WID.WORLD THE SOURCE FOR GLOBAL INEQUALITY DATA
Global economic inequality: New evidence from the World Inequality Report
Lucas Chancel General coordinator, World Inequality Report Co-director, World Inequality Lab Senior Research Fellow, IDDRI
Report coordinated by: Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez, Gabriel Zucman Harvard Kennedy School -7 September 2018 Three « sticky ideas » on globalization and inequality
§ Reduction of global inequalities since the 1980s thanks to strong growth in the emerging world
§ Trickle down works (the higher the growth at the top, the higher at the bottom) § No serious alternative to rising inequality within countries (it’s due to technology and trade)
à World Inequality Report revisits these claims thanks to novel data spanning over 40 years.
2 World Inequality Report 2018: highlights
§ Report based on WID.world, the most extensive database on the historical evolution of income and wealth distribution. Project regrouping more than 100 researchers over 5 continents. 100% transparent, open source, reproducible.
§ The first systematic assessment of globalization in terms of economic inequality. Despite high growth in emerging countries, global inequality increased since 1980. The top 1% captured twice as much global income growth as bottom 50%.
§ Diverging country inequality trajectories highlight the importance of institutional changes and political choices rather than deterministic forces. This suggests much can be done in the coming decades to promote more equitable growth.
3 This presentation
1. Introduction: the WID.world project
2. Global income inequality dynamics
3. Public vs. private capital dynamics
4. Global wealth inequality dynamics
5. Conclusion: tackling inequality
4 PART I THE WID.WORLD PROJECT AND THE MEASUREMENT OF ECONOMIC INEQUALITY
§ The World Inequality Report 2018 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.
§ The World Inequality Report 2018 relies on the most extensive database on the historical evolution of income and wealth inequality. Our methodology is fully transparent, open access and reproducible. History of the WID.world project
§ Continuation of pioneering work of Kuznets in the 1950s and Atkinson in the 1970s combining fiscal and national accounts data Kuznets, 1953 and Atkinson and Harrison, 1978
§ WID.world started with the publication of historical inequality series based on top income shares series using tax data Piketty 2001, 2003, Piketty-Saez 2003, Atkinson-Piketty 2007; 2010, Alvaredo et al., 2013.
§ In 2011, we released the World Top Incomes Database, gradually extended to over thirty countries and to wealth Alvaredo et al., 2013, Saez-Zucman , 2016, Alvaredo-Atkinson-Morelli, 2016, etc.
6 WID.world today
§ New website WID.world launched January 2017: collaborative effort
§ Key novelty: we combine National accounts, tax data and surveys in a systematic manner à Distributional National Accounts (DINA, cf. Alvaredo et al. 2016)
§ Three major extensions underway 1. Emerging countries 2. Entire distribution, from bottom to top 3. Wealth distribution and not only income distribution
7 WID.world today
§ Constantly extending database on the historical evolution of income and wealth • Income shares, averages, thresholds: 80 countries • Wealth income ratios, wealth distribution: 30 countries • Net National Income, CFC, GDP: 190 countries
§ All computer codes, technical papers available online: 100% reproducible data
§ Open access, multi-lingual website and visualization tools • Chinese, English, French, Spanish : reach more than 3 billion people
§ State of the art tools for inequality research • GPINTER package: manipulate distributions online • Stata and R packages: access our data from Stata directly
8 PART II GLOBAL INCOME INEQUALITY DYNAMICS
§ The top 1% captured twice as much global income growth as the bottom 50% since 1980
§ We observe rising inequality between world individuals, despite growth in the emerging world
§ Different national trajectories show rising global inequality is not inevitable Towards a global distribution of income and wealth
§ Official statistics do not provide an adequate picture of global inequality § Official data mostly based on self-reported survey & underestimates inequality § No global distribution based on systematic combination of top and bottom income or wealth data (National accounts, tax, surveys and wealth rankings)
§ WID.world follows a step-by-step approach towards a consistent global distribution of income and wealth § We only aggregate countries for which we have consistent series, in line with Distributional National Accounts § We confirm and amplify the « Elephant curve » pattern (Lakner-Milanovic) with more systematic use of tax and national accounts data.
10 ExEcuTIvE SummaRy
II. What are our neW fIndIngS on global Income InequalIty?
We show that 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 develop- ment, highlights the important roles that national policies and institutions play in shaping inequality.
Income inequality varies greatly across In recent decades, income inequality world regions. It is lowest in Europe has increased in nearly all countries, and highest in the middle East. but at different speeds, suggesting ▶ Inequality within world regions varies that institutions and policies matter in greatly. In 2016, the share of total national shaping inequality. income accounted for by just that nation’s ▶ since 1980, income inequality has top 10% earners (top 10% income share) increased rapidly in north america, china, was 37% in Europe, 41% in China, 46% in India, and Russia. Inequality has grown russia, 47% in us-canada, and around moderately in europe (Figure E2a). From a 55% in sub-Saharan Africa, Brazil, and broad historical perspective, this increase in india. in the middle east, the world’s most inequality marks the end of a postwar egali- unequal region according to our estimates, tarian regime which took different forms in the top 10% capture 61% of national income these regions. (Figure E1). Income inequality varies widely across world regions Figure E1 Top 10% national income share across the world, 2016
70% 61% 60% 54% 55% 55%
50% 46% 47% 41% 40% 37%
30%
20% Share of national income (%) income national of Share
10%
0% Europe China Russia US-Canada Sub- Brazil India Middle East Saharan Africa
Source: WID.worldSource: (2017). World See Inequality wir2018.wid.worldReport 2018, Figure for data 2.1.1. series See andwir2018.wid.world notes. for data sources and notes. 11 In 2016, 37% of national income was received by the Top 10% in Europe against 61% in the Middle-East.
World inequaliTy rePorT 2018 5 ExEcuTIvE SummaRy
Income inequality rises almost everywhere, but at different speeds Figure E2a Top 10% income shares across the world, 1980–2016: Rising inequality almost everywhere, butTop at 10% different income speedsshares across the world, 1980-2016
60%
India 50% US-Canada Russia China 40% Europe
30% Share of national income (%) income national of Share
20%
1980 1985 1990 1995 2000 2005 2010 2015
Source: WID.worldSource: (2017). World SeeInequality wir2018.wid.worldReport 2018, Figure for data 2.1.1. series See wir2018.wid.world and notes. for data sources and notes. 12 In 2016, 47% of national income was received by the top 10% in US-Canada, compared to 34% in 1980.
▶ There are exceptions to the general and the united states, which had similar levels pattern. in the middle east, sub-saharan of inequality in 1980 but today are in radically africa, and brazil, income inequality has different situations. While the top 1% income remained relatively stable, at extremely share was close to 10% in both regions in 1980, high levels (Figure E2b). Having never gone it rose only slightly to 12% in 2016 in Western through the postwar egalitarian regime, these europe while it shot up to 20% in the united regions set the world “inequality frontier.” states. meanwhile, in the united states, the bottom 50% income share decreased from more ▶ The diversity of trends observed across than 20% in 1980 to 13% in 2016 (Figure E3). countries since 1980 shows that income inequality dynamics are shaped by a variety ▶ The income-inequality trajectory observed of national, institutional and political contexts. in the United States is largely due to massive educational inequalities, combined with a tax ▶ This is illustrated by the different trajec- system that grew less progressive despite tories followed by the former communist a surge in top labor compensation since or highly regulated countries, China, India, the 1980s, and in top capital incomes in and russia (Figure E2a and b). The rise in the 2000s. continental europe meanwhile inequality was particularly abrupt in russia, saw a lesser decline in its tax progressivity, moderate in China, and relatively gradual in while wage inequality was also moderated India, refecting different types of deregula- by educational and wage-setting policies tion and opening-up policies pursued over the that were relatively more favorable to low- past decades in these countries. and middle-income groups. In both regions, income inequality between men and women ▶ The divergence in inequality levels has been has declined but remains particularly strong particularly extreme between Western europe at the top of the distribution.
6 World inequaliTy rePorT 2018 ExEcuTIvE SummaRy Is the world moving towards the high inequality frontier? Figure E2b Top 10% income shares across the world, 1980–2016: Is world inequality moving towards the high-inequalityTop 10% income frontier?shares across the world, 1980-2016
70%
60% Middle East India Brazil 50% Sub-Saharan Africa 40% US-Canada Russia 30% China
Share of national income (%) income national of Share Europe 20%
1980 1985 1990 1995 2000 2005 2010 2015
Source: WID.worldSource: (2017). World Inequality See wir2018.wid.worldReport 2018, Figure for 2.1.1. data See serieswir2018.wid.world and notes. for data sources and notes. 13 In 2016, 55% of national income was received by the Top 10% earners in India, against 31% in 1980.
How has inequality evolved in recent decades among global citizens? We pro- vide the first estimates of how the growth in global income since 1980 has been distributed across the totality of the world population. The global top 1% earners has captured twice as much of that growth as the 50% poorest individuals. The bottom 50% has nevertheless enjoyed important growth rates. The global mid- dle class (which contains all of the poorest 90% income groups in the EU and the United States) has been squeezed.
at the global level, inequality has risen north american and european lower- and sharply since 1980, despite strong middle-income groups. growth in china. ▶ The poorest half of the global popula- ▶ The rise of global inequality has not been tion has seen its income grow signifcantly steady. While the global top 1% income share thanks to high growth in Asia (particularly increased from 16% in 1980 to 22% in 2000, in china and india). however, because it declined slightly thereafter to 20%. The of high and rising inequality within coun- income share of the global bottom 50% has tries, the top 1% richest individuals in oscillated around 9% since 1980 (Figure E5). the world captured twice as much growth The trend break after 2000 is due to a reduc- as the bottom 50% individuals since tion in between-country average income 1980 (Figure E4). Income growth has inequality, as within-country inequality has been sluggish or even zero for individuals continued to increase. with incomes between the global bottom 50% and top 1% groups. This includes all
World inequaliTy rePorT 2018 7 aPPendIx
In this representation of global income inequality dynamics discussed in Chapter 2.1, we scale the horizontal axis by population size, meaning that the distance between different points on the x-axis is proportional to the size of the population of the corre- sponding income group. (See box 2.1.1) The global elephant curve of inequality and growth: scaling by population Figure a1 total income growth by percentile across all world regions, 1980–2016: scaled by population
250%
200% Prosperity of the global 1%
150%
100% Rise of emerging countries
50% Real income growth per adult (%)
Squeezed bottom 90% In the US & Western Europe 0% 10 20 30 40 50 60 70 80 90 100 Income group (percentile) Source: Chancel & Piketty (2017). See wir2018.wid.world for data series and notes. 14 This graph is scaledSource: by World population Inequality size,Report meaning 2018, that Appendix the distanceFigure between A1. See differentwir2018.wid.world points on forthe data x-axis sources is proportional and notes. to the size of the population of the corre- sponding income group. The income group p0p1 (lowest percentile), for instance, occupies 1% of the size of the x-axis. On the horizontal axis, the world population is divided into a hundred groups of equal population size and sorted in ascending order from left to right, according to each group's income level. The Top 1% group is divided into ten groups, the richest of these groups is also divided into ten groups, and the very top group is again divided into ten groups of equal population size. The vertical axis shows the total income growth of an average individual in each group between 1980 and 2016. For percentile group p99p99.1 (the poorest 10% among the richest 1% of global earners), growth was 74% between 1980 and 2016. The Top 1% of income earners captured 27% of total growth over this period. Income estimates account for differences in the cost of living between countries. Values are net of infation.
