World Inequality Report 2018

According to the World Inequality Lab’s World Inequality Report 2018, the richest 1% captured twice as much as the poorest 50% of world population since 1980. In other words, since 1980, 27% of all new income worldwide was captured by the richest 1%, while the poorest 50% captured only 13% of growth.

 The World Inequality Report 2018 relies on a cutting-edge methodology to measure income and wealth inequality in a systematic and transparent manner. By developing this report, the World Inequality Lab seeks to fill a democratic gap and to equip various actors of society with the necessary facts to engage in informed public debates on inequality.

Outlook on global income inequality

Income inequality has increased in nearly all world regions in recent decades, but at different speeds. The fact that inequality levels are so different among countries, even when countries share similar levels of development, highlights the important roles that national policies and institutions play in shaping inequality.

 Income inequality varies greatly across world regions. It is lowest in Europe and highest in the Middle East -Inequality within world regions varies greatly. In 2016, the share of total national income accounted for by just that nation’s top 10% earners (top 10% income share) was 37% in Europe, 41% in China, 46% in Russia, 47% in US-Canada, and around 55%  in sub-Saharan Africa, Brazil, and India. In the Middle East, the world’s most unequal region according to our estimates, the top 10% capture 61% of national income.

 Findings on global wealth inequality

The combination of large privatizations and increasing income inequality within countries has fueled the rise of wealth inequality among individuals. In Russia and the United States, the rise in wealth inequality has been extreme, whereas in Europe it has been more moderate. Wealth inequality has not yet returned to its extremely high early-twentieth-century level in rich countries.

 Increasing income inequality and the large transfers of public to private wealth occurring over the past forty years have yielded rising wealth inequality among individuals. Wealth inequality has not, however, yet reached its early-twentieth-century levels in Europe or in the United States.

The rise in wealth inequality has nonetheless been very large in the United States, where the top 1% wealth share rose from 22% in 1980 to 39% in 2014. Most of that increase in inequality was due to the rise of the top 0.1% wealth owners. The increase in top-wealth shares in France and the UK was more moderate over the past forty years, in part due to the dampening effect of the rising housing wealth of the middle class, and a lower level of income inequality than the United States’.

 Evolution of private and public capital ownership matter for inequality

Economic inequality is largely driven by the unequal ownership of capital, which can be either privately or public owned. We show that since 1980, very large transfers of public to private wealth occurred in nearly all countries, whether rich or emerging. While national wealth has substantially increased, public wealth is now negative or close to zero in rich countries. Arguably this limits the ability of governments to tackle inequality; certainly, it has important implications for wealth inequality among individuals.

 Outlook for India

Deregulation and opening-up reforms in India since 1980s have led to substantial increase in inequality so much that top 0.1% of earners has continued to capture more growth than all those in the bottom 50% combined.

 In 2014, the share of national income captured by India’s top 1% of earners was 22%, while share of top 10% of earners was around 56%. Top 0.1% of earners has continued to capture more growth than all those in the bottom 50% combined. The bottom 50% now have about 15% share in the total income. This rising inequality contrasts to the 30 years following the country’s Independence, when income inequality was widely reduced and the incomes of the bottom 50% grew at a faster rate than the national average.

 Future of global inequality and how to tackle it

World Inequality Report 2018 projects income and wealth inequality up to 2050 under different scenarios. In a future in which “business as usual” continues, global inequality will further increase. Alternatively, if in the coming decades all countries follow the moderate inequality trajectory of Europe over the past decades, global income inequality can be reduced—in which case there can also be substantial progress in eradicating global poverty.

Rising wealth inequality within countries has helped to spur increases in global wealth inequality. If it is assumed that the world trend to be captured by the combined experience of China, Europe and the United States, the wealth share of the world’s top 1% wealthiest people increased from 28% to 33%, while the share commanded by the bottom 75% oscillated around 10% between 1980 and 2016. The continuation of past wealth-inequality trends will see the wealth share of the top 0.1% global wealth owners (in a world represented by China, the EU, and the United States) catch up with the share of the global wealth middle class by 2050.

Global income inequality will also increase if countries prolong the income inequality path they have been on since 1980—even with relatively high income growth predictions in Africa, Latin America, and Asia in the coming three decades. Global income inequality will increase even more if all countries follow the high-inequality trajectory followed by the United States between 1980 and 2016. However, global inequality will decrease moderately if all countries follow the inequality trajectory followed by the EU between 1980 and today.

Going ahead, more equal access to education and well-paying jobs is key to addressing the stagnating or sluggish income growth rates of the poorest half of the population. Governments need to invest in the future to address current income and wealth inequality levels, and to prevent further increases in them.

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