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World Income Inequality

Here, courtesy of Catherine Rampell of Economix, is a remarkable chart from Branko Milanovic’s book The Haves and Have Nots. Along the horizontal axis are within-country income percentiles running from the bottom 5% (1st ventile) to the top 5% (20th ventile). Along the vertical axis are world income percentiles.

The graph shows that the bottom 5% of Brazilians are among the poorest people in the world but the top 5% are among the richest. Thus the vertical range of the curve tells us about within-country inequality.

Comparing between countries we see that the poorest 5% of Americans are among the richest people in the world (richer than nearly 70% of other people in the world). The poorest 5% of Americans, for example, are richer than the richest 5% of Indians.

Posted by Alex Tabarrok on January 31, 2011 at 12:21 PM in Data Source, Economics | Permalink

Comments

Is this adjusted for purchasing power?

Posted by: Richard at Jan 31, 2011 12:24:28 PM

Yes.

Posted by: Alex Tabarrok at Jan 31, 2011 12:27:29 PM

Percentile scales don’t show magnitude.

Posted by: Ken Rhodes at Jan 31, 2011 12:44:09 PM

This is truly impressive and it is always amazing the magnitude of the economic mass of the US. Looks to me like a “poor” person in the US is middle class in Brazil. Clearly there is something about the legal / political setup in the US that is a competitive advantage. Let’s hope we keep the system that got us here.

Posted by: BBA at Jan 31, 2011 12:50:56 PM

An immediately impressive chart, demonstrating the reality that the poor in America live far better than the “middle class” in many other countries - far better indeed when you consider the value of public goods, in kind transfers, income enhancements not included in reportable income, low-income discounts, and subsidies.

But when I got to the last sentence that says the bottom 5% of Americans are richer than the richest 5% of Indians, I choked on my coffee. This is obviously not adjusted for purchasing power.

The choice between being poor in Detroit or rich in Delhi - cultural preferences aside, which would you rather be?

Posted by: Six Ounces at Jan 31, 2011 1:02:31 PM

The most interesting thing about it (if it’s accurate) is that in one sense shows the US to have a dramatically more equal distribution than is usually assumed. Rather than calculate the standard deviation of income relative to its own mean, if the standard deviation is calculated relative to the world mean then the US looks much less unequal than, say, Brazil.

Posted by: Jonathan at Jan 31, 2011 1:10:29 PM

How does height of the vertical range rank order with Gini?

Posted by: Steven H. Noble at Jan 31, 2011 1:22:00 PM

Jonathan, take a look at Ken Rhodes’ comment above, and see if you still agree with your own comment. I would add that some of the biggest effects, for the US at least, will be within the top ventile, and thus invisible.

Posted by: Alex R at Jan 31, 2011 1:34:20 PM

“The choice between being poor in Detroit or rich in Delhi - cultural preferences aside, which would you rather be?”

The top 5% in Delhi must not be very rich. Perhaps you have to go to the top 1% in Dehli to find the rich. Or the top .1%. Or the top .01%

Posted by: dirk at Jan 31, 2011 1:37:04 PM

This graph says very little about inequality and in fact it is deceptive. The ratio of the top and bottom 10% of incomes and the Gini index of the US, India, and China are not very different form each other. What it is telling us is the we are a lot richer than the other countries shown of the graph, but I think we already knew that.

Posted by: joan at Jan 31, 2011 1:40:47 PM

It’s income not wealth. In a higher income country it also costs more to buy services.

Posted by: Andrew at Jan 31, 2011 1:45:05 PM

@Andrew — Alex says it is adjusted for PPP.

Posted by: dirk at Jan 31, 2011 1:54:13 PM

Depending on how small you want to break down the categories, you might find that Mexico has the worst inequality because Carlos Slim is so rich while in rural areas there are still people living fairly primitive lifestyles. But does it really matter from a policy perspective how rich certain individuals become? As long as it doesn’t happen at the expense of others, in which case it probably involves some activity that’s already illegal, who cares if Bill Gates is a zillion times richer than me? What if you just looked at the top half and the bottom half inthe US? My guess is there would not be much difference at all, especially compared to the rest of the world. It’s clearly not the case that there is a lower caste of Americans based on socioeconomic status who live in abject poverty with no chance of ever improving. That should be the beginning and the end of the inequality debate. Although we are coming close to that in the case of illegal immigrants and urban children who are forced to attend schools racked by rent-seeking teachers’ unions. And note that those schools’ existence is thanks to the same idiots who sit around whining about how rich some people are.

Posted by: Lou at Jan 31, 2011 1:56:15 PM

I’m sure the words “richest,” “poorest,” and, possibly, “5%” have highly technical meanings for economists compared to their common-parlance definitions. Which is why I’m sure it makes sense to an economist to say “The poorest 5% of Americans, for example, are richer than the richest 5% of Indians.” Even though, for instance, I’m… pretty f-ing positive that India’s richest 5% contain (according to Wikipedia) at least 47 billionaires whereas America’s poorest 5% contain exactly none.

I assume that you mean the *aggregate* wealth of those 5% slices. Which is entirely plausible. And given that 5% of India is around 58 million people, whereas 5% of Americans is around 15 million that’s still pretty impressive overall.

But it is still the case that *within* India’s top 5% there are individuals who’s net worth exceeds the aggregate net worth of tens of thousands of America’s poorest. (Lakshmi Mittal’s $25 billion could make him personally richer than the poorest several hundred thousand Americans!) Meanwhile I would be surprised if there were many individuals in America’s poorest 5% who’s net worth exceeds the aggregate net worth of thousands of the poorest of India’s wealthiest 5%.

At any rate, while “the poorest 5% of Americans, for example, are richer than the richest 5% of Indians” is perfectly true (at certain given definitions of “richest” and “poorest”) it’s the sort of thing that leads to unfortunate but also unfortunately understandable accusations of lying with statistics.

figleaf

Posted by: figleaf at Jan 31, 2011 2:04:26 PM

The reason people are getting hung up when dealing with the richest is that the rich PPP is rarely accurate. In the US, they are buying services that don’t get counted well in the CPI (expensive housing, other positional goods, or personal services) so we overestimate rich people’s wealth here. Conversely, the rich in poorer countries (esp where political influence is more strongly tied to wealth) can more easily buy personal services, political favors, and things like housing location or elite school choice are not fully priced in the market (because social connections determine who gets what/where much more than nominal price relative to the US). [For example, elite Russians can exclude lower income groups from Moscow more easily than Americans who have to pay up to escape to the suburbs. In most countries CEOs and top politicians receive perks that have to be bought on the open market in the US.] Thus raw income figures are liable to be inaccurate when comparing consumption for the top 5% of different countries because positional and social goods are a much larger fraction of their market basket.

Thus, these PPP adjustments probably make more sense for the middle or middling poor. At the lowest income levels, in kind transfers and public goods matter a lot.

Posted by: jn at Jan 31, 2011 2:07:12 PM

And the whole libertarian crowd is totally excited. What news did you expect? The lowest US ventile living below on 1 US$ per day?

Posted by: Stephan at Jan 31, 2011 2:15:49 PM

The vertical access of the portion of the World’s Income is quite unconventional for reporting on inequality. The graph without its corresponding methodology is confusing at best and misleading at worst. By starting the US at 65-69% of the world’s income, it appears to be making use of durable investments. Moreover, the lesser countries are concave up, which is expected for inequality graphs, while the US curve is concave down. This reporting employs at minimum a unique approach to analysing incomes around the world.

Posted by: lan at Jan 31, 2011 2:27:07 PM

I want to like this chart, but if I said “compared to ants, there really is no difference between idiot humans and genius humans,” I expect I wouldn’t get the same response.

Posted by: Dan Weber at Jan 31, 2011 2:40:09 PM

I suspect PPP doesn’t capture what I’m thinking about, although that would take some thinking.

However, it’s still income, not wealth. People present these charts for the implications, and we get the idea that the US is a rich country so we can (a) help our own poor and (b) help the world’s poor. Well, we are partly rich because our poor are relatively rich, and they probably aren’t too keen on sending some of their wealth overseas.

Posted by: Andrew at Jan 31, 2011 2:59:38 PM

We have a highly evolved economy, more dollars exchange hands at a higher velocity, which is different than “wealth” that could be transferred elsewhere. The chart also shows one aspect of TGS, we are already flat-topped, whereas China and possibly India have a ways to before their line overlays ours.

Posted by: Andrew at Jan 31, 2011 3:05:57 PM

“I’m sure the words “richest,” “poorest,” and, possibly, “5%” have highly technical meanings for economists compared to their common-parlance definitions.”

What is so hard to understand about 5%? This isn’t sneaky statistics. 5% means 5%. Richest in the world means richest in the world. Poorest in the world means poorest in the world. If you quibble that income isn’t more or less a good proxy for wealth and standard of living, you are the one imposing highly technical definitions.

Let’s all agree to agree on plain English.

Posted by: dirk at Jan 31, 2011 3:12:33 PM

“The chart also shows one aspect of TGS, we are already flat-topped, whereas China and possibly India have a ways to before their line overlays ours.”

That is a good observation! This chart is strong evidence of TGS. It would be interesting to correlate the vertical length of these lines with country growth rates. Also to compare those correlations with different points in US history. I suspect inequality ~ growth.

Posted by: dirk at Jan 31, 2011 3:21:47 PM

It’s not the most intuitive chart format I’ve seen. How can two countries both have 100% of the world income distribution?

I’m not sure why the first time I’ve ever seen the word ‘ventile’ is on a chart. It’s probably not intended for a broad audience, not that I’m a broad, but I didn’t know the word. I get the feeling people try to make charts novel.

Posted by: Andrew at Jan 31, 2011 3:26:58 PM

The only definition I could find for “ventile”: a high-quality woven cotton fabric first developed during the Second World War for use in pilots’ immersion suits.

“How can two countries both have 100% of the world income distribution?”

Because instead of ranging from single poorest to single richest they are grouped into high-quality woven cotton fabric pilots’ immersion suits.

Posted by: dirk at Jan 31, 2011 3:37:15 PM

poverty in india: 1 meal a day if lucky, protein once a week if lucky

poverty in the US: not having a laptop

i’m joking, but not much. I read “Gangster for a Day”, and the “living conditions” of the supposedly worst area ever in the US are marginally better than the guy who drives your taxi in Delhi.

But that does not mean I would rather be a gangster in Chicago than a taxi driver in Delhi. Life may be more of a pain in the ass in tropics (literally for those with a weak stomach) but it sure is a lot more wholesome.

Posted by: k at Jan 31, 2011 3:43:11 PM

Very much related Caplan post from the other day (linked here as well I believe): http://econlog.econlib.org/archives/2011/01/more_liberaltar.html

Posted by: Anon. at Jan 31, 2011 4:03:26 PM

If the label of your X-axis is not a real word, yoooooouuuuu might be an economist.

Posted by: Andrew at Jan 31, 2011 4:40:34 PM

I had not seen the word ventile before either, but it’s not that hard to interpret. We have deciles, quartiles, quintiles, etc. based on Latin for percentile groups of 10, 25, 20 and so on. It follows that ventiles, from the Latin “viginti” for twenty, are 20 groups of percentiles, or groups of 5 percentiles. And “ventiles” seems a more appropriate label than “vigintiles”, which I can barely type without giggling.

Posted by: Lou at Jan 31, 2011 4:56:01 PM

People who can’t figure out what a ventile is have obviously not been to Starbucks.

Posted by: Stuart at Jan 31, 2011 4:58:47 PM

Twenty in portuguese is “vinte”, quite like the latin origin of the word.

The data from this graph is dated from the year 2000? Because Brazil’s inequality has been decreasing at a fast rate since 2000, today our 20% poorest have twice the income they had 10 years ago.

Posted by: Rafael Guthmann at Jan 31, 2011 5:17:36 PM

“shows the US to have a dramatically more equal distribution than is usually assumed.”

But is there truly anyone, anywhere, that honestly believes that income inequality in the USA is a pressing problem?

It is used all the time as an excuse for more Government power, of course. But I do not see anyone sincerely trying to care about it.

Posted by: Jim at Jan 31, 2011 5:44:03 PM

People are getting too hung up on the second sentence of the last paragraph rather than paying attention to the preceding sentence:

Comparing between countries we see that the poorest 5% of Americans are among the richest people in the world (richer than nearly 70% of other people in the world) (emphasis added).

Posted by: Yancey Ward at Jan 31, 2011 5:51:41 PM

Well this isn’t that surprising.

Posted by: Cheap Clothing at Jan 31, 2011 8:21:12 PM

Isn’t America great? Isn’t it great to be an American? For a minute, I was worried. But now, all is well

Posted by: phew at Jan 31, 2011 8:26:55 PM

There’s something seriously wrong either with the numbers underlying that chart, or with the definition of “among the richest.” Here’s “one of the world’s richest people” living in a cardboard box (http://theiowarepublican.com/home/wp-content/uploads/2010/09/homeless-person1… in Culver City; I don’t think this sort of “poorest American” is buying Guchi bags in China (http://genychina.com/wp-content/uploads/2009/11/china_shopping_article.jpg).>

It’s simply not true. The poorest Americans struggle to get enough to eat; they don’t buy designer handbags. I could understand saying it’s “relatively easy” to be poor in America, but to say the are “among the richest people in the world” is just gibberish. Unless the richest people in the world are living in cardboard boxes and eating spam.

Posted by: L2P at Jan 31, 2011 8:40:06 PM

“People are getting too hung up on the second sentence of the last paragraph rather than paying attention to the preceding sentence:

Comparing between countries we see that the poorest 5% of Americans are among the richest people in the world (richer than nearly 70% of other people in the world) (emphasis added)”

Well, Alex is trying to have his cake and eat it at the same time. He’s trying to say poor Americans are both very rich, and not that rich. I think if Alex wanted to say “the poorest Americans are richer than the poorest people in the rest of the world,” no one would have blinked. That’s not really controversial. That’s also not his strong claim. His strong claim is that “the poorest American’s are among the richest in the world.

Do you see anything to make you think that an upper-class Chinese factory owner would trade places with somebody living in a cardboard box in South Central LA? Do you think any amount of food stamps is going to make anyone make that trade? Do you? Seriously? Really?

*sad head shake*

Posted by: L2P at Jan 31, 2011 8:49:10 PM

L2P,

What do you not understand about 5% ventiles? No one is saying there do not exist some people in the US who are poorer than the richest person in China/India/Brazil. Obviously a homeless man in a box is in the lowest .01% of the American income distribution, while millionaires in China are in the top .1%.

The graph compares 5% bands, not .1% bands.

Posted by: rob at Jan 31, 2011 9:04:58 PM

Do you see anything to make you think that an upper-class Chinese factory owner would trade places with somebody living in a cardboard box in South Central LA?

No, but Americans who live in cardboard boxes don’t do so because they are poor. They do it because they have mental problems or drug problems or somesuch. You’re being ridiculous.

Posted by: Miller at Jan 31, 2011 9:39:02 PM

“The poorest 5% of Americans, for example, are richer than the richest 5% of Indians”

This cannot be true.

Posted by: sanjiv at Jan 31, 2011 10:55:58 PM

Really wish I could see this for wealth instead of income. Wealth disparities utterly dwarf income disparities.

Posted by: Steve Roth at Jan 31, 2011 11:18:55 PM

http://timesofindia.indiatimes.com/india/India-has-no-middle-class/articlesho…

“Noted economist Nancy Birdsall, president of the Center for Global Development, has proposed a new definition of the middle class for developing countries in a forthcoming World Bank publication, Equity in a Globalizing World. Birdsall defines the middle class in the developing world to include people with an income above $10 day, but excluding the top 5% of that country. By this definition, India even urban India alone has no middle class; everyone at over $10 a day is in the top 5% of the country. “

The top 5% of India aren’t as rich as you seem to think.

Posted by: rob at Jan 31, 2011 11:22:51 PM

Sanjiv,

Really, of the richest 5% of Indians (in India), what is their median income? What is the mean?

Posted by: Yancey Ward at Feb 1, 2011 12:02:02 AM

This obviously does not account for the prominent black economy aspect in developing nations. If that were accounted for, the average richest 5% of Indians would probably be close to average richest 15-20% of Americans.

Posted by: Rahul at Feb 1, 2011 12:39:08 AM

@L2P
Your comment, posted at Jan 31, 2011, 8:40:06 PM, is defamatory and libelous towards the Spam industry and Spam producers all over America. Many noble, hardworking, hardbodied American Heroes eat Spam every day, for breakfast, lunch and dinner. They put it on their toast. They slap it ‘twixt two pieces of bread. They slather it on their nipples. This great nation was built on Spam products and would be nothing yea I say NOTHING without it. Please cease and desist from your Satanic Spam-hatred or you will be hearing from our attorneys.
Sincerely,
Americans for Spam Sensitivity (ASS)

Posted by: Americans for Spam Sensitivity at Feb 1, 2011 1:26:57 AM

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