Global Economic Inequality: Insights

Global Economic Inequality: Insights

• The World Inequality Report 2022 presents the most up-to-date and complete data on inequality worldwide.
• In 2021, global income amounted to €86 trillion ($122 trillion), while global net assets are included in the calculation.

Income and Wealth Inequality (2021)

• The average adult owns €72,900 ($102,600) per year, but averages mask wide disparities between and within countries.
• The richest 10% of the global population makes 52% of global incomes, while the poorest half makes 8%.
• The top 10% of the global income distribution earns €87,200 ($122,100) per year, whereas the bottom earns €2,800 ($3,920) per year.
• The poorest half of the global population barely owns wealth, owning just 2% of the total.
• The richest 10% of the global population owns 76% of all wealth.
• On average, the poorest half of the population owns PPP € 2,900 per adult, $4,100, and the top 10% own € 550,900 or $771,300 on average.
• The Middle East and North Africa have the most unequal region in the world.
• Europe has the lowest inequality levels.

Key Concepts in Measuring Economic Inequality

• National income is the sum of all incomes received by individuals resident in a given country over a year, including incomes from labor and wealth.
• National wealth is the sum of the value of all assets owned by individuals in a given country, resulting from capital accumulation and price effects

Global Income and Wealth Inequality Between Individuals: Initial Insights

• Most of the statistics focus on the distribution of income or wealth across the global adult population of 5.1 billion individuals (2021), out of a world population of 7.8 billion when children are included.
• The bottom 50% consists of 2.5 billion individual adults.
• Middle 40% represents the population earning more than the bottom 50% but less than the top 10%; that is 2 billion individual adults.
• The global top 10% represents 517 million individual adults.
• The global top 1% comprises the richest 51 million individual adults.
• If all incomes were split perfectly equally (€16,700 per year), then the global bottom 50% would capture a small share of global income, just 8.5%.
• The average bottom 50% earn is just €2,800 per year or €230 per month which is slightly less than one-fifth of the global average.
• The global middle 40% earns 39.5% of the total: €16,500 annually (€1,375 per month)
• The global top 10% earns 52% of the total: €87,200 per year or €7,300 per month.
• Global wealth appears to be even more unequally distributed than global income.
• The poorest half owns just 2% of total net wealth, whereas the richest half owns 98%.
• When measuring global wealth inequality using market exchange rates (MER), the global bottom 50% owns less than 1% of total wealth and the global top 10% nearly 82% of it.

Income and Wealth Inequality Variations

• Global income and wealth inequality between individuals have two components: inequality between countries and within countries.
• Income inequality varies significantly across regions
• Differences in inequality are not well explained by geographic or average income differences.
• Sub-Saharan Africa it has the lowest ratio (0.5, i.e. 50% of global average)
• Latin America, East Asia, and Russia and Central Asia have average incomes at or near the global average
• Europe has a ratio the more than twice which is the global average (215%)
• and in North America it is three times (300%) which is the global average
• North Americans earn 6 to 10 times Sub-Saharan African, South and Southeast Asians
• East Asians earn half of what Europeans

Wealth Inequalities Between World Regions

• It appears that wealth disparities between rich and poor regions are greater than income disparities.
• Sub-Saharan Africans, South and Southeast Asians, and Latin Americans represent around 20-50% of the global average.
• For a given amount of capital, poor regions generate relatively more income than richer ones.
• The Middle East and North Africa is the most unequal region in the world, with the top 10% earning 58% of the total income.
• In East Asia, the top 10% earn 43% of total income, while in Latin America, 55%.
• In Europe, the top 10% income share is 36%.

Regional Inequality levels for bottom 50%

• Regions with the smallest bottom 50% shares are Latin America, the Middle East and North Africa, Sub-Saharan Africa and South, and Southeast Asia.
• These regions display similar inequality levels to the global level.
• There is as much income inequality between world citizens as there is between individuals from Latin America or Sub-Saharan Africa.
• North America, East Asia, and Russia and Central Asia, the bottom 50% share is close to 13%
• European bottom 50% captures 19% of national income.

Income gap for Top 10%

• The top 10% captures 36% of income in Europe while this is 55-58% in the world's most unequal regions.

Income inequality factors

• The degree of inequality within a society is a result of political choices
• It is determined by how a society decides to organize its economy (sets of rights given to and constraints imposed on firms, governments, individuals, and other economic actors).
• Top 10/Bottom 50 (T10/B50) income gap summarizes how societies distribute incomes.
• East Asia, Russia and Central Asia, and North America earn top 10% earn 16 times the amount the poorest half of the population
• Europe had an income gap of 10 in 2020-2021

The Geographical Repartition of Global Incomes

• Europe and North America are almost only present between the top 50% of the distribution and more so in the top 30%.
• Emerging and developing countries can combine both a very large share of extremely poor individuals and a representation among the world's top income groups.

Wealth distribution across world regions

• The average wealth across world regions, in 2021, shows that
• North America is at 390%
• Europe close behind at 230%

Impact of Taxes

• If redistribution (through taxes and transfers) affects inequality.
• Taxes, and the transfers they finance, generally reduce inequality because they redistribute income (or wealth).
• Inequality after redistribution is lower than inequality before taxes worldwide.
• Redistribution is quite high in high-income regions and almost non-existent in low-income regions.
• T10/B50 income gaps reduce from 15-17 before taxes to 9-11 after taxes in Asia. Pre-distribution matters even more.

Extreme Concentration of Capital

• Top 10% wealth shares fall broadly in the 60-80% range in all regions.
• North America, the world's richest region, is also one of the most unequal when it comes to wealth ownership.
• top 1% wealth shares across world regions owned between one quarter in Europe and 35-46% in North and Latin America of total wealth.
• The gap between the wealth of the of the top 10% divided by the average wealth of the bottom 50% is the greatest as bottom 50% income shares approach zero.
• In Mexico, the Top 10% captures 79% of total household wealth, whereas the value is (only) 52% in Norway.

Definitions

• "post-replacement, pre-income tax" income is measured before income and wealth taxes and after the operation of pension and retirement systems.
• “post-tax income" is measured after all income, wealth, and consumption taxes are deducted, and after all non-replacement transfers(e.g. healthcare, disability and housing benefits) are added.
• National wealth is equal to the stock of assets owned by nationals of the country (both in that country and abroad). This wealth can be privately owned (by individuals) or publicly owned (by the state).
• To compare inequality in purchasing power across the globe, this is done by using “Purchasing Power Parity” or “PPP” where incomes earned in different countries are deflated so that purchasing power can accurately be compared.
• Market Exchange Rates or MER also offer helpful means of comparing global wealth inequality

WID and DINA importance

• DINA facilitates the combination of data sources like fiscal data, survey data, wealth data and national accounts to track income and wealth dynamics
• There are a variety of databases available to researchers to analyse income inequality, some databases rely on household surveys which are limited due to self-reported information

Covid crisis impact of inequality

• Europe, Latin America, and South and Southeast Asia recorded the largest drops in national income in 2020
• The World Bank estimates that the pandemic drove about 100 million people into extreme poverty, raising the global total to 711 million in 2021 up from 655 million in 2019
• The impact of the COVID-19 crisis on inequality within countries shows The gap between the very top (0.001%) and the rest of the distribution.
• There is evidence of wealth increasing at the top, and savings increasing largely for these with access to greater incomes.
• Emerging countries experienced significant losses more than developed

Defining economic growth

• Typically refers to the annual evolution of Gross Domestic Product or GDP) which is the value of all goods and services produced in an economy.
• National income is a better measurement in many ways than GDP