Inequality within countries is very high but it is not rising everywhere. Since 1990, income inequality has increased in most developed countries, whereas it declined in most Latin American countries from 1990 to the early 2010s (although is increasing again in some of them).
2. How is wealth distributed worldwide?
Behold the original "elephant chart". It represents the income growth from the end of the Cold War until (more or less) today. The global elite, in particular the top 1 percent, have enjoyed massive income growth over the past decades (Trunk). The global upper middle class has seen its income stagnate with zero growth over two decades for the 80th (Trough). The global middle class has risen rapidly as select developing countries have begun to converge toward rich countries. Countries like China have lifted large impoverished populations into the middle class (Torso). The global extreme poor have largely been left behind, with several countries stuck in a cycle of poverty and violence (Tail).
However, there are other measurements, like the distribution of household wealth –which comprises ownership of capital, including capital goods (housing, land) and financial capital– which is typically more unequal than the distribution of income. The bottom half (56,6%!!) of the global population owned less than 1 percent of all wealth in 2018, whereas the richest decile (top 10%) owned 85 percent of all wealth and the top 1% alone held almost half of it:
Improvements in labour productivity have not translated into better labour compensation. Wage stagnation is likely to disproportionately harm workers in the middle and at the bottom of the income distribution, while top salaries have risen dramatically.
3. Is inequality inevitable, is somewhat "natural" in a globalized economy?
No, it is not. Global economic, social and environmental forces are certainly affecting the evolution of inequality, but national income dynamics are also shaped by national policies and institutions. Education, health care and labour market policies, for instance, affect the distribution of human capital, skills and wages, and thereby the distribution of market (gross) income.
Those policies are conditioned by taxes and transfers of wealth. The more progressive the
tax system is, the more people living in poverty could benefit from social protection transfers and public services.
Progressive tax systems (top) reduce inequalities by transferring wealth from the upper-income earners to the rest. Direct income and property taxes are usually progressive while indirect taxes, such as VAT, are regressive. The negative effects of indirect taxes on the incomes of people living in poverty can be stronger than the positive effects of public transfers and services.
4. What are the factors of inequality?
The world is far from the goal of equal opportunity for all: circumstances beyond
an individual’s control, such as gender, race, ethnicity, migrant status and, for
children, the socioeconomic status of their parents, continue to affect one’s chances
of succeeding in life. Let's point out a few examples:
In Bolivia, Brazil, Guatemala and Peru, indigenous women and those of African descent are more likely to earn $1 an hour or
less than men from their ethnic group or men and women in the rest of the population.
Students from an immigrant background –both those born abroad, that is, first-generation immigrants, and those born in the country to foreign-born parents, or second generation– score, on average, lower on mathematics, reading and science tests than students without immigrant parents.
Students from socioeconomically disadvantaged backgrounds were nearly three times less likely than socioeconomically advantaged students to attain the minimum level of proficiency in reading. Differences in gender and family background account for up to 35 per cent of differences in scores.
5. But, if education is granted for all, isn't wealth a question of hardwork and merits? 🙋
Infant and early childhood contexts are crucial to understanding the persistence of advantage or disadvantage across the life course and across generations. There are lots of studies that proof that. On average, it would take five generations for the descendants of a low-income family in rich countries to reach their country’s average income level. Children coming from families with more educated parents have more chances to end up with more qualified and better paid jobs compared to their peers with poorly educated parents. Men from a high-income family who have achieved only the lowest level of education have a higher probability of entering the highest income group and a lower probability of entering the lowest income group. And vice versa, there is a strong relationship between low-income family background and lower education achievements.
Therefore, we can establish a strong relationship between the social origins and "success" in academic areas and achieving better paid jobs, that demonstrate that we do not have same opportunities from the starting line.
But, there is another weakness in the "self made-men" theory: Wealth inheritance. No matter how good or bad you are at something, if in the end, your social status relies on how rich were your parents.
6. "Yes, but, who cares? I'm fine! 👿", or What are the prices of inequality?
High inequality is an ethical and moral concern across cultures around the world. Promoting equality is a common ideal, a principle that should be upheld and actively pursued. However, there are instrumental reasons for tackling the issue as well, since high and growing inequality has a range of negative impacts on well-being.
Inequality hurts the economy and society in different ways:
1) Elite groups are more effective at influence policymakers, affecting democracy as whole. They may use their position to lobby in support of their interests. People tend to distrust more each other and institutions in more unequal countries.
2) Inequality among social groups along with other factors has been related with violent conflict and crime.
4) Low incomes reduce the demand, productivity and innovation. For example, higher labour productivity is associated with a lower concentration of labour income at the top.
5) Potential of people at the bottom of the income distribution is lost.
6) Inequality makes a division between people with or without access to health. That implies an economic impact, but overall worst health conditions and less life expectancy in poorer classes.
7. Then, do we have a choice?
Yes, inequality is not "natural" like if it was raining. Policies can differ from one country to another, in developed countries most of the people have access to basic capabilities, but there still exist large inequalities. On the other hand, there are countries with extreme poverty, in contrast with the European countries, for example. Therefore, we could talk about inequality between countries and regions of the World or within a specific country.
Now is your turn to design policies against inequality! How would you redistribute wealth? How would you give equal opportunities to all? Read again question 3, it gives you some clues.
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