The income share of the rich has decreased over many decades, and just like in the English-speaking countries, it reached a low point in the 1970s. Atkinson, A. The above remark implies a positive correlation between skill-biased technological change and wage inequality. Cross-national research on the causes and consequences of income inequality has been hindered by the limitations of the existing inequality datasets: greater coverage across countries and over time has been available from these sources only at the cost of significantly reduced comparability across observations. Moreover, this union wage gap appears to be larger for low-wage workers: the points are further above the 45-degree line for low-wage skill groups (those on the left). Home The source for global inequality data. Disposable household income is the sum of labor income (paid employment and self-employment income), capital income, transfer income—social security transfers (work-related insurance transfers, universal benefits, and assistance benefits) and private transfers—, minus income taxes and social security contributions. For households in the bottom 20%, it fell 20%. you can download a zip folder with an image file for every year and an animated .gif here. However, the fact that this correlation has been observed in other countries suggests that technology is likely part—although only part—of the explanation for growing inequality in high-income countries. Income inequality … Technical change, inequality, and the labor market. Panel published at Ann Arbor (Michigan) since the 1960s. A lesson that that we can take away from this empirical research is that political forces at work on the national level are likely important for how incomes are distributed. The visualization shows relative childhood poverty. National Bureau of Economic Research, 2016. This makes the USA an extreme case in terms of inequality, and really an outlier in what is happening to incomes across the distribution over time. The distribution of incomes is shown at 3 points in time: We have visualized a similar dataset from the OECD here.14. The available empirical evidence on the causal link between globalization and inequality is not definitive, but does suggest that we might want to take this hypothesis seriously. 15-7. The data measure the inequality of gross household income and lie in the interval from 1 to 100. 41-68. The United Kingdom is the country for which we have the best information on the distribution of income over the very long run. Wealth inequality is starker. The following visualization shows the percentage point reduction in Gini coefficients that OECD countries achieve through redistribution. Germany: Das Sozio-ökonomische Panel (SOEP) “Leben in Deutschland” published by the Deutschen Institut für Wirtschaftsforschung (DIW) in Berlin. Peterson Institute for International Economics Working Paper No. Economists often argue that changes in productive technologies increase inequality. The chart comes from Piketty, Saez and Zucman (2016) and it has received substantial media coverage.9. The estimates correspond to 1993 data on the hourly earnings of males. We observe that income growth at the very, very top of the income distribution has outstripped the strong growth of incomes across the rest of the distribution.5. Inequality is measured with the Gini index (explained below) and prosperity is measured by the gross domestic income per capita, adjusted for price differences to make comparisons in a common currency possible. The visualization shows a scatter plot of cross-regional exposure to rising imports, against changes in employment. Holmes published a detailed ciritique for one of the most famous tables: Gregory King’s Social Table for England in 1688. Income inequality in Europe and Japan is much lower today than it was at the beginning of the 20th century. Until 1801-3 referring to England and Wales. Another striking fact is that the relationship is monotonically increasing: independently of where you are in the US income distribution, those who are richer have seen larger income growth. The World Income Inequality Database (WIID) presents information on income inequality for developed, developing, and transition countries. The data is originally from the Clio-Infra data base here, The data are produced by Ola Rosling and published at the website of Gapminder. Country-specific data are available for some industrial countries but usually do not go far back into the past. It is the global distribution of incomes in 2003 and in 2013 as estimated by Hellebrandt and Mauro.31. You have the permission to use, distribute, and reproduce in any medium, provided the source and authors are credited. There has been much progress in improving the availability, quality and comparability of income and wealth inequality data. The measure of extreme global poverty that we discuss in our entry on World Poverty is the most important example relating to this concept. B. Atkinson & F. Bourguignon (Eds. Deininger-Squire Data (World Bank) – published 1996 In fact, the authors go further and suggest that rising Chinese imports in the period 1990-2007 caused higher unemployment, lower labor force participation, and reduced wages in local labor markets that house import-competing manufacturing industries (see the paper for details on the empirical strategy used to determine causality). However, economists also tend to agree that, while relevant, differences in productivity are not sufficient to explain differences in incomes. Income is defined as household disposable income in a particular year. The publication is G. S. Holmes (1977) – Gregory King and the Social Structure of Pre-Industrial England. The Gini coefficient is based on the comparison of cumulative proportions of the population against cumulative proportions of income they receive, and it ranges between 0 in the case of perfect equality and 1 in the case of perfect inequality. All our research and data on Income Inequality. The following two visualizations show this, by comparing the degree of income inequality (Gini coefficients), before and after taxes and transfers. It provides the most comprehensive set of income inequality statistics available and can be downloaded for free. There are a currently (October 2016) two exceptions to this. High inequality can be detrimental for macroeconomic stability and for sustained long-term growth. In 2016, average market income was $15,600 for the lowest quintile and $280,300 for the highest quintile. Each line shows the cutoff-incomes for the 10 deciles of the income distribution (i.e. Another interesting way to study distributions is Pen’s Parade, named after Dutch economist Jan Pen (1921-2010). But it is also possible that it leads to more economic growth via higher incentives for people to make productive investments. As we can see, taxes and transfers do reduce inequality significantly: in all countries there is less inequality after redistribution takes place via taxes and transfers. (2007) – ‘The Distribution of Top Incomes in the United Kingdom 1908-2000’ in Atkinson, A. Volume 121, Issue 551, pages 255–272, March 2011. Explore the latest data on poverty, inequality, and shared prosperity around the world. All of our charts can be embedded in any site. Argentina). The best source for distributional data with global coverage is the World Bank’s PovcalNet. The UK experienced a large increase in inequality during the 1980s—the incomes of the highest deciles increase while everyone else was left behind. Notwithstanding these limitations, it is interesting to consider the world map of economic inequality. Top income shares in Canada: recent trends and policy implications; Canadian Journal of Economics , 45(4): 1247-1272. pdf . Historical top income inequality estimates are reconstructed from income tax records, and for many countries these estimates give us insights into the evolution of inequality over more than 100 years. The visualization shows this as well, focusing on Europe. David, H., Dorn, D., & Hanson, G. H. (2013). The China syndrome: Local labor market effects of import competition in the United States. 2000. Research shows that in the US the ‘ultra-rich’ are the group that has experienced the largest income growth in the recent period of growing income inequality. This data is shown in this visualization. The source notes: Total number of commuting zones (CZs) = 722. Redistribution through tax-and-transfer policies. This data set provides measurements of economic inequality and poverty for many countries in Africa, Asia, Europe and Latin America. Inequality.org. Veall, Michael (2012). This is intuitive, since consumption can be smoothed over time, for example, by saving earned income. It is a representative repeated survey of 12,000 private households in Germany carried out since 1984. Cited from Milanovic, Lindert and Williamson (2008) – Ancient Inequality. Both the southern part of Africa and Latin America stand out as regions with very high inequality. Below we explore in more detail these and other commonly cited drivers of within-country inequality. The two income measures are defined as follows: Bear in mind that in this chart inequality is measured with the Gini index, an inequality measure that not only looks at the top of the income distribution, but captures the whole distribution as explained below. The income of the household is attributed to each of its members, with an adjustment to reflect differences in needs for households of different sizes. In other words, the series in this plot show the evolution of regional averages of inequality levels (Gini coefficients). For reasons which are not clear within the World Bank report or the World Value Survey, no North American countries were included within the 60 countries asked to respond to this question. The data set is created at the University of Princeton, based on census and survey data, ranging from 1963 to 2002. After the 1980s inequality in the USA started increasing, and eventually returned to the level of the pre-war period. France, for example, is divided here in 22 different regions. Global Income Inequality Since 1980, the World Inequality Report data has shown that the share of national income going to the richest 1 percent has increased rapidly in North America (defined here as the United States and Canada), China, India, and Russia and more moderately in Europe. Annualized average growth rate in per capita real survey mean consumption or income, bottom 40% of population ... Tax reduction in income inequality (%) Top 10% income share; Top 5% income share ; p90 vs p10 of income… Note that to produce regional-level estimates, the World Values Survey took respondent answers across 60 countries. The Gini coefficient captures the deviation of the Lorenz curve from the ‘line of equality’ by comparing the areas A and B: This means a Gini coefficient of zero represents a distribution where the Lorenz curve is just the ‘Line of Equality’ and incomes are perfectly equally distributed. You can click on countries with available data to explore detailed country-specific trends. License: All of Our World in Data is completely open access and all work is licensed under the Creative Commons BY license. The reality of different inequality trends within countries suggests that the institutional and political frameworks in different countries also play a role in shaping inequality of incomes. Volume 19, Issue 4, October 1982, Pages 385–408. ← Prev Page. European Union: European Community Household Panel. Brazil and Mexico). This entry can be cited as: Our World in Data is free and accessible for everyone. Income inequality. We have moved from a two-hump to a one-hump world. The supply of skills is calculated as the ratio of ‘college equivalents’ (those with at least college + half of those with some college education) to ‘non-college equivalents’ (those with high school or less, plus half of those with some college). How are the incomes of the rich changing relative to the incomes of the poor? The plotted data is interpolated using Cardinal spline. It consists of earnings, self-employment and capital income and public cash transfers; income taxes and social security contributions paid by households are deducted. The website of the CEDLAS contains data on poverty and income distribution in 25 Latin American and Caribbean countries. However, it would be wrong to think that increasing top income inequality is a universal phenomenon. It is important to emphasize that the top income measures of inequality that we discuss above refer to inequality in the distribution of market incomes. In the bottom panel we see how these responses correlate with income. Income Inequality Definition . 8 November 2018. Since the most of the population is out of income-tax database, most of the calculations (such as NSSO) is based on consumption-expenditure data instead of income data. From the early 1990s onwards, we see that the UK experiences a divergence between what the Gini and the top income shares tell us about inequality. Are some people getting richer while others are getting poorer? Each dot on this graph corresponds to a different area within the US (‘commuting zones’, CZs); the vertical axis shows the percent change in manufacturing employment for working age population; and the horizontal axis shows what the authors predict to be the per-worker exposure of the different areas to rising imports (depending on industrial composition, etc.). In principle, saving and borrowing allows agrarian societies to have consumption levels that are less volatile—and less reliant on seasonal variation—than incomes.12. B. and Piketty, T. (editors) Top Incomes over the Twentieth Century. the 10% of people with highest income) to that of the first decile; P90/P50 of the upper bound value of the ninth decile to the median income; and P50/P10 of median income to the upper bound value of the first decile. The early estimates are based on social tables, and as with most estimates from the more distant past, there is some concern about how accurate these estimates are. Atkinson (2015)20 provides a simple discussion of the economic theory supporting this hypothesis.21. For each of these sub-national regions, the vertical axis measures the average annual growth rate of GDP per capita in the period 2008-2012, and the horizontal axis measures inequality in 2007 (Gini coefficients). Online here. (2004)28 use data from the US to compare the average wages of unionized and nonunionized workers with similar skills. – Milanovic, Lindert and Williamson (2008) – Ancient Inequality. The US—a country with high baseline levels of inequality—achieves a reduction of around 17%, which is almost half of the OECD average. SWIID The Standardized World Income Inequality Database. As we can see, Latin America is the region with by far the highest cross-country average inequality levels. Below we discuss this data in more detail. This is intuitive: inequality will shrink if the incomes of the poor tend to grow faster than the incomes of the rich. Throughout the 1990s and 2000s, more even growth across the distribution has meant little changes in inequality, with rising incomes for everybody. That entry looks at economic history and how global inequality has changed and is predicted to continue changing in the future. We also present some of the research on the factors driving the inequality of incomes. This visualization tracks income levels in the UK at different points in the income distributions. World Bank, Development Research Group. Social conventions, for example, also play a crucial role. The fact that inequality reductions have been widespread is remarkable given the underlying differences between countries. The EU data set summarizes the records of the individual panel data surveys of certain member states. Argentina). Top income inequality is measured as the share of total income that goes to the income earners at the very top of the distribution. Economica . A Contrast Between Continental European and English-Speaking Countries , Oxford University Press, chapter 4. A universal trend of increasing inequality would be in line with the notion that inequality is determined by global market forces and technological progress. Once half of the parade is over we see the person who earns the median income. In economics terms, income inequality is the large disparity in how income is distributed between individuals, groups, populations, social classes, or countries. This is also true for countries: the differences in inequality levels between countries tend to be much larger than the differences in inequality for any given country at different points in time (you can check this by clicking on the ‘Chart’ tab in the Gini world map). You can add other countries by selecting the option ‘Add countries’. This chart shows, country by country, the evolution of shares of total income going to the richest 20% (and subsequent quintiles). The data for this are taken from Milanovic, Lindert and Williamson (2008) – Ancient Inequality. The authors found that many pre-industrial societies are clustered along the IPF. Since the returns to education increased while supply was also increasing, we can interpret this as evidence in support of the hypothesis that technological change was biased in favour of skilled workers. In The Economic Journal. Thus it is necessary to refer to the ‘sources’ tab of the chart (where definitions of income measures are listed) before making such comparisons. In The Economic Journal. With these numbers we can approximate the number of people on different income levels in every country. Indeed, the empirical literature on the causal effect of inequality on economic growth is largely inconclusive. Notes related to this graph: the solid IPF line is constructed on the assumption that the annual subsistence minimum is $PPP 300. B. It is for example possible that inequality leads to less economic growth via political instability and social unrest. Under this line of reasoning, one could argue that globalization increases inequality in rich countries because ‘losers’ are more likely to be those with low incomes in the first place. The downside of this approach is that we can only go as far back in time as household surveys were conducted. Another important point to notice in this chart is that variations across world regions are much larger than variations across time. The estimates come from the World Values Survey, where people are asked to locate their preferences for inequality in a range from 1 to 10 (where 1 implies agreement with the statement “Income should be more equal”, and 10 implies agreement with the statement “We need larger income differences as incentives for individual effort.”) These estimates have been calculated at the global level, as well as at the regional level.26. UN Data from the United Nations Development Programme. In our entry on International Trade we point out that globalization may have important implications for the distributions of incomes, because it often creates ‘winners and losers’. Global inequality has fallen in the past three decades. As the charts show, inequality is not universally viewed as inherently undesirable. The consequence of progressive taxation is that the inequality of disposable incomes (the incomes that actually reach people’s pockets) is much lower than the pre-tax income that is considered in the research that focusses on top incomes. In many countries governments have progressive tax systems. To make incomes comparable across countries and time, daily incomes are measured in international-$ — a hypothetical currency that would buy a comparable amount of goods and services that a U.S. dollar would buy in the United States in 2011 (for a more detailed explanation, see here). As usual, we have to be careful in interpreting these results. This tells us that inequality across the bulk of the distribution has not increased further in the UK. In the US and Latin America, Gini coefficients after redistribution are above 0.39. It declined in macro-economically stable countries (e.g. Brazil and Chile) and in countries governed by regimes considered to be ‘non-leftist’ (e.g. The Gini remained flat over these two decades and, if anything, fell somewhat during this period. The fact that income shares are measured through tax records implies that these estimates measure inequality before redistribution through taxes and transfers.7, What we can learn from this long-term perspective is summarized in this visualization. In an effort to answer this question Milanovic, Lindert and Williamson investigated the estimates for levels of pre-industrial inequality in their 2008 paper ‘Ancient Inequality’. The American Economic Review, 103(6), 2121-2168. Piketty, Thomas, Emmanuel Saez, and Gabriel Zucman. Income inequality refers to the extent to which income is distributed in an uneven manner among a population. Data was downloaded on 2016-10-26 All estimates use the new OECD methodology for calculating incomes, introduced in 2012. In the US, income inequality has been on the rise in the last four decades, with incomes for the bottom 10% growing much slower than incomes for the top 10%. The experience of the USA is worth discussing. Australia: Household, Income and Labour Dynamics in Australia Survey (HILDA), Italy: Survey on Household Income and Wealth (SHIW). This visualization shows the distribution of incomes between 1988 and 2011 using a different, more precise source of data. We are grateful for his helpful suggestions. Interestingly, however, the achieved reductions in inequality vary considerably between countries, and substantial cross-country heterogeneity in inequality remains after redistribution. The static chart gives an overview across all OECD countries using the available estimates from 2012-2014. Organisation for Economic Co-operation and Development (OECD), Source: B. and Piketty, T. (editors) Top Incomes over the Twentieth Century. The nationwide protests following the death of a black man, George Floyd, at the hands of white police officers has once again shone a spotlight on the long-standing racial divide in the US. López-Calva, L. F., & Lustig, N. (2010). In the textbook case of employment in efficient markets, wages are determined exclusively by productivity—so income inequality follows from differences in productivity. The concept of relative poverty, on the other hand, is defined with respect to an income level that may change over time and across countries. Studying how income levels evolve across the entire distribution is crucial to understanding how the benefits of economic growth are shared in the population. As we can see, there has been a generalized downward trend (although levels remain very high). In the right panel we see that in equally rich European countries, as well as in Japan, the development is in fact quite different. The metaphor of a parade works well. According to the World Bank, the Gini coefficient in India was 0.339 in 2009. We have already noted that Latin America is the world region with the highest income inequality. The data source is the OECD (OECD, Social Protection & Well-Being, Income Distribution Database) – online here. As we can see, there is a negative correlation. Note: In Poland and Romania, the World Bank uses income surveys for poverty monitoring. The following visualization shows recent trends in Gini coefficients across different Latin American countries. The Gini coefficient, or Gini index, is a measure of the income distribution of a population. Data are available here. The most widely used sources of data and statistics on household income and its distribution are the annual survey of households conducted as part of the Census Bureau’s Current Population Survey (CPS) and the Internal Revenue Service’s (IRS) Statistics of Income (SOI) data compiled from a large sample of individual income tax returns. The bottom half of the income distribution in the USA has not seen any income gains for almost the entire period since 1979 (the short exception are the late 1990s). After 1867 referring to the UK. w22945. The Palma ratio is the share of all income received by the 10% people with highest disposable income divided by the share of all income received by the 40% people with the lowest disposable income. Over the following 4 decades the world income distribution has again changed dramatically. The OECD defines childhood poverty as the share of children living in a household with a post-tax-and-transfer income of less than 50% of the national annual median income (i.e. After that point, and up until the early 1980s, the share of the top 1% dropped substantially (first quickly, and then more slowly in the 1970s). This table contains data on income inequality. Consider the case of the USA, in the left panel. Washington, DC: World Bank. Over the last decades, a large body of theoretical and empirical research has attempted to determine whether inequality is good or bad for economic growth. National Poverty and Inequality Data by National/Sub-national Level (SEDAC). ), Handbook of Income Distribution. This visualization shows an example of Pen’s Parade. This doesn’t need to be the case. Income after redistribution, on the other hand, corresponds to disposable income after taxes and transfers (market income, plus social security, cash transfers and private transfers, minus income taxes). The data have micro statistical surveys in each country as a basis. At the turn of the 20th century Latin America was, on average, almost 65% more unequal than the industrialized (high-income) countries. Further analysis and methodology. The key point to notice is that technology makes each unit of work cheaper, yet employers get more units of work from the same number of workers as they become more productive. The Transmonee statistics include other socio-economic indicators. As we can see, there is a clear negative correlation: regions with more inequality in 2007 experienced less average growth in the subsequent years. The authors say that they use “Holmes’ penetrating critique (1977) to guide our modification of King’s tables”.4. The primary measure is the Gini index – a measure of the extent to which the distribution of income among families/households within a community deviates from a perfectly equal distribution. Income Inequality This table contains data on income inequality. What is the link between economic growth and inequality? It is important to note, however, that these estimates are not fully comparable between countries. The ratio of the average income of the richest 20% to the poorest 20%. You can explore the Gapminder visualisation of the income distributions of all countries in their interactive tool here.Regarding the construction of the data, Hans and Ola Rosling note the following here: “This graph is constructed by combining data from multiple sources. Income distribution, Snapshot of data for a fixed period (data will not change even if updated on the site). The world had divided into a poor, developing world and a developed world that was more than 10-times richer. Each dot along the horizontal axis represents a different percentile in the income distribution, with the height marking the corresponding average level of income growth in the period 1980-2014 (after adjusting for inflation). Income allows a family to get by; wealth allows a family to get ahead. Or is economic growth raising the incomes of all? While this gives us a rough idea of how the distribution of incomes changed, it is neither very detailed nor very precise. you can find further details regarding how incomes are measured. In these tables, social classes (or groups) ‘are ranked from the richest to the poorest with their estimated population shares and average incomes’.1. Put simply, the before-tax distributions of incomes are likely to be different to the actual distributions of incomes that would be in place if there were no taxes or transfers. Income inequality in a country is affected by the relative growth of incomes at different points in the income distribution. : Global Well-being since 1820, OECD Publishing. According … This can be clearly explained in the context of pensions: individuals receiving state pensions appear in the data as poor before transfers; but many of them would of course have private pensions if they lived in a country without state transfers. Online here. These are added variable plots, controlling for the start of period share of employment in manufacturing industries. The degree of inequality accelerated within the top quintile, with the top 1% at $1.8 million, approximately 30 times the $59,300 income of the middle quintile. Exceptions to this concept focusing on Europe effects of import competition in the scale! Published 1996 income inequality across the entire distribution is crucial to understanding how the distribution of income! 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