Is global income inequality improving, or growing worse? The answer, it seems, depends on how we measure the data.
According to a study published this week in the Review of Income and Wealth by researchers from the UNU World Institute for Development Economics Research (UNU-WIDER), between 1975 and 2010 “relative” global income inequality decreased substantially, in spite of a marked increase in “absolute” income inequality.
The study shows that on a global scale, relative income inequality (as measured by the Gini coefficient) has been declining steadily, from 0.74 in 1975 to 0.63 in 2010. This reduction has been driven primarily by declining inequality between countries — which in turn has been fueled by extraordinary economic growth in fast-developing countries such as China and India.
Within countries, however, absolute income inequality (as captured by the Absolute Gini) has increased dramatically since the mid-1970s.
As a simplistic example of the difference between “relative” and “absolute” income inequality: Suppose that last year Jane’s income was $20,000 while Bill’s income was $80,000. This year, both of them doubled their income: $40,000 for Jane and $160,000 for Bill. On a relative scale, there is no change; Bill’s income was 4 times Jane’s income for both years. But on an absolute scale, the inequality has expanded; last year Bill earned just $60,000 more than Jane while this year he earned $120,000 more.
The study, which utilised data from UNU-WIDER’s World Income Inequality Database (WIID), found substantially differing trends in different regions of the world. Income inequality — both relative and absolute — increased between 1975 and 2010 in North America, Europe, Central Asia, South Asia, and sub-Saharan Africa. But in Latin America, East Asia, and the Pacific, absolute income inequality rose (even though inequality in those three regions fell in relative terms).
The study also found that national-level income inequality within regions varied widely by country during that time frame. While France saw a 16% reduction in relative income inequality, for example, the UK experienced a 38% increase; and while Brazil achieved a 10% reduction, Argentina experienced a 25% increase.
For more about the findings of the study, see the UNU-WIDER press release.