Trends and Patterns in Wealth and Income Size, Spread, and Base James Foster The George Washington University and Oxford University Institutions in Context: Inequality International Workshop University of Tampere, Finland June 3, 2013
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Trends and Patterns in Wealth and Income Size, Spread, and Base
James FosterThe George Washington University
and Oxford University
Institutions in Context: InequalityInternational Workshop
University of Tampere, FinlandJune 3, 2013
Introduction
Which of the following are true?a) We live in a time of unparalleled prosperityb) Global income inequality is fallingc) Income inequality levels in the US have risen steeply over the
last 20 years, as the average income of the lowest 90% has stagnated
d) Global poverty is falling rapidly, due primarily to rapid gains in China and India
e) Wealth inequality is much higher than income inequalityf) Wealth is accumulating rapidly in many poorer countriesg) Higher incomes naturally trickle across to education, health
and other important dimensions of wellbeing
Goal
Provide some data and factsOn income, wealth and moreOver time and space“Just the facts, Ma’am”
SourcesAuthority on income trends and inequality in US and the World: Alvaredo, Facundo, Tony Atkinson, Thomas Piketty and Emmanuel Saez. The World Top Incomes Database. January 5, 2013.http://topincomes.g-mond.parisschoolofeconomics.eu/Useful web resource on both income and wealth inequality from a sociologist’s point of view, with a discussion of the link to power: Domhoff, G. William. Who Rules America? University of California, Santa Cruz. January 5, 2013. <http://www2.ucsc.edu/whorulesamerica/links.html>Classic text on inequality measurement: Foster, James and Amartya Sen. “On Economic Inequality: After a Quarter Century.” Annex to the enlarged edition of On Economic Inequality, by Amartya Sen, Clarendon Press, 1997 (with editions in Japan, India, and Mexico).Newest guide to measuring size, spread and base of the income distribution, out this spring: Foster, James, Suman Seth, Michael Lokshin, Zurab Sajala, and Sergiy Radyakin. A Unified Approach to Measuring Poverty and Inequality: Theory and Practice. The World Bank: April 15, 2013.
SourcesThe authority on global inequality; a very basic introduction: Milanovic, Branko. “Global Income Inequality by the Numbers: in History and Now.” Policy Research Working Paper 6259. The World Bank, November 2012. January 5, 2013. <http://elibrary.worldbank.org/docserver/download/6259.pdf?expires=1357420955&id=id&accname=guest&checksum=51200FC8BEBF79D78AEA47C12460BEE4>Mulligan, Mary Anne (Ed.). Inequality in Focus. The World Bank, April 2012. January 5, 2013. http://siteresources.worldbank.org/EXTPOVERTY/Resources/Inequality_in_Focus_April2012.pdfSharma, Manohar, Gabriela Inchauste, and Juan Feng. “Rising Inequality with High Growth and Falling Poverty.” An Eye on East Asia and Pacific. The World Bank, May 2011. January 5, 2013. http://siteresources.worldbank.org/INTEASTASIAPACIFIC/Resources/226262-1291126731435/EOEA_Manohar_Sharma_May2011.pdfWolff, Edward N. “Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007.” Working Paper No. 589. Levy Economics Institute of Bard College, March 2010. January 5, 2013.
Outline
DefinitionsWealth, IncomeDistributions: Size, Spread, Base
Income: Global and USWealth: Global and USOther Dimensions
DefinitionsBoring Economist
See http://www.youtube.com/watch?v=dxPVyieptwA
Definitions
Wealth or net household worth = value of financial assets stocks, bonds+ value of real assets houses, land- liabilities mortgage, credit card debt
Note A “stock” measured at a point in time
US Example
Wealth
What is missing?Human capital 3x wealthInfrastructure and other wealth held in commonNatural capital
Wealth
Why is wealth important?Source of finance for investmentInsurance against shocksKey form of economic power Think C. VanderbiltCan leverage other forms of power
PoliticalSocialAgenda setting
Definitions
Income = earnings from work, business+ unearned income from dividends, interest, rent, royalties
NoteA “flow” between two points in time
Related conceptsConsumption GDP vs GNI
Definitions
What is missing?Non market itemsOther dimensions of wellbeing
Human Development Index UNDPGross National Happiness Bhutan
Why is income important?A key “means” to other “ends”
ConsumptionSavings and investment
Status and power
Understanding Distributions
Pen’s Parade
Picture by B. Milanovic
Pen’s Parade for Brazil 1990-1995
Source: Ferreira and Litchfield, 1999, "Inequality, Poverty and Welfare, Brazil 1981-1995". LSE Mimeo.
Pen’s Parade
Three AspectsSize, Spread, Base
Measures of Size
1. Average Middle in “income space”The income having the same number of dollars above as below
2. Median Middle in “people space”Income having the same number of persons above as below
Typically Average > Median
Measures of Size
3. Average of top 1% Focuses on upper incomesThe average income of the richest 1/100th of the population
4. Sen average After economist Amartya SenFocuses on lower incomesMotivated by philosopher Rawls who measured the wellbeing
of society based on the condition of the poorest of the poor. (See Matthew 25:40)
Looks at the lower income from each pair of incomes; averages across these lower incomes
Measures of Spread or Inequality
1. Skewness Compares average to median
2. Share of top 1% Compares avg. of top 1% to avg.
3. Gini Compares average to Sen average
NoteAny inequality measure is made up of two measures of sizeOne higher than the otherThe relative spread between the two is inequality
Measures of Base or Poverty
Headcount number of poorHeadcount ratio percentage of poor
Income Global Trends in Size, Spread, and Base
IncomeGlobal Trends in Size
World Income Levels
Source: Data from Atlas of Global Development, © Collins Bartholomew Ltd., 2010.
Country Income Levels
Country Income Levels
Over TimeGapminder FoundationProfessor Hans Rosling
Click here for the evolution of income and health
Paths of China and India
IncomeGlobal Trends in Spread or Inequality
Income Trends and Patterns
Milanovic 2012
Across country averages; not accounting for population size.
Concept 2 InequalityAcross country averages; accounting for population size.
Income Trends and Patterns
Milanovic 2012
Income Trends and Patterns
Milanovic 2012
Income Trends and Patterns
Milanovic 2012
Income Trends and Patterns
Milanovic 2012
Income Trends and Patterns
Milanovic 2012
IncomeGlobal Trends in Base or Poverty
Numbers in Poverty
IncomeUS Trends in Size, Spread, and Base
IncomeUS Trends in Size and Spread
US Average Income1913-2010
US Bottom 90%
US Top 10% Average
US Top 10% Share
US Top 1% Average
US Top 1% Share
Other Countries?
Canada1920-2010
Top 1% Share
UK1908-2010
Top 1% Share
South Africa1943-2010
Top 1% Share
Japan1886-2010
Top 1% Share
India1922-1997
Top 1% Share
Sweden1903-2010
Top 1% Share
Denmark1870-2010
Top 1% Share
China1986-2003
Top 1% Share
IncomeUS Trends in Base or Poverty
Income: US Poverty
Global Trends in Size, Spread and Base
Income: US Poverty
CaveatsSame old poverty line for 60 yearsBased on 70 year old dataAbsolute line does not change over time
Implicit societal value:Poor should not share in income growth
Foster 1998 AER
WealthGlobal Trends in Size and Spread
Wealth Trends and Patterns
Wealth Trends and Patterns
Wealth Patterns
Wealth Trends and Patterns
Wealth Trends and Patterns
Wealth Patterns
Wealth Patterns
Source of Data: Credit Suisse Global Wealth Datebook 2011
Wealth Patterns
Source of Data: Credit Suisse Global Wealth Datebook 2011
Wealth Patterns
Source of Data: Credit Suisse Global Wealth Datebook 2011
Wealth Patterns
Source of Data: Credit Suisse Global Wealth Datebook 2011
Wealth Trends and Patterns
US Wealth
US Trends in Size, Spread and BaseWolff
From the Domhoff website, using data from Wolff 2010
US Equal Opportunity?
From the Domhoff website, using data from Wolff 2010
Inequality Between Races in USBlack/White Age Adjusted Mortality
Year
Log Mortality
Source:CDC and Levine, Foster, et al Public Health Reports (2001)
Introduction
Which of the following are true?a) We live in a time of unparalleled prosperityb) Global income inequality is fallingc) Income inequality levels in the US have risen steeply over the
last 20 years, as the average income of the lowest 90% has stagnated
d) Global poverty is falling rapidly, due primarily to rapid gains in China and India
e) Wealth inequality is much higher than income inequalityf) Wealth is accumulating rapidly in many poorer countriesg) Higher incomes naturally trickle across to education, health
and other important dimensions of wellbeing
Final Thoughts
Which is worse?a) That the top 1% rose so fast recently; or b) That the bottom 90% was virtually unchanged
Thank you
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