This chart might make you feel better about American inequality

August 15, 2013

If you read Wonkblog and similar sites, you're probably pretty familiar with the basic stats on U.S. income inequality, and its startling rise. According to the CBO, before-tax/transfer income (including compensation like health coverage) grew by 21.6 percent between 1979 and 2009, and after-tax/transfer grew by 19 percent.

But you're probably less familiar with data on global inequality. Partly that's because such data is scarce. The only good source I know of is Branko Milanovic, the lead economist at the World Bank's research group. But the data Milanovic keeps is extremely sobering.

Here's the most recent version of my favorite graph he makes, from a working paper last year. The X axis shows individuals' position in their country's income distribution. It's somewhat confusingly in "ventiles," which are just groups of 5 percentiles. So someone in the first ventile is in the 0th-5th percentile and someone in the 20th is in the 95th-100th percentile. The Y axis shows those individuals' position in the world income distribution.

Give that one a good look since at least for me it took a while to fully sink in. What this is telling us is that in India and Brazil, the poorest people are among the poorest people in the entire world, whereas the richest people are either middle-class, globally speaking, as is the case in India, or are for-real rich, as is the case in Brazil. But if you're in Russia and especially if you're in the United States, the mere fact that you live there means that you are not (with some exceptions) poor in the global sense. The bottom fifth of Americans are still well above the middle of the world income distribution.

The same pattern exists for most big, rich countries. Here's what happens when you compare Germany and Italy to Albania, Argentina and Côte d'Ivoire:

The poorest in Côte d'Ivoire and Argentina are really destitute in a global sense. But the poorest Italians are, like the poorest Americans, at the 60th percentile, and the poorest Germans are nearly at the 80th. I personally think this one, which compares Denmark to a slew of poor African nations and the U.S. to India, is the most vivid of the bunch:

So what does this mean? Well, for one thing, it means that global inequality makes inequality between members of the same country look like baby town frolics.

On the plus side, it isn't rising at the rate that it is in, say, the United States. But it isn't exactly falling either, and its level is nearly double that of the U.S.

This pattern also means that class rank matters far less than location in determining where someone falls in the global income distribution. That's a big change from the 19th century, where class rank predominated. Milanovic argues this means we live in a "non-Marxian world," where the relevant cleavage is not between the proletariat and the owners of capital but between those with the misfortune to be born in poor countries and those with the great fortune not to be. "A proper analysis of global inequality today requires an empirical and mental shift from concerns with class to concerns with location," he writes. "In other words, a movement 'from proletarians to migrants.'"

But it's not all bad news. Milanovic notes that most countries, particularly at the lower and middle sections of the income breakdown, have seen income growth between 1988 and 2008. Those in the upper-middle have stagnated — the so-called "middle income trap" — and those at the very bottom haven't done great, but it's overall a quite positive picture:

And as Laurence Chandy at Brookings and Charles Kenny at the Center for Global Development have noted, this has translated into a remarkable decline in global poverty, one that's on track to continue in decades to come.

Humans have an unfortunate tendency to care more about those physically and/or socially proximate to them and to severely discount the well-being of those whose pain they don't see. Milanovic's data is an important reminder of just how dangerous a blinder that is.

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August 15, 2013

If you read Wonkblog and similar sites, you're probably pretty familiar with the basic stats on U.S. income inequality, and its startling rise. According to the CBO, before-tax/transfer income (including compensation like health coverage) grew by 21.6 percent between 1979 and 2009, and after-tax/transfer grew by 19 percent.

But you're probably less familiar with data on global inequality. Partly that's because such data is scarce. The only good source I know of is Branko Milanovic, the lead economist at the World Bank's research group. But the data Milanovic keeps is extremely sobering.

Here's the most recent version of my favorite graph he makes, from a working paper last year. The X axis shows individuals' position in their country's income distribution. It's somewhat confusingly in "ventiles," which are just groups of 5 percentiles. So someone in the first ventile is in the 0th-5th percentile and someone in the 20th is in the 95th-100th percentile. The Y axis shows those individuals' position in the world income distribution.

Give that one a good look since at least for me it took a while to fully sink in. What this is telling us is that in India and Brazil, the poorest people are among the poorest people in the entire world, whereas the richest people are either middle-class, globally speaking, as is the case in India, or are for-real rich, as is the case in Brazil. But if you're in Russia and especially if you're in the United States, the mere fact that you live there means that you are not (with some exceptions) poor in the global sense. The bottom fifth of Americans are still well above the middle of the world income distribution.

The same pattern exists for most big, rich countries. Here's what happens when you compare Germany and Italy to Albania, Argentina and Côte d'Ivoire:

The poorest in Côte d'Ivoire and Argentina are really destitute in a global sense. But the poorest Italians are, like the poorest Americans, at the 60th percentile, and the poorest Germans are nearly at the 80th. I personally think this one, which compares Denmark to a slew of poor African nations and the U.S. to India, is the most vivid of the bunch:

So what does this mean? Well, for one thing, it means that global inequality makes inequality between members of the same country look like baby town frolics.

On the plus side, it isn't rising at the rate that it is in, say, the United States. But it isn't exactly falling either, and its level is nearly double that of the U.S.

This pattern also means that class rank matters far less than location in determining where someone falls in the global income distribution. That's a big change from the 19th century, where class rank predominated. Milanovic argues this means we live in a "non-Marxian world," where the relevant cleavage is not between the proletariat and the owners of capital but between those with the misfortune to be born in poor countries and those with the great fortune not to be. "A proper analysis of global inequality today requires an empirical and mental shift from concerns with class to concerns with location," he writes. "In other words, a movement 'from proletarians to migrants.'"

But it's not all bad news. Milanovic notes that most countries, particularly at the lower and middle sections of the income breakdown, have seen income growth between 1988 and 2008. Those in the upper-middle have stagnated — the so-called "middle income trap" — and those at the very bottom haven't done great, but it's overall a quite positive picture:

And as Laurence Chandy at Brookings and Charles Kenny at the Center for Global Development have noted, this has translated into a remarkable decline in global poverty, one that's on track to continue in decades to come.

Humans have an unfortunate tendency to care more about those physically and/or socially proximate to them and to severely discount the well-being of those whose pain they don't see. Milanovic's data is an important reminder of just how dangerous a blinder that is.

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Brad Plumer | August 15, 2013