World inequality report 2018 293 aPPendIx
In this representation of global income inequality dynamics discussed in Chapter 2.1, we scale the horizontal axis by the share of growth captured by income group, meaning that the distance between different points on the x-axis is proportional to the share of growth captured by the corresponding income group. (See box 2.1.1) Does high income growth for the top 1% really matter? Scaling by share of growth Figure a2 total income growth by percentile across all world regions, 1980–2016: scaled by share of growth captured
250% Bottom 50% Top 1% captured 12% captured 27% of total growth of total growth 200%
Prosperity of Rise of the global 1% 150% emerging countries
100%
50% Real income growth per adult (%)
Squeezed bottom 90% In the US & Western Europe 0% 10 40 50 60 70 80 90 99 99.9 100 Income group (percentile) Source: Chancel & Piketty (2017). See wir2018.wid.world for data series and notes. This graph is scaled Source:by the share World of Inequality growth capturedReport 2018, by income Appendix group,Figure meaning A1. See thatwir2018.wid.world the distance between for data different sources points and on notes. the x-axis is proportional to the share of 15 growth captured by the corresponding income group. The top 0.001% (p99.999p100), for instance, captured 3.6% of total growth. Therefore, the distance between p99.999 and p100 (the last two points of this graph) corresponds to 3.6% of the total size of the x-axis. On the horizontal axis, the world population is divided into a hundred groups of equal population size and sorted in ascending order from left to right, according to each group's income level. The Top 1% group is divided into ten groups, the richest of these groups is also divided into ten groups, and the very top group is again divided into ten groups of equal population size. The vertical axis shows the total income growth of an average individual in each group between 1980 and 2016. For percentile group p99p99.1 (the poorest 10% among the richest 1% of global earners), growth was 74% between 1980 and 2016. The Top 1% of income earners captured 27% of total growth over this period. Income estimates account for differences in the cost of living between countries. Values are net of infation.
294 World inequality report 2018 trends in Global inCome inequality Part II The bottom 50% grew… but the top 1% captured twice more total growth.
Figure 2.1.4 total income growth by percentile across all world regions, 1980–2016
250% Bottom 50% Top 1% captured 12% captured 27% of total growth of total growth 200%
Prosperity of the global 1% 150%
100% Rise of emerging Squeezed bottom 90% countries in the US & Western Europe 50% Real income growth per adult (%)
0% 10 20 30 40 50 60 70 80 90 99 99.9 99.99 99.999 Income group (percentile)
Source: WID.world (2017). See wir2018.wid.world for more details. Source: World Inequality Report 2018, Figure 2.1.4. See wir2018.wid.world for data sources and notes. 16 On the horizontal axis, the world population is divided into a hundred groups of equal population size and sorted in ascending order from left to right, according to each group's income level. The Top 1% group is divided into ten groups, the richest of these groups is also divided into ten groups, and the very top group is again divided into ten groups of equal population size. The vertical axis shows the total income growth of an average individual in each group between 1980 and 2016. For percentile group p99p99.1 (the poorest 10% among the world's richest 1%), growth was 74% between 1980 and 2016. The Top 1% captured 27% of total growth over this period. Income estimates account for differences in the cost of living between countries. Values are net of infation.
growth. The top 1% captured 23% of total The next step of the exercise consists of adding growth over the period—that is, as much as the populations and incomes of russia the bottom 61% of the population. such (140 million), Brazil (210 million), and the fgures help make sense of the very high Middle East (410 million) to the analysis. These growth rates enjoyed by Indians and Chinese additional groups bring the total population sitting at the bottom of the distribution. now considered to more than 4.3 billion indi- Whereas growth rates were substantial viduals—that is, close to 60% of the world total among the global bottom 50%, this group population and two thirds of the world adult captured only 14% of total growth, just population. The global growth curve presented slightly more than the global top 0.1%—which in Appendix Figure A2.3 is similar to the captured 12% of total growth. Such a small previous one except that the “body of the share of total growth captured by the bottom elephant” is now shorter. This can be explained half of the population is partly due to the fact by the fact that russia, the middle east, and that when individuals are very poor, their Brazil are three regions which recorded low incomes can double or triple but still remain growth rates over the period considered. relatively small—so that the total increase in Adding the population of the three regions also their incomes does not necessarily add up at slightly shifts the “body of the elephant” to the the global level. But this is not the only expla- left, since a large share of the population of the nation. incomes at the very top must also be countries incorporated in the analysis is neither extraordinarily high to dwarf the growth very poor nor very rich from a global point of captured by the bottom half of the world view and thus falls in the middle of the distribu- population. tion. In this synthetic global region, the top 1%
World inequality report 2018 51 Reconciling different narratives on global income inequality dynamics: limits of the Gini
Top 10% to Middle 40% average income
Gini coefficient
Middle 40% to Bottom 50% average income
17 trends in Global inCome inequality Part II The bottom 50% grew… but the top 1% captured twice more total growth.
Figure 2.1.4 total income growth by percentile across all world regions, 1980–2016
250% Bottom 50% Top 1% captured 12% captured 27% of total growth of total growth 200%
Prosperity of the global 1% 150%
100% Rise of emerging Squeezed bottom 90% countries in the US & Western Europe 50% Real income growth per adult (%)
0% 10 20 30 40 50 60 70 80 90 99 99.9 99.99 99.999 Income group (percentile)
Source: WID.world (2017). See wir2018.wid.world for more details. Source: World Inequality Report 2018, Figure 2.1.4. See wir2018.wid.world for data sources and notes. 18 On the horizontal axis, the world population is divided into a hundred groups of equal population size and sorted in ascending order from left to right, according to each group's income level. The Top 1% group is divided into ten groups, the richest of these groups is also divided into ten groups, and the very top group is again divided into ten groups of equal population size. The vertical axis shows the total income growth of an average individual in each group between 1980 and 2016. For percentile group p99p99.1 (the poorest 10% among the world's richest 1%), growth was 74% between 1980 and 2016. The Top 1% captured 27% of total growth over this period. Income estimates account for differences in the cost of living between countries. Values are net of infation.
growth. The top 1% captured 23% of total The next step of the exercise consists of adding growth over the period—that is, as much as the populations and incomes of russia the bottom 61% of the population. such (140 million), Brazil (210 million), and the fgures help make sense of the very high Middle East (410 million) to the analysis. These growth rates enjoyed by Indians and Chinese additional groups bring the total population sitting at the bottom of the distribution. now considered to more than 4.3 billion indi- Whereas growth rates were substantial viduals—that is, close to 60% of the world total among the global bottom 50%, this group population and two thirds of the world adult captured only 14% of total growth, just population. The global growth curve presented slightly more than the global top 0.1%—which in Appendix Figure A2.3 is similar to the captured 12% of total growth. Such a small previous one except that the “body of the share of total growth captured by the bottom elephant” is now shorter. This can be explained half of the population is partly due to the fact by the fact that russia, the middle east, and that when individuals are very poor, their Brazil are three regions which recorded low incomes can double or triple but still remain growth rates over the period considered. relatively small—so that the total increase in Adding the population of the three regions also their incomes does not necessarily add up at slightly shifts the “body of the elephant” to the the global level. But this is not the only expla- left, since a large share of the population of the nation. incomes at the very top must also be countries incorporated in the analysis is neither extraordinarily high to dwarf the growth very poor nor very rich from a global point of captured by the bottom half of the world view and thus falls in the middle of the distribu- population. tion. In this synthetic global region, the top 1%
World inequality report 2018 51 § Key question: are we sure that the enormous rise of the global 1% was necessary for the growth of the bottom 50%? § Answer: No.
§ A careful analysis of country-level growth and inequality trajectories suggest that it is possible to combine higher growth and lower inequality. • US vs Europe: huge rise of inequality in US, but stagnation of bottom 50% average income • India vs China: higher rise in inequality in India, but less growth
19 ExEcuTIvE SummaRy
Figure E3 Top 1% vs. Bottom 50% national income shares in the US and Western Europe, 1980–2016: Diverging income inequality trajectories
US 22%
20%
18% Top 1% US
16%
14% Share of national income (%) income national of Share US vs Europe: huge rise of inequality in the12% US but stagnation of bottom 50% averageBottom 50% income US 10% ExEcuTIvE SummaRy 1980 1985 1990 1995 2000 2005 2010 2015
Source: WID.world (2017). See wir2018.wid.world for data series and notes. Figure E3 In 2016, 12% of national income was received by the top 1% in Western Europe, compared to 20% in the United States. In 1980, 10% of national income was received by the top 1% in Western Europe, compared to 11% in the United States. Top 1% vs. Bottom 50% national income shares in the US and Western Europe, 1980–2016: DivergingTop 1% income vs. inequality bottom trajectories50% in the US and Western Europe, 1980-2016 Western Europe US 24% 22%
22% 20% 20% Bottom 50% Western Europe 18% Top 1% US 18%
16% 16%
14% 14%
12% Share of national income (%) income national of Share Share of national income (%) income national of Share 12% Bottom 50% US 10% Top 1% Western Europe 10% 8% 1980 1985 1990 1995 2000 2005 2010 2015 1980 1985 1990 1995 2000 2005 2010 2015
Source: WID.world (2017). See wir2018.wid.world for data series and notes. Source: WID.world (2017). See wir2018.wid.world for data series and notes. In 2016, 12%Source: of national World income Inequality was receivedReport by the top 2018, 1% in FigureWestern 2.1.3. Europe, See comparedwir2018.wid.world to 20% in the United for States. data In sources1980, 10% and of national notes. income was received by the top 1% in Western Europe, compared to 11% in the United States. In 2016, 22% of national income was received by the Bottom 50% in Western Europe.
Western Europe 24%
8 World inequaliTy rePorT 2018 22% 20
20% Bottom 50% Western Europe 18%
16%
14%
12% Share of national income (%) income national of Share
10% Top 1% Western Europe 8% 1980 1985 1990 1995 2000 2005 2010 2015
Source: WID.world (2017). See wir2018.wid.world for data series and notes. In 2016, 22% of national income was received by the Bottom 50% in Western Europe.
8 World inequaliTy rePorT 2018 aPPendIx
This graph shows the evolution of top 1% and bottom 50% income shares in India and China. It is an example of the additional graphs which can be produced online on wid. world and which are discussed in the various methodological documents referred to in the report.
Figure a4 top 1% vs. bottom 50% income shares in China and India, 1980–2015
China 25%
Bottom 50% 20%
15% aPPendIx Top 1% India vs China: higher rise in inequality in 10%India, but less growth Share of national income (%) income national of Share This graph shows the evolution of top 1% and bottom 50% income shares in India and China. It is an example of the additional graphs which can be produced online on wid. world and which are discussed in the various methodological documents referred to in 5% the report. 1980 1985 1990 1995 2000 2005 2010 2015
FigureTop a4 1% vs. bottom 50% in China vs. India, 1980-2016 Source: WID.world (2017). See wir2018.wid.world for data series and notes. top 1% vs. bottom 50% income shares in China and India, 1980–2015 In 2015, the Top 1% national income share was 13.9% in China.
China India 25% 25%
Bottom 50% Bottom 50% 20% 20%
15% 15%
Top 1% 10% 10% Top 1% Share of national income (%) income national of Share Share of national income (%) income national of Share
5% 5% 1980 1985 1990 1995 2000 2005 2010 2015 1980 1985 1990 1995 2000 2005 2010 2015
Source: WID.world (2017). See wir2018.wid.world for data series and notes. Source: WID.world (2017). See wir2018.wid.world for data series and notes. In 2015, the Top 1% national income share was 13.9% in China. Source: World Inequality Report 2018, Appendix Figure A4. See wir2018.wid.world for data sources and notes. India 25%
Bottom 50% 296 World inequality report 2018
20% 21
15%
10% Top 1% Share of national income (%) income national of Share
5% 1980 1985 1990 1995 2000 2005 2010 2015
Source: WID.world (2017). See wir2018.wid.world for data series and notes.
296 World inequality report 2018 Diverging trajectories among similar regions highlight importance of policy
§ US vs. EU : similar levels of development, size, exposure to globalization and to new technologies since 1980. Radically diverging inequality trajectories due to different institutional and policy choices (less progressive taxation, unequal education, falling minimum wage, etc.).
• US-Canada: average income grew by 63% btw 1980 and 2016, and bottom 50% by 5%; Europe: average income grew by 40%, and bottom 50% by 26%.
22 Diverging trajectories among similar regions highlight importance of policy
§ China vs. India: rise in inequality in both countries but was extreme in India, moderate in China. More investments in education, health, infrastructure for the bottom 50% in China. • China: average income grew by 831%, and bottom 50% by 417%; India: average income grew by 223%, and bottom 50% by 107%.
§ NB: none of the above countries meets new SDG targets (bottom 40% is supposed to grow faster than the average)
23 Part III PUBLIC VERSUS PRIVATE CAPITAL DYNAMICS
§ 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. exeCutIve summary
iii. w hy does the 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 implica- tions for wealth inequality among individuals.
over the past decades, countries have ▶ the ratio of net private wealth to net become richer but governments have national income gives insight into the total become poor. value of wealth commanded by individuals in Countries have become richer, but governments have become poor. Figure e6 the rise of private capital and the fall of public capital in rich countries, 1970–2016
800%
700% Private capital
600% Spain UK
500% Japan France
400% US Germany 300%
200% Public capital 100%
0% Value of net public and private wealth (% of national income) -100% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: World Inequality Report 2018, Figure E6. See wir2018.wid.world for data sources and notes. Source: WID.world (2017). See wir2018.wid.world for data series and notes. 25 In 2015, the value of net public wealth (or public capital) in the US was negative (-17% of net national income) while the value of net private wealth (or private capital) was 500% of national income. In 1970, net public wealth amounted to 36% of national income while the fgure was 326% for net private wealth. Net private wealth is equal to new private assets minus net private debt. Net public wealth is equal to public assets minus public debt.
14 World inequality report 2018 exeCutIve summary
a country, as compared to the public wealth wealth–income ratios in these countries are held by governments. The sum of private and approaching levels observed in France, the public wealth is equal to national wealth. the uk, and the united states. balance between private and public wealth is a crucial determinant of the level of inequality. ▶ Conversely, net public wealth (that is, public assets minus public debts) has declined in nearly ▶ There has been a general rise in net private all countries since the 1980s. in China and wealth in recent decades, from 200–350% russia, public wealth declined from 60–70% of national income in most rich countries in of national wealth to 20–30%. net public 1970 to 400–700% today. This was largely wealth has even become negative in recent unaffected by the 2008 fnancial crisis, or by years in the united states and the uk, and is the asset price bubbles seen in some coun- only slightly positive in Japan, Germany, and tries such as Japan and spain (Figure E6). in france (Figure e7). This arguably limits govern- China and russia there have been unusually ment ability to regulate the economy, redis- large increases in private wealth; following tribute income, and mitigate rising inequality. their transitions from communist- to capi- The only exceptions to the general decline in talist-oriented economies, they saw it public property are oil-rich countries with large quadruple and triple, respectively. private sovereign wealth funds, such as Norway.
… in China the share of public capital in national capital is now comparable to rich countries Figure during e7 the mixed-economy period (1950-1980). the decline of public capital, 1970–2016
70%
60%
50% China France 40% Germany 30% Japan UK 20% US
10%
0%
Value of net public wealth (% of-10% national wealth) 1978 1983 1988 1993 1998 2003 2008 2013
Source: WID.worldSource: (2017). World See Inequality wir2018.wid.worldReport 2018, for Figure data E7. series See wir2018.wid.worldand notes. for data sources and notes. 26 In 2015, the share of public wealth in national wealth in France was 3%, compared to 17% in 1980.
World inequality report 2018 15 Part IV GLOBAL WEALTH INEQUALITY DYNAMICS
§ Wealth data remains particularly opaque around the globe.
§ The combination of rising income inequality and large transfers of public to private wealth led to a steep rise in wealth inequality in Russia, US, CN since 1980.
§ Wealth inequality rose at a more moderate speed in FR, UK, partly due to dampening effect of housing prices. trends in Global Wealth inequality Part Iv Combination of rising income inequality and transfers of public to private wealth contributed to rise in wealth inequality after historical decline (1920-1970) Figure 4.2.1 80% top 1% personal wealth share in emerging and rich countries, 1913–2015
70%
60% China France 50% Russia UK 40% US 30%
20%
Share of personal wealth (%) wealth personal of Share 10%
0% 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Source: World Inequality Report 2018, Figure 4.2.1. See wir2018.wid.world for data sources and notes. Source: WID.world (2017). See wir2018.wid.world for data series and notes. 28 In 2015, the Top 1% wealth share was 43% in Russia against 22% in 1995.
market, and by 2002, 85% of urban housing in China and from 39% to 25% over the same was privately-owned. this property privati- period in russia. While the fall was more zation process was very unequal as access pronounced in China, it was initially more to quoted and unquoted housing assets abrupt in russia than in China, however, due often depended on how wealthy and politi- to the aftereffects of hyperinfation that cally connected the household was, with the followed price liberalization in 1992 and wealthiest end of the distribution able to wiped out savings. access privatized public wealth more easily through official markets. In contrast, the growing inequality of income and Russians took a more gradual approach to savings rates have caused rapid wealth property privatization. tenants were typi- concentration in the united states cally given the right to purchase their housing unit at a relatively low price and did not need the rise of wealth inequality in the united to exercise this right immediately, while states was less abrupt, but no less spectac- uncertainty surrounding the macroeconomic ular in historical terms, than the increases and political environment also meant many experienced in the former communist coun- russian households waited until the late tries. Wealth inequality in the united states 1990s and even the 2000s to exercise this fell considerably from the high levels of the right. Consequently, the property privatiza- Gilded Age by the 1930s and 1940s, due to tion process had a small dampening effect drastic policy changes that were part of the on the rise of wealth inequality. the shares New Deal. The development of very progres- of the middle 40% defned as the top 50% sive income and estate taxation made it excluding the top 10% fell in both countries much more diffcult to accumulate and pass across the period. Interestingly, the group’s on large fortunes. Financial regulation share fell in similar proportions in China and sharply limited the role of fnance and the in russia, from 43% in 1995 to 26% in 2015 ability to concentrate wealth as in the Gilded
World inequality report 2018 207 Part IV TACKLING GLOBAL INEQUALITY
• The future of global inequality depends on convergence forces (rapid growth in emerging countries) and divergence forces (rising inequality within countries). No one knows which of these forces will dominate and whether current trends are sustainable.
• Under « Business as usual » scenario, even with high growth in the emerging world, within-country divergence will prevail. Other pathways are possible however: if all countries adopt a European inequality pathway, global inequality would decrease by 2050. This would have enormous impacts on global poverty eradication. BusinessPart v as usualtaCklin: globalG eConomi incomeC inequalityinequality will continue to rise, despite high growth in emerging world. Between country convergence not enough to counter within-country trend. Figure 5.1.1 Global income share projections of the bottom 50% and top 1% , 1980–2050
30% … all countries follow US’s 1980–2016 inequality Global Top 1% trend = scenario 2 25% income share … all countries follow their own 1980–2016 inequality trend = scenario 1 20% … all countries follow EU Global inequality 1980–2016 inequality 15% assuming … trend = scenario 3
scenario 3 10% scenario 1
Share of global income (%) income global of Share scenario 2 5% Global Bottom 50% income share
0% 1980 1990 2000 2010 2020 2030 2040 2050
Source: World Inequality Report 2018, Figures 5.1.1. See wir2018.wid.world for data sources and notes. Source: WID.world (2017). See wir2018.wid.world for data series and notes. 30 If all countries follow the inequality trajectory of the US between 1980 and 2016 from 2017 to 2050, the income share of the global Top 1% will reach 28% by 2050. Income share estimates are calculated using Purchasing Power Parity (PPP) euros. PPP accounts for differences in the cost of living between countries. Values are net of infation.
bottom 50% Chinese earners will capture global bottom 50% for the three scenarios. 13% of Chinese income growth up to 2050. under the business-as-usual scenario the second scenario assumes that all coun- (scenario 1), the income share held by the tries follow the same inequality trajectory as bottom 50% of the population slightly the united states over the 1980–2016 decreases from approximately 10% today to period. Following the above example, we less than 9% in 2050. At the top of the global know that bottom 50% us earners captured income distribution, the top 1% income share 3% of total growth since 1980 in the United rises from less than 21% today to more than states. the second scenario then assumes 24% of world income. Global inequality thus that within all countries, bottom 50% earners rises steeply in this scenario, despite strong will capture 3% of growth over the 2017– growth in emerging countries. In Africa, for 2050 period. in the third scenario, all coun- instance, we assume that average per-adult tries follow the same inequality trajectory as income grows at sustained 3% per year the european union over the 1980–2016 throughout the entire period (leading to a period—where the bottom 50% captured total growth of 173% between 2017 and 14% of total growth since 1980. 2050).
under business as usual, global These projections show that the progressive inequality will continue to rise, despite catching-up of low-income countries is not strong growth in low-income countries. suffcient to counter the continuation of worsening of within-country inequality. The Figure 5.1.1 shows the evolution of the results also suggest that the reduction (or income shares of the global top 1% and the stabilization) of global income inequality
252 World inequality report 2018 Part v taCklinG eConomiC inequality Different inequality trajectories at the national level matter enormously for global poverty Figureeradication 5.1.3 Global average income projections of the bottom 50%, 1980–2050
€10 000 €9 100 … all countries follow EU 1980–2016 inequality trend Average income €8 000 assuming … … all countries prolonge their own 1980–2016
(2016 €) (2016 €6 300 inequality trend €6 000 adult … all countries follow
per Bottom 50% average income €4 500 US 1980-2016 inequality trend €4 000
income €3 100 Annual income per adult (€) adult per income Annual Annual €2 000 €1 600
€0 1980 1990 2000 2010 2020 2030 2040 2050
Source: World Inequality Report 2018, Figures 5.1.3. See wir2018.wid.world for data sources and notes. 31 Source: WID.world (2017). See wir2018.wid.world for data series and notes. If all countries follow the inequality trajectory of Europe between 1980 and 2016, the average income of the Bottom 50% of the world population will be €9 100 by 2050. Income estimates are calculated using Purchasing Power Parity (PPP) euros. For comparison, €1 = $1.3 = ¥4.4 at PPP. PPP accounts for differences in the cost of living between countries. Values are net of infation.
Within country inequality trends are scenarios, countries (and hence the world as critical for global poverty eradication a whole) experience the same total income and demographic growth. It is only the matter What do these different scenarios mean in of how this growth is distributed within coun- terms of actual income levels, and particularly tries that changes across scenarios. Let us for bottom groups? It is informative to focus reiterate that our assumptions are quite opti- on the dynamics of income shares held by mistic for low-income countries, so it is indeed different groups, and how they converge or possible that global average income would diverge over time. But ultimately, it can be actually be slightly lower in the future than in argued that what matters for individuals—and the fgures presented. In particular, the global in particular those at the bottom of the social bottom 50% average income would be even ladder—is their absolute income level. We lower. stress again here that our projections do not pretend to predict how the future will be, but In 2016, the average per-adult annual income rather aim to inform on how it could be, under of the poorest half of the world population a set of simple assumptions. was €3 100, in contrast to the €16 000 global average—a ratio of 5.2 between the overall Figure 5.1.2 depicts the evolution of average average and the bottom-half average. In global income levels and the average income 2050, global average income will be €35 500 of the bottom half of the global population in according to our projections. In the business- the three scenarios described above. the as-usual scenario, the gap between average evolution of global average income does not income and the bottom would widen (from a depend on the three scenarios. this is ratio of 5.2 to a ratio of 5.6) as the bottom half straightforward to understand: in each of the would have an income of €6 300. In the US
254 World inequality report 2018 Tackling global inequality: more in the report. Aim is to open the discussion, not to close it!
Progressive taxation Global financial registry
Equal access to education Investing in the future and well-paying jobs
32 Part v taCklinG eConomiC inequality Strong decline in tax progressivity since the 1970s in most countries.
Figure 5.2.2 top income tax rates in rich countries, 1900–2017
100%
80%
60%
40% US UK Top marginalTop tax rate (%) Germany 20% France Japan
0% 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Sources: Piketty (2014) and updates. See wir2018.wid.world for data series and notes. Between 1963 and 2017, the top marginal tax rate of income tax (applying to the highest incomes) in the US fell from 91% to 40%. 33
Figure 5.2.3 top inheritance tax rates in rich countries, 1900–2017
100%
US UK 80% Germany France Japan 60%
40% Top marginal tax rate (%)
20%
0% 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Source: Piketty (2014) and updates. See wir2018.wid.world for data series and notes. Between 1980 and 2017, the top marginal tax rate of inheritance tax (applying to the highest inheritances) in the UK fell from 75% to 40%.
260 World inequality report 2018 Reality canPart vbe fartaC fromklinG eConomithe Cmeritocratic inequality fairy tale: US
Figure 5.4.1 College attendance rates and parent income rank in the us for children born in 1980–1982
100%
80%
60% between age 18-21 (%) 18-21 age between 40% Share of children who attend college college attend who children of Share
20% 0 10 20 30 40 50 60 70 80 90 100 Parent income rank
Source: Chetty, Hendren, Kline and Saez (2014). See wir2018.wid.world for data series and notes. 30% of children whose parents are in the Bottom 10% of the income distribution attend college between age 18 and 21. Almost 90% of children whose parents are in the Top 10% of the income distribution attend college between age 18 and 21. 34
intergenerational mobility is lo er in areas viduals is associated with lower mobility.15 ith larger A rican-American populations Mean hile, a larger middle class stimulates o ever, in areas ith large A rican-Amer- upwards mobility.16 igher public school ican populations, both blacks and whites have e penditures per student along ith lo er lower rates of upward income mobility, indi- class si es signi icantly increase social cating that social and environmental causes mobility igher social capital also avors other than race, such as differences in history mobility or e ample, areas ith high involve- and institutions, may play a role. spatial and ment in community organi ations 17 finally, social segregation is also negatively associ- amily structure is also a ey determinant ated with upward mobility. in particular, upward mobility is substantially lower in areas longer commuting time decreases opportuni- here the raction o children living in single- ties to climb the social ladder, and spatial parent households, or the share of divorced segregation o the poorest individuals has a parents, or the share of non-married adults stronger negative impact on mobility his is higher suggests that the isolation o lo er-income amilies and the di fculties they e perience hat is remar able is that combining these in reaching ob sites are important drivers o actors e plains very e ectively social social immobility. mobility patterns a en together, ive actors commuting time, income ine uality income inequality at the local level, school among the poorest individuals, high- quality, social capital, and family structure school dropout rates, social capital, and the are also important actors igher income raction o children ith single parents ine uality among the poorest o indi- e plain o ine ualities in up ard mobility
270 World inequality report 2018 taCklinG eConomiC inequality Part v
Equal access to education essential but not sufficient: labour market regulations are also key. US minimum wage today is 30% below 1970 level.
Figure 5.4.3 minimum wage in France and the us, 1950–2016
12 12
US (2016 $) 10 10
8 8
6 6
4 4
2 2 France (2016 €) French hourly minimum wage (2016 € PPP) US hourly minimum wage (Constant 2016 $) 2016 (Constant wage minimum hourly US 0 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: Piketty (2014) and updates. See wir2018.wid.world for data series and notes. Between 2000 and 2016, the hourly minimum wage rose from €7.9 to €9.7 in France, while it rose from $7.13 to $7.25 in the US. Income estimates are calculated using Purchasing Power Parity (PPP) euros for France and dollars for the US. For comparison, €1 = $1.3 = ¥4.4 at PPP. PPP accounts for differences in the cost of 35 living bet een countries Values are net o infation
World inequality report 2018 277 CONCLUSION
• The WID.world project: more than 100 researchers over the five continents. All the data is entirely open source + transparent to feed public debates.
• This report: first systematic assessment of globalization in terms of inequality. Global top 1% captured twice as much growth as bottom 50% since 1980. Under Business as usual, even with optimistic growth assumptions in the emerging world, global inequality will continue to rise.
• Rising inequality is not inevitable: different types of policies can be implemented to promote equitable growth pathways in the coming decades. Additional slides
37 Extension: from income inequality to pollution inequality
Chancel & Piketty, 2015
38 Who emits more within countries? French babyboomers: a carbon intensive generation due to relatively higher income, inefficient dwellings and habits
CO2 emissions gap between cohorts in France (Individuals born from 1910 to 1970)
15% 20% 10% 10% 5%
0% 0% 19101910 19151915 19201920 19251925 19301930 19351935 1940 19451945 19501950 19551955 19601960 1965196519701970 -5%
emissions (%) emissions -10%
population average (%) population 1940 cohort -10% emitted 18% more
Cohort emissions difference emissions full Cohort to -20% CO2 than average -15% Difference average to emissions of cohort
-30% 95% C. I. Chancel, 2014
39 In the US, all generations emit a lot (despite younger generations’ stronger concern for the environment)
CO2 emissions gap between cohorts in the USA (Individuals born from 1910 to 1970)
15%
10%
5%
0% 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 -5% population average (%) population -10% Cohort emissions difference emissions full Cohort to -15%
95% C. I. Chancel, 2014
40 Visit wir2018.wid.world for the online Version of the report.
WID.WORLD THE SOURCE FOR GLOBAL INEQUALITY DATA
WID.WORLD ConcentrationPart Iv of tnonrends- inhousing Global Wealthwealth inequality(financial and business assets) increased substantially since 1995. Role of housing as moderator. Figure 4.6.4 top 1% wealth share in the uK, 1971–2012
40%
Excluding housing wealth 30%
20%
Total wealth including 10% housing wealth Share of personal wealth (%) wealth personal of Share
0% 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Alvaredo, Atkinson and Morelli (2017). See wir2018.wid.world for data series and notes. In 2013, the wealth share of the Top 1% was 20% of total wealth. However, when excluding housing wealth, the Top 1% share was 33%. 42
o the ealth distribution bet een housing shares until the end of the 1970s, and with and non-housing assets Indeed, housing only broad stability until the mid 1990s. accounts for a limited fraction of total wealth at the top: since , the share o housing o ever, in the t enty-frst century, there is ealth or the top percent has been a distinct di erence: the gap bet een the bounded bet een and percent o total share o the top per cent in ealth e cluding net worth. it is instructive to look at the distri- housing and the share or all ealth idened bution o ealth minus residential housing, he changes over time are also di erent, ith net o mortgage liabilities Figure 4.6.4 shows the concentration o non-housing ealth the top shares of total wealth and of wealth fnancial and business assets increasing e cluding housing or the period since substantially between 1995 and 2013. it It appears that, as e should e pect, the top appears that housing ealth has moderated shares o the distribution o non-housing a defnite tendency or there to be a rise in ealth are higher: the share o the top per the concentration of other forms of wealth cent averages per cent over the period apart rom housing hen people tal about 1971 to 1997, compared with 18 per cent for rising ealth concentration in the K, then it the corresponding share or all ealth is probably the latter that they have in mind. Although there is more variability in the shares e cluding housing ealth shares are smoothed to some degree by the housing element), overall there is little difference in their evolution over the last quarter of the t entieth century p to , e do not get a very different story if one just takes non- housing ealth, ith a decided all in the top
246 World inequality report 2018 This presentation
1. Introduction: the WID.world project WID.world combines inequality data sources in a consistent way to fill a democratic gap. 2. Global income inequality dynamics Global top 1% captured twice as much growth as bottom 50% since 1980. Different national trajectories suggest that the trend was not inevitable. 3. Public vs. private capital dynamics Gradual rise in wealth income ratios since 1980s in the context of large transfers of public to private wealth in emerging and rich countries.
4. Global wealth inequality dynamics Combination of rising income inequality and fall of public wealth contributed to sharp rise in wealth inequality among individuals. • Focus: wealth inequality in the UK
5. Conclusion: tackling inequality Rethinking the policy cocktail of globalization France vs UK: higher rise of inequality in the UK, bottom 50% didn’t grow faster than in France
Top 1% vs. bottom 50% in France and in the UK, 1980-2016
UK France 25% 25%
Bottom 50% FR
Bottom 50% UK 20% 20%
15% 15%
Top 1% UK 10% 10% Top 1% FR
5% 5% 1980Source: World1985 Inequality Report1990 2018, Figure1995 2.1.3. See2000wir2018.wid.world2005 for data2010 sources and 2015notes. 1980 1985 1990 1995 2000 2005 2010 2015
44 publiC Versus priVate Capital dynamiCs Part III
Privatization strategies were key in by the two countries also had crucial impacts determining wealth accumulation on the development of these countries’ differences between China and russia wealth to national income ratios.
the transition away from communism in in russia as in China, private wealth was very both China and russia had profound effects limited back in 1980, at slightly more than on aggregate wealth in both countries. 100% of national income in both countries. but however, there were also considerable by 2015, private wealth reached approximately differences between the two countries, 500% of national income in China, roughly which are frst evident in the evolution of equal to levels seen in the us, and rapidly their respective private wealth–national approaching the levels observed in countries income ratios. As examined in detail in such as france and the uk (550–600%). chapter 3.2, the general rise of private wealth private wealth in russia has also increased relative to national income in rich countries enormously relative to national income, but the since the 1970s–1980s can be attributed to ratio was comparatively only of the order of a combination of factors including the combi- 350–400% in 2015—that is, at a markedly nation of growth slowdowns and relatively lower level than in China and in Western coun- high saving rates and general rises in asset tries as illustrated by Figure 3.3.1. This gap prices. The case of Russia together with that would have been larger if estimates of offshore of China and other ex-communist countries wealth were not included in russia’s private can be viewed as an extreme case of this wealth (more to come on this