +4.2

Countries with higher Ginis (38)

33.7 38.5 +4.8

Countries with lower Ginis (20)

40.5 37.7

  • 2.7

From final-complete3.dta and key_variables_calcul2.do

Branko Milanovic

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Ginis in 1988 and 2008

From key_variables_calcul3.do

Branko Milanovic

BOL NGA HND UGA COL MRT GTM CIV IND-U BGD IND-R CHN-R IDN-U IDN-R VEN PAK PHL BRA ECU PAN PER PRY SLV KGZ TJK MEX LKA ROU DOM MAR ARM EGY CRI MDA CHN-U THA TUR MKD JOR ARG AZE MYS CHL URY BGR SRB ISR POL LVA RUS LTU UKR BIH HUN SVK EST PRT KOR GRC CZE SGP ESP HRV JPN ITA CYP USA CAN BEL IRL SVN TWN FRA FIN DEU SWE GBR NLD AUT DNK NOR

20 30 40 50 60 70 20 30 40 50 60 Gini in 1988

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Ginis in 1988 and 2008 (population-weighted countries)

From key_variables_calcul3.do

Branko Milanovic

RUS IND-U MEX BRA NGA IND-R USA CHN-U CHN-R 20 30 40 50 60 20 30 40 50 60 Gini in 1988

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Mean Gini by year, 1962-2012 (unbalanced country panel)

twoway (scatter cc year if year>1962 & year<2012, connect(l)) (lowess cc year if year>1962 & year<2012, legend(off) ytitle(mean Gini)) Using all_the_ginis

36 37 38 39 40 1960 1970 1980 1990 2000 2010 year when the survey was conducted

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Issues raised by growing national inequalities

  • Social separatism of the rich
  • Hollowing out of the middle classes
  • Inequality as one of the causes of the global

financial crisis

  • Perception of inequality outstrips real

increase because of globalization, role of social media and political (crony) capitalism (example of Egypt)

  • Hidden assets of the rich

Branko Milanovic

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Some long-term examples set in the Kuznets framework

Branko Milanovic

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38,0 40,0 42,0 44,0 46,0 48,0 50,0 1929 1939 1949 1959 1969 1979 1989 1999 2009

Inequality (Gini) in the USA 1929-2009 (gross income across households)

From ydisrt/us_and_uk.xls

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Kuznets and Piketty “frames”

10 20 30 40 50 60 70 1600 1650 1700 1750 1800 1850 1900 1950 2000 2050

Ginis for England/UK and the United States in a very long run

England/UK USA

From uk_and_usa.xls

10

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Contemporary examples of Brazil and China: moving on the descending portion of the Kuznets curve

China, 1967-2007

twoway (scatter Giniall lngdpppp if contcod=="CHN" & year>1960, connect(l) ylabel(40(10)60) xtitle(2000 6000 12000) ytitle(Gini) xtitle(ln GDP per capita)) (qfit Giniall lngdpppp if contcod=="CHN" & year>1960, lwidth(thick)) From gdppppreg4.dta

twoway (scatter Giniall lngdpppp if contcod=="BRA", connect(l) ylabel(40(10)60) xtitle(2000 6000 12000) ytitle(Gini) xtitle(ln GDP per capita)) (qfit Giniall lngdpppp if contcod=="BRA", lwidth(thick)) From gdppppreg4.dta

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Brazil 1960-2010

40 50 60 Gini 7.5 8 8.5 9 9.5 ln GDP per capita updated Giniall Fitted values 40 50 60 Gini 5 6 7 8 9 ln GDP per capita updated Giniall lowess Giniall lngdpppp

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  • B. Between national inequalities

remained very high even if decreasing

Branko Milanovic

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Different countries and income classes in global income distribution in 2008

From calcu08.dta

USA India Brazil China Russia 1 10 20 30 40 50 60 70 80 90 100 percentile of world income distribution 1 20 40 60 80 100 country percentile

Branko Milanovic

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Denmark Mozambique Mali Tanzania Uganda 1 10 20 30 40 50 60 70 80 90 100 1 5 10 15 20 country ventile

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Branko Milanovic

10 20 30 40 50 60 70 80

USA Germany France Japan Russia South Africa Brazil China Morocco Egypt India Indonesia

Percentage of country's population that belongs to the global top decile

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  • C. Global inequality is the product of

within- and between-county inequalities How did it change in the last 25 years?

Branko Milanovic

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Essentially, global inequality is determined by three forces

  • What happens to within-country income

distributions?

  • Is there a catching up of poor countries?
  • Are mean incomes of populous & large

countries (China, India) growing faster or slower that the rich world?

Branko Milanovic

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Global inequality 1950-2012: three concepts

Branko Milanovic Concept 2 Concept 1 Concept 3 .45 .55 .65 .75 Gini coefficient 1950 1960 1970 1980 1990 2000 2010 year

Divergence begins Divergence ends China moves in

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International unweighted and population- weighted inequality, 1952-2010

Graph in interyd\dofiles\defines.do; using gdppppreg.dta

Concept 2 Concept 2 without China Concept 1 .45 .5 .55 .6 .65 Gini coefficient in percent 1950 1960 1970 1980 1990 2000 2010 year

India as new engine of equalization

Branko Milanovic

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Population coverage

1988 1993 1998 2002 2005 2008 2011

Africa 48 76 67 77 78 78 56 Asia 93 95 94 96 94 98 86 E.Europe 99 95 100 97 93 92 76 LAC 87 92 93 96 96 97 97 WENAO 92 95 97 99 99 97 90 World 87 92 92 94 93 94 82

Non-triviality of the omitted countries (Maddison vs. WDI)

Branko Milanovic

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What does Gini of 70 mean?

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

Sweden USA Brazil World .2 .3 .4 .5 .6 .7 1970 1980 1990 2000 2010 year Branko Milanovic

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Large countries and the world, from 1950-60s to today

Branko Milanovic

…finance_nd_devt/figure2.do Using gdppppreg4.dta

China United States Brazil Russia World 20 30 40 50 60 70 1000 5000 10000 40000 GDP per capita in PPP dollars

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  • D. How has the world changed

between the fall of the Berlin Wall and the Great Recession

Branko Milanovic

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Real income growth at various percentiles of global income distribution, 1988-2008 (in 2005 PPPs)

From twenty_years\final\summary_data

X“US lower middle class” X “China’s middle class”

Branko Milanovic

$PPP2 $PPP4.5 $PPP12 $PPP 110

Estimated at mean-over-mean

10 20 30 40 50 60 70 80 20 40 60 80 100

Real PPP income change (in percent) Percentile of global income distribution

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0 0 1 1 1 1 1 2 2 2 3 3 4 5 4 1 3 5 10 25 27 5 10 15 20 25 30 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 99 100

Distribution (in percent) of gain ventile/percentile of global income distribution

Distribution of the global absolute gains in income, 1988-2008: more than ½ of the gains went to the top 5%

From summary_data.xls

Branko Milanovic

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Branko Milanovic

From my_graphs.do

MYS PAK IDN-R IDN-R IDN-U IDN-U THA CHN-R CHN-R CHN-U CHN-U

  • .6

1 2 450 500 550 600 real pc income in 1988

growth>50% Asia highlighted BGR BGR BGR BGR JPN BGR BGR LVA LVA ROU LVA ROU LVAJPN LVA LVA JPN LVA ROU JPN AUT AUT SVKSVK AUT SVK SVK DEU DEU SVK DEU GRC DEU EST CZE GRC CZE GRC CZE GRC CZE DNK EST DNK GRC CZE POL DNK CZE EST POL USA USA FIN USA CYP VEN JOR PRY URY ARG ARG URY ARG URY ARG TUR

  • .6

1 2 real growth 1988-2008 5000 6000 7000 8000 9000 10000 real pc income in 1988

growth<25% mature econ highlighted

Best and worst performing parts of the 1988 distribution

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500 5000 1988 1993 1998 2003 2008 2011 Annual per capita after-tax income in international dollars US 2nd decile Chinese 8th urban decile

From summary_data.xls

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Global income distributions in 1988 and 2008

twoway (kdensity logRRinc [w=pop] if logRRinc>2 & bin_year==2008 & keep==1 & mysample==1) (kdensity logRRinc [w=pop] if logRRinc>2 & bin_year==1988 & keep==1 & mysample==1, legend(off) xtitle(log of annual PPP real income) ytitle(density) text(0.95 2.5 "1988") text(0.85 3 "2008")) Or using adding_xlabel.do; always using final_complete7.dta

1988 2008 .2 .4 .6 .8 1

300 1000 3000 6000 10000 30000 50000 100000

log of annual PPP real income

Emerging global “middle class” between $3 and $16

Branko Milanovic

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Increasing gains for the rich with a widening urban-rural gap

Urban and rural China Urban and rural Indonesia

170 180 190 200 210 220 1 2 3 4 5 6 7 8 9 10 decile

200 250 300 350 400 450 1 2 3 4 5 6 7 8 9 10 decile

From key_variables_calcul2.do

Branko Milanovic

urban rural urban rural

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  • E. Issues of justice and politics
  • 1. Citizenship rent
  • 2. Migration
  • 3. Hollowing out of the middle classes

Branko Milanovic

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Global inequality of opportunity

  • Regressing (log) average incomes of 118

countries’ percentiles (11,800 data points) against country dummies “explains” 77% of variability of income percentiles

  • Where you live is the most important

determinant of your income; for 97% of people in the world: birth=citizenship.

  • Citizenship rent.

Branko Milanovic

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Is citizenship a rent?

  • If most of our income is determined by

citizenship, then there is little equality of

  • pportunity globally and citizenship is a rent

(unrelated to individual desert, effort)

  • Key issue: Is global equality of
  • pportunity something that we ought to

be concerned or not?

  • Does national self-determination dispenses

with the need to worry about GEO?

Branko Milanovic

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The logic of the argument

  • Citizenship is a morally-arbitrary circumstance,

independent of individual effort

  • It can be regarded as a rent (shared by all

members of a community)

  • Are citizenship rents globally acceptable or

not?

  • Political philosophy arguments pro (social

contract; statist theory; self-determination) and contra (cosmopolitan approach)

Branko Milanovic

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The Rawlsian world

  • For Rawls, global optimum

distribution of income is simply a sum of national optimal income distributions

  • Why Rawlsian world will remain

unequal?

Branko Milanovic

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All equal Different (as now) All equal Different (as now)

Mean country incomes Individual incomes within country

Global Ginis in Real World, Rawlsian World, Convergence World…and Shangri-La World (Theil 0; year 2008) 98 68 (all country Ginis=0) 30 (all mean incomes same; all country Ginis as now)

Branko Milanovic

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Conclusion

  • Working on equalization of

within-national inequalities will not be sufficient to significantly reduce global inequality

  • Faster growth of poorer countries

is key and also…

Branko Milanovic

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Migration: a different way to reduce global inequality and citizenship rent

  • A new view of development:

Development is increased income for poor people regardless of where they are, in their countries of birth or elsewhere

  • Migration and LDC growth thus become

the two equivalent instruments for development

Branko Milanovic

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Political issue: Global vs. national level

  • Our income and employment is increasingly

determined by global forces

  • But political decision-making still takes place at

the level of the nation-state

  • If stagnation of income of rich countries’ middle

classes continues, will they continue to support globalization?

  • Two dangers: populism and plutocracy
  • To avert both, need for within-national

redistributions: those who lose have to be helped

Branko Milanovic

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Final conclusion

  • To reduce global inequality: fast

growth of poor countries + migration

  • To preserve good aspects of

globalization: redistribution within rich countries

Branko Milanovic

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Additional slides

Branko Milanovic

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  • H. Global inequality over the long-run
  • f history

Branko Milanovic

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Global income inequality, 1820-2008

(Source: Bourguignon-Morrisson and Milanovic; 1990 PPPs )

Theil Gini 20 40 60 80 100 1820 1860 1900 1940 1980 2020 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"))

Branko Milanovic

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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

Branko Milanovic

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Composition of global inequality changed: from being mostly due to “class” (within-national), today it is mostly due to “location” (where people live; between- national)

Based on Bourguignon-Morrisson (2002), Maddison data, and Milanovic (2005)

From thepast.xls

20 40 60 80 100

1870 2000 Theil 0 index (mean log deviation)

Class Location Location Class

Branko Milanovic