Inequality trends in the world

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Presentation by Francois Bourguignon (Paris School of Economics) at the ERF 20th Annual Conference - Cairo, 22 March 2014

Presentation by Francois Bourguignon (Paris School of Economics) at the ERF 20th Annual Conference - Cairo, 22 March 2014

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  • 1. Inequality trends in the world Common forces, idiosyncrasies and measurement errors Francois Bourguignon Paris School of Economics Economic Research Forum, Cairo, March 2014 1
  • 2. Outline 1. A tour d'horizon of inequality changes around the world 2. Common forces, idiosyncratic factors, or measurement errors? 3. Conclusion 2
  • 3. 1. A 'tour d'horizon' of inequality changes around the world Crucial data warning • Various definitions of inequality do not show the same evolution of inequality over time • Income distribution data are not always fully comparable across countries and even over time • Serious improvement in developed countries over the recent past; yet, things are still imperfect • Considerable progress still to be made in most developing countries, including in MENA. 3
  • 4. a) Inequality trends in developed countries i. Gini coefficient: equivalized disposable incomes: 1985-2008, (OECD database) ii. Share of top 5% in income before taxes and transfers (Top incomes data base) iii. GDP-share of labor (National accounts) 4
  • 5. i) Change in inequality of equivalized income in selected OECD countries 50.2 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 0.38 0.4 Mid 80s cA 1990 Mid 90s ca2000 mid 2000s Latest year Ginicoefficient Evolution of Gini coefficient in selected developed counries : 1985-2008 USA UK Canada Source:OECDincome inequality data base
  • 6. Change in inequality of equivalized income in selected OECD countries 60.2 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 0.38 0.4 Mid 80s cA 1990 Mid 90s ca2000 mid 2000s Latest year Ginicoefficient Evolution of Gini coefficient in selected developed counries : 1985-2008 USA UK Canada Germany Netherlands Source:OECDincome inequality data base
  • 7. Change in inequality of equivalized income in selected OECD countries 70.2 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 0.38 0.4 Mid 80s cA 1990 Mid 90s ca2000 mid 2000s Latest year Ginicoefficient Evolution of Gini coefficient in selected developed counries : 1985-2008 USA UK Canada Sweden Germany Netherlands Source:OECDincome inequality data base
  • 8. Change in inequality of equivalized income in selected OECD countries 80.2 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 0.38 0.4 Mid 80s cA 1990 Mid 90s ca2000 mid 2000s Latest year Ginicoefficient Evolution of Gini coefficient in selected developed counries : 1985-2008 USA UK Canada Sweden Germany Netherlands France Source:OECDincome inequality data base
  • 9. 9 Source: Oecd, disposable income per CU i) Overall change mid 1980s-late 2000s -6 -4 -2 0 2 4 6 8 Ireland Greece Spain France Belgium Austria Denmark Norway Canada Italy Germany USA Sweden Israel Finland Japan UK NewZealand Netherlands Selected OECD countries:overall change in Gini coefficient mid-1980s to 2008 Series1
  • 10. ii) Top (market) incomes in selected developed countries: 1910-2010 10Source: Top incomes 0 5 10 15 20 25 30 35 40 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Percents Year Share of top 5% income in total income: 1920-2009, selected developed countries USA UK France Sweden Japan Source: Top incomes
  • 11. iii) The falling GDP-share of labor in selected OECD countries 0.5 0.55 0.6 0.65 0.7 0.75 0.8 1985 1990 1995 2000 2005 2010 Percent Year Labor share in GDP, selected OECD countries, 1985-2011 France Germany Italy UK USA Japan 11 Source: Oecd
  • 12. b) Inequality trends in developing and emerging countries i. Gini coefficient: disposable income (or consumption expenditures) per capita : Povcal database (World Bank) ii. Share of top 1% in income before taxes and transfers, (Top incomes) iii. GDP-share of labor 12
  • 13. i) Gini coefficient of income/consumption per capita: Asian developing countries 1320 25 30 35 40 45 50 55 60 65 Bangladesh China total India rural India urban Indonesia Pakistan Philipines Thailand Vietnam Mid 80s cA 1990 Mid 90s ca2000 mid 2000s Latest year
  • 14. i) Gini coefficient of income/consumption per capita: Sub-Saharan African countries 14 20 25 30 35 40 45 50 55 60 65 Mid 80s cA 1990 Mid 90s ca2000 mid 2000s Latest year
  • 15. 20 25 30 35 40 45 50 55 60 65 Egypt Iran Jordan Morroco Tunisia Turkey Yemen Mid 80s cA 1990 Mid 90s ca 2000 mid 2000s Latest year i) Gini coefficient of income/consumption per capita: surprising stability in MENA 15
  • 16. i) Gini coefficient of income/consumption per capita: the inverted U in South American countries 16 20 25 30 35 40 45 50 55 60 65 Argentina (urban) Bolivia Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela Mid 80s cA 1990 Mid 90s ca2000 mid 2000s Latest year
  • 17. ii) Top (market) incomes in a few selected emerging countries : 1910-2010 170 5 10 15 20 25 30 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Percents Year Share of top 1% income in total income: 1920-2009, selected emerging countries Sth Africa Argentina India China Indonesia Colombia Source:Top Incomes Mauritius Source: Top Incomes
  • 18. iii) The GDP-share of labor in selected developing countries 18 Source: UN National Accounts 15 20 25 30 35 40 45 50 55 60 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Laborshare(%) Year Labor share in Non-Financial Corporations'value added: selected developing countries: 1994-2011 China Tunisia Morocco Mexico India Egypt Brazil
  • 19. General lessons from the 'tour d'horizon' • High income countries: strong common unequalizing trend, very much due to the top of the distribution over the last one or two decades • Middle and low income countries: No clear common trend in MICs or LICs where data are available but: – Unequalizing trends among several Asian globalizers, among African countries with the most reliable data, in Latin America until 2000, and in transition countries – Clear trend reversal in LAC in the 2000s – Surprising relative stability in MENA 19
  • 20. A key question Why the common unequalizing forces that seem to be present in developed countries do not produce the same effect in most developing and emerging countries? 20
  • 21. 2. Common forces, idiosyncrasy, … or measurement errors? 21 • Common factors are the forces of globalisation, even though they may have different effects on different countries • Idiosyncratic factors are: – Country specific exogenous changes in their economic environment (development and sectoral reallocation of factors, business cycle, demography, natural resource discoveries, commodity prices, …) – Policies affecting , directly or indirectly, the distribution of income, wealth, human capital or the way markets function • Observed changes in inequality result from the (complex) combination of all these factors
  • 22. The distributional forces of globalization Developed countries Middle and low Income Trade: Expansion (Manuf) Commodity prices UN (S,K) ?? Mostly UN but heterog. ?? (Ag/Non Ag) Technical progress: Skill bias "Economies of scale" UN (S,K) UN (TS, K) UN (S,K) UN (TS, K) Factor mobility: FDI Skilled and top-skilled labor Unskilled labor UN (K) EQ (U,S, K) UN (S, K) EQ (U, S) UN (TS) EQ (U) Financial flows UN (K) ?? Macro instability 22 UN/EQ = Un/Equalizing; In brackets : benefiting groups ; U(nskilled), S(killed) Top Skilled (TS), Capital (K)
  • 23. Could there be serious measurement errors? • Inequality rise in developed countries very much due to the top • But the top is very imperfectly observed, especially in developing countries! • Could it be that income distribution statistics in many countries simply miss the rise in inequality? • Also, considerable heterogeneity of the inequality data: are we looking at the right ones? • How come big changes in rK/Y are not accompanied by big changes in distribution? • Why such stability in MENA despite big shocks over the last 30 years (not to mention the very recent years)? 23
  • 24. 0.200 0.250 0.300 0.350 0.400 0.450 0.500 0.550 0.600 1958 1968 1978 1988 1998 2008 Ginicoefficient Year Egypt: Evolution of inequality in consumption expenditure per capita accordingto various sources (Gini): 1959-2010 WIDER POVCAL WYD Data from "All the Ginis" Gini series are not always consistent
  • 25. Conclusion: caution with the the lamppost! • Desperate need for better data: – How to extend the Top Incomes data base ? – How to improve surveys or to combine them with tax records • The top income correction can drastically modify the evaluation of inequality changes (Alveredo) • Existing data are probably correct for poverty measurements much less so for inequality • For inequality, aren't we looking for our keys under the lamppost - i.e. in the light of househod surveys? 25
  • 26. It is not totally dark around the lamppost! • True inequality which and the inequality that we believe for understanding development may be elsewhere in many countries: – Profits unreported in surveys – Embezzlement of natural resources rents .. – … • Together with household survey Ginis, shouldn't we look to a battery of other indicators: – Ratio mean income survey/National Accounts – Labor share in NFCs – GDP share of household income in National Accounts,.. • Imprecise indicators, yes, .. but more accurate 26
  • 27. THANK YOU 27 In summary, a hugely important research priority!
  • 28. The "UUG" hypothesis • Inequality rose in a majority of developed countries, after decades of stability • Analogous rise in a number of emerging countries during the same period… • Hence, the 'universally unequalizing globalization' (UUG) hypothesis: "Globalization, the major economic force affecting all economies in the world, is reshaping national economies and causing more inequality everywhere " • As between inequality falls: is between country inequality in the world being replaced by within-country inequality? Ing 28
  • 29. An unequalizing world? • UUG does not fully fit the evidence, as illustrated in the last 10 years by Latin American countries where inequality actually fell… or by the relative stability in MENA • But it underscores a major point: After decades of near stability the distribution of income is changing, in one direction or the other, in many countries! • Important to understand the common forces behind these changes as well as idiosyncratic factors that can enhance or on the contrary check them. 29