The way we measure income inequality is changing. After years of relying on a complicated metric called the Gini coefficient, some economists argue that we should adopt the Palma ratio, which measures the gap between the rich and the poor in a society. My colleague Dylan Matthews explains how the Palma works and why it might be superior (more on that below).
In the map up top, I've illustrated the latest data on income inequality around the world, as measured by the Palma. The results are pretty revealing. Bluer countries have greater income equality, according to the metric, meaning that there's less of a gap between the rich and the poor. Redder countries have more income inequality, meaning that there's a wider gap. Purple countries are about in the middle -- that includes the United States, which is the most unequal of any developed country measured.
The countries that come out looking best include, no surprise, the usual suspects of Northern Europe. Interestingly, Eastern Europe scores quite highly as well, as do some post-Soviet countries in Central Asia. Perhaps that's a legacy of Soviet-era social programs meant to flatten class divides. But it's also a reminder that, while economic equality is great, it's not synonymous with a healthy economy. Some countries are economically equal because everyone is well-off, as in Denmark, and some because most everyone is equally poor.
The countries with the highest income inequality are, by far, those of Latin America and the southern tip of Africa. These countries have been seeing economic growth over the past few decades, but much of the wealth ends up funneling into the top stratospheres of society. This problem tends to be self-reinforcing: The rich are able to secure better education and political access, making it easier for them to stay rich and tougher for everyone else to get a share of the pie.
The United States doesn't come out of this comparison looking great. It's ranked 44th out of 86 countries, well below every other developed society measured. It's one spot below Nigeria, which has some of the worst political corruption in the world and in 2012 saw nationwide protests over perceived income inequality. The United States' Palma ratio ranks it just beneath Nigeria but above Russia and Turkey -- all countries that have experienced heavy political unrest in recent years.
The data offer a reminder that the United States might enjoy greater economic equality than much of the world, but it is at the bottom end of the developed world. And the Palma ratio actually shows the United States in a more positive light than does the Gini coefficient, which ranks it even lower. To get a better sense of how the United States compares to the rest of the world, here's a map that shows all other countries just relative to the United States. Blue countries are more equal than the United States, red countries are more unequal:
Here's the story with the Palma ratio, which gave us these data. Two economists with the Center for Global Development, Alex Cobham and Andy Sumner of King's College London, make the case for the Palma in a recent paper. They explain that it's much more elegant than the Gini coefficient and better suited at comparing the rich and the poor. The Palma simply compares the richest 10 percent of people with the poorest 40 percent. Their report provides the data mapped out above, supplemented with some numbers from the Danish Institute of International Studies.
Here's a video Cobham and Sumner produced to explain how the Palma ratio works and why they think it's better: