The document discusses inequality, economic growth, and development. It covers several topics: Kuznets and income inequality; real income growth in the USA and top income shares; a global perspective on inequality between 1988-2008 showing rising incomes for the middle class in China and India. It also discusses the root causes of inequality like less progressive tax systems and market failures in education and housing. Strategies to reduce inequality include investing in education, pursuing inclusive pro-poor growth policies, and microfinance. Overall, the document examines inequality from various economic perspectives and proposes approaches to promote shared prosperity across populations.

1. Inequality, Economic Growth and
Development

4. Kuznets and Income Inequality

5. Real Income Growth in the USA

6. Top Decile Income Share in USA

7. A Global Perspective
The vertical axis
shows changes
in real income
between 1988
and 2008,
measured in
2005
international
dollars, i.e.
adjusted for
inflation and
how the cost of
things varies in
different
countries
The horizontal axis
divides the incomes of
the world into
percentiles

8. A Global Perspective
60m or so
people who
constitute the
world’s top 1
per cent
The vertical axis
shows changes
in real income
between 1988
and 2008,
measured in
2005
international
dollars, i.e.
adjusted for
inflation and
how the cost of
things varies in
different
countries
The horizontal axis
divides the incomes of
the world into
percentiles

9. A Global Perspective
The vertical axis
shows changes
in real income
between 1988
and 2008,
measured in
2005
international
dollars, i.e.
adjusted for
inflation and
how the cost of
things varies in
different
countries
60m or so
people who
constitute the
world’s top 1
per cent
New global middle class,
particularly in China and India.
In 2008 earning median
income would put the average
Chinese in the top half of the
global income distribution
The horizontal axis
divides the incomes of
the world into
percentiles

10. We now live in a world
with a bulge around the
median with significantly
rising incomes for the
entire second third (or
more) of the global
income distribution.
That is the new aspiring
global middle class.
We also see growing
wealth and probably
power of those at the
very top and,
remarkably, stagnant
incomes for both the
people just below the
“enchanted” richest 1 or
5 per cent, and those
poorest in the world.
Source: Milosevic, World
Bank, 2013
A Global Perspective

11. Professor Angus Deaton
Inequality is a knotty subject. There
is little agreement on what ought to
be equal. Should it be a measurable
outcome such as income or wealth;
a hazier outcome such as power or
freedom; or a vague aspiration such
as “equality of opportunity”?
It is often said that the world is
becoming more unequal. But it is
less than clear what is meant by
that. Income inequality between
countries has grown over the past
three centuries but it may now be
narrowing between the world’s
people as a whole. (FT 11-10-13)

12. Tax system is
now less
progressive
Cognitive elites
and rising
premium
incomes
Monopoly rent
seeking –
power elites
Root Causes Of
Systemic
market failures
e.g. education /
housing
Regressive
effects of high
inflation
Patchy nature
of state welfare
systems
Widening
urban-rural
income divide

13. Tax system is
now less
progressive
Cognitive elites
and rising
premium
incomes
Monopoly rent
seeking –
power elites
Root Causes Of
Systemic
market failures
e.g. education /
housing
Regressive
effects of high
inflation
Patchy nature
of state welfare
systems
Widening
urban-rural
income divide

14. Tax system is
now less
progressive
Cognitive elites
and rising
premium
incomes
Monopoly rent
seeking –
power elites
Root Causes Of
Systemic
market failures
e.g. education /
housing
Regressive
effects of high
inflation
Patchy nature
of state welfare
systems
Widening
urban-rural
income divide

15. Tax system is
now less
progressive
Cognitive elites
and rising
premium
incomes
Monopoly rent
seeking –
power elites
Root Causes Of
Systemic
market failures
e.g. education /
housing
Regressive
effects of high
inflation
Patchy nature
of state welfare
systems
Widening
urban-rural
income divide

16. Tax system is
now less
progressive
Cognitive elites
and rising
premium
incomes
Monopoly rent
seeking –
power elites
Root Causes Of
Systemic
market failures
e.g. education /
housing
Regressive
effects of high
inflation
Patchy nature
of state welfare
systems
Widening
urban-rural
income divide

17. Tax system is
now less
progressive
Cognitive elites
and rising
premium
incomes
Monopoly rent
seeking –
power elites
Root Causes Of
Systemic
market failures
e.g. education /
housing
Regressive
effects of high
inflation
Patchy nature
of state welfare
systems
Widening
urban-rural
income divide

18. Tax system is
now less
progressive
Cognitive elites
and rising
premium
incomes
Monopoly rent
seeking –
power elites
Root Causes Of
Systemic
market failures
e.g. education /
housing
Regressive
effects of high
inflation
Patchy nature
of state welfare
systems
Widening
urban-rural
income divide

19. Tax system is
now less
progressive
Cognitive elites
and rising
premium
incomes
Monopoly rent
seeking –
power elites
Root Causes Of
Systemic
market failures
e.g. education /
housing
Regressive
effects of high
inflation
Patchy nature
of state welfare
systems
Widening
urban-rural
income divide

20. Branko Milanovic, World Bank
economist and expert on
trends in global inequality
“Half of one’s income depends on the average income
of the country in which that person was born.”
“8% of humanity takes home 50% of global income;
the top 1% alone takes home 15%.”

21. Some countries have made
progress
The richest
300 people
on earth
have more
wealth than
the poorest
3bn - almost
half the
world's
population

22. Rising inequality
2:32:17 PM

23. Inequality in developing countries

24. Economic Effects of Rising Inequality
Social unrest and civil disobedience
• Strikes and demonstrations over poor pay
and conditions at Fox con in China which
produces IPhones and IPads
Self-perpetuating poverty cycle
• Limited access to health care and education
• Volatile incomes, high debts
• Low savings
Misallocation of scarce resources
Capital investment skewed towards
preferences of the rich
Low collateral – limits entrepreneurship
Capital flight by the rich

25. Hon Hai Precision Industry
The company started in
the 1980s in Shenzhen,
near Hong Kong
Now Fox Conn has half a
million workers at inland
factories and half a million
at factories on China’s
eastern coast including
Shenzhen.

26. Economic Effects of Rising Inequality
Social unrest and civil disobedience
• Strikes and demonstrations over poor pay
and conditions at Fox con in China which
produces IPhones and IPads
Self-perpetuating poverty cycle
• Limited access to health care and education
• Volatile incomes, high debts
• Low savings
Misallocation of scarce resources
Capital investment skewed towards
preferences of the rich
Low collateral – limits entrepreneurship
Capital flight by the rich

27. Economic Effects of Rising Inequality
Social unrest and civil disobedience
• Strikes and demonstrations over poor pay
and conditions at Fox con in China which
produces IPhones and IPads
Self-perpetuating poverty cycle
• Limited access to health care and education
• Volatile incomes, high debts
• Low savings
Misallocation of scarce resources
Capital investment skewed towards
preferences of the rich
Low collateral – limits entrepreneurship
Capital flight by the rich

28. Extreme Poverty
Source: http://www.worldbank.org/content/dam/Worldbank/document/Poverty%20documents/inequality-in-focus-october2013-v12.pdf

29. Poverty Reduction Pathways
Source: http://www.worldbank.org/content/dam/Worldbank/document/Poverty%20documents/inequality-in-focus-october2013-v12.pdf

30. Inequality Reduction Strategies
Human Capital Investment
• Improving school enrolment rates
• Improving the quality of teaching
Inclusive Growth Policies
• Raising incomes for people
• Conditional cash transfers as welfare
Micro-Finance
• Small scale loans, gender empowerment
• Micro-insurance to help poorest farmers

31. Poverty Reduction Strategies
Human Capital Investment
• Improving school enrolment rates
• Improving the quality of teaching
Inclusive Growth Policies
• Raising incomes for people
• Conditional cash transfers as welfare
Micro-Finance
• Small scale loans, gender empowerment
• Micro-insurance to help poorest farmers

32. Inequality Reduction Strategies
Human Capital Investment
• Improving school enrolment rates
• Improving the quality of teaching
Inclusive Growth Policies
• Raising incomes for people
• Conditional cash transfers as welfare
Micro-Finance
• Small scale loans, gender empowerment
• Micro-insurance to help poorest farmers

33. Inequality Reduction Strategies
Human Capital Investment
• Improving school enrolment rates
• Improving the quality of teaching
Inclusive Pro-Poor Growth Policies
• Conditional cash transfers as welfare
• Productivity improvements in rural industries
Micro-Finance
Economic growth by itself is only weakly correlated with poverty reduction.
Ravallion (2004) found that a 1% increase in per capita incomes can reduce income
• Small scale loans, gender empowerment
poverty by as much as 4% or by less than 1%, depending on the country as well as
• Micro-insurance to help poorest well as the
the time period. Clearly the pattern of growth matters as farmers pace

34. Inequality Reduction Strategies
Human Capital Investment
• Improving school enrolment rates
• Improving the quality of teaching
Inclusive Pro-Poor Growth Policies
• Conditional cash transfers as welfare
• Productivity improvements in rural industries
Micro-Finance
• Small scale loans, gender empowerment
• Micro-insurance to help poorest farmers

35. Shared Prosperity
Shared prosperity is defined as “fostering income growth of the bottom
40 per cent of the population in every country” (World Bank, 2013).

36. Poverty Reduction Strategies
“There is probably no silver bullet,
one needs to learn from
experience what has worked and
what has not worked, and what
problem what solutions can and
cannot fix.”
Esther Duflo, author of Poor
Economics

37. Cost of Inducing Extra Education
De-worming and
poverty reduction
One billion people in
the world are
infected with worms;
yet there is cheap,
easy mass treatment
This provides a cheap
way of achieving an
extra year of
education especially
in primary schools

38. Addressing rural poverty is key
Source: http://siteresources.worldbank.org/EXTPREMNET/Resources/EP125.pdf

39. Stiglitz on Inequality
I see us entering a world divided not just
between the haves and have-nots, but also
between those countries that do nothing about
it, and those that do. Some countries will be
successful in creating shared prosperity — the
only kind of prosperity that I believe is truly
sustainable. Others will let inequality run amok.
In these divided societies, the rich will hunker in
gated communities, almost completely
separated from the poor, whose lives will be
almost unfathomable to them, and vice versa.
I’ve visited societies that seem to have chosen
this path. They are not places in which most of
us would want to live, whether in their cloistered
enclaves or their desperate shantytowns.
http://opinionator.blogs.
nytimes.com/2013/10/1
3/inequality-is-a-choice/

40. Two Economists on
Inequality

41. Recommended Structure
One Main
Point/Argument
per paragraph
Questions Requiring Evaluation
Analyse / Build
Connectives
Examine
To what extent
Use Supporting
Examples &
Evidence
Then evaluate
the actual point
made
Evaluate
Discuss
Assess

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