Global Income Inequality: Great Graph On Income Shares

Bloomberg/Businessweek had a nice article on income inequality yesterday (excerpt):

Lessons for the U.S. on Inequality

…Yet despite the huge progress against poverty worldwide, inequality—the gap between rich and poor within countries—has been expanding. Recent analysis by economists Isabel Ortiz and Matthew Cummins at Unicef suggests about two-thirds of all countries have become more unequal over the past two decades.

Income inequality has become a preoccupation of voters in America and Europe, where the poverty line is more than 10 times higher than the $1.25-a-day standard used by international organizations. Governments in the U.S. and U.K. have proposed a range of measures targeting the incomes of the top 1 percent of earners…Yet the example of all those rapidly growing poor countries suggests that the developed world’s emphasis on soaking the rich is misplaced—or at least inadequate. To make real progress in closing the gap between rich and poor, countries like the U.S. would be better off lifting the quality of life for their least advantaged citizens—and stopping the obsession with lowering the boom on the most privileged.

…Greater use of computers and other technology has played a big role in increasing demand for the well-educated over the past 20 years, a process economists call “skill-biased technological change.” “Skill premiums”—in which people with more education earn higher salaries than those with less—have risen across the world since the 1980s…Short of banning cell phones and laptops, however, it’s unclear what the direct policy response to such trends should be.

Tax policies and financial regulation have also fueled inequality—especially in the United States. A 2011 paper by Anthony Atkinson, Thomas Piketty, and Emmanuel Saez of the London and Paris Schools of Economics and University of California at Berkeley, respectively, found that since 1985, changes in the tax code helped bolster the 1 percent’s share of national income from 9 percent to 15 percent. Given that those changes were followed by a period of particularly sluggish growth for the U.S., it is clear that the gains for the richest Americans have not created a rising tide for all.

Nonetheless, taxation and regulatory policy are only part of the story and thus only part of the solution. The policies that have done the most to improve the lives of the world’s poor have often taken decades to do so. Americans can look at the East Asian “miracle” economies, like those of China, South Korea, and Thailand, to see how expanding opportunities for the underclass can promote broad economic growth…

…In Brazil, meanwhile, the top fifth of the population saw their share of total income decline from 65 percent to 59 percent from 1990 to 2008, while the bottom two-fifths saw their share increase from 8 percent to 10 percent. Part of that is due to an innovative program called Bolsa Família, introduced by former President Luiz Inácio Lula da Silva. The program provides government cash transfers to 12 million poor families, with part of the money conditional on parents getting their kids vaccinated and sending them to school…

Beyond what was written, you absolutely have to see the graph (click the picture to see a larger version):

Fascinating way of depicting the statistics – and highly revealing as well. I’m not so surprised with developing countries generally reducing income inequality – that seems to be in the historical experience with the transition to middle income status. But its harder for advanced economies to rebalance incomes. How did the Netherlands, Ireland and Australia cut the top income share by so much, for example? Granted, we’re talking about a more than 50 year span, but the achievement is striking, compared to the rise in inequality for most other advanced economies.

Something to dig for over the weekend. I’ve added the links to the research papers mentioned in the article below.

Technical Notes:

Atkinson, Anthony B., Thomas Piketty, and Emmanuel Saez. 2011. "Top Incomes in the Long Run of History." Journal of Economic Literature, 49(1): 3–71 (warning: pdf link)

Cummins, Matthew and Isabel Ortiz, "Global Inequality: Beyond the Bottom Billion - A Rapid Review of Income Distribution in 141 Countries", UNICEF Working Paper, July 2011