Debate about Income Inequality

Milanovic, B. (1999). "True world income distribution, 1988 and 1993: First calculation based on household surveys alone", World Bank.

Quah, Danny (1997), "Empirics for growth and distribution: stratification, polarization and convergence clubs", London School of Economics and Political Science, Center for Economic Performance Discussion Paper No. 324, pp. 1-29.

UNDP (2002). Human Development Report 2002 -- Deepening Democracy in a fragmented world. New York, Oxford University Press.

Global income inequality is probably greater than it has ever been in human history. There is some debate about whether it is getting worse or getting better. Currently, the richest 1% of people in the world receives as much as the bottom 57%. The ratio between the average income of the top 5% in the world to the bottom 5% increased from 78 to 1 in 1988 to 114 to 1 in 1993 (Milanovic 1999). In this section of the Atlas, we examine aspects of contemporary income inequality. On this page we look at the distribution of global income and changes in regional distribution of income. The maps in this section show changes in GDP/person, GNP/person and changes in the ratio of national incomes to world mean income.

Most of the world's people are poor

Milanovic found that the richest 25% of the world's population receives 75% of the world's income, even when adjusting for Purchasing Power Parity. The poorest 75% of the population share just 25%. This occurs because a large proportion of the world's population lives in the poorest countries, and within the poorest regions of those countries, particularly in the rural areas of China, rural and urban India and Africa.

This graph (from an article in the Economist by Robert Wade and based on a graph in Milanovic) shows how the world's income is divided among the world's population. It indicates the distribution of world population (vertical scale) against income (horizontal scale). Income here is measured the same way as in the atlas' GDP maps, using Gross Domestic Product per person in US dollars compared at purchasing power parity rates.

This graph uses data from household surveys of income, rather than the average income for each country. Average values can be misleading because they hide the gap between the high- and low-income levels. By using household surveys of income, the graph reflects both inequalities between countries and within countries.

The "Twin Peaks" of Rich and Poor

The greatest contributors to world income inequality are the large countries at either end of the spectrum, the "Twin Peaks," as defined by Quah, 1997. One pole represents the 2.4 billion people whose mean income is less than $1000 year and includes people living in India, Indonesia and rural China. With 42% of the world's population, this group received just 9% of the world PPP income. The other pole is the group of 500 million people whose income exceeds $11,500. This group includes the US, Japan, Germany, France and the UK. Combined, they account for 13% of the world's population yet garner 45% of the world PPP income.

The gap between these two poles is so large it comprises the major component of the world's income inequality. Populous countries with middle income, such as Brazil, Mexico and Russia, do contribute to world income inequality, but to a much smaller degree.

Inequality increased between some regions, decreased between others

In the last 25 years, some regions of the world have raised their average income per person, while others have suffered a decline in income. The UNDP Human Development Report 2002 identifies the regions where there has been growth or setbacks (UNDP 2002: 19). The graph shows the relative changes in income between different regions of the world:

(1) The continued rapid economic growth in the already rich countries of Western Europe, North America and Oceania, relative to most of the rest of the world.

(2) The decline in real income of Sub-Saharan Africa and Eastern Europe.

(3) The relatively modest gains in Latin America and the Arab States. These regions provide another example of how inequality increases worldwide. Even though each of these regions saw an increase in income, it was modest compared to the gains made by the high-income countries. The result is that between 1975 and 2000, these regions suffered a slight deterioration relative to OECD countries.

The graph also shows the gains in income in East Asia. While the rapid growth was impressive, it had little effect on global inequality due to the relatively small populations involved. Although not evident in the graph, the UNDP report also found that world income inequality was decreased somewhat by the rapid growth in China since 1970s and India since 1980s, and the fact that European economies began to "catch-up" with the United States.

Maps in this section:

The maps in this section of the Atlas show different ways of comparing average country income levels:

Gross Domestic Product shows GDP per person for the decades 1970 to 1999.

Gross National Product shows GNP per person for the decades 1960 to 1999.

Links and references

"Global Disparaties in Income" graphic is from the Human Development Report 2002 by United Nations Development Program, copyright 2002 by the UNDP. Used by permission of Oxford University Press, Inc.

Milanovic, B. (1999). "True world income distribution, 1988 and 1993: First calculation based on household surveys alone", World Bank.

Quah, Danny (1997), "Empirics for growth and distribution: stratification, polarization and convergence clubs", London School of Economics and Political Science, Center for Economic Performance Discussion Paper No. 324, pp. 1-29.

UNDP (2002). Human Development Report 2002 -- Deepening Democracy in a fragmented world. New York, Oxford University Press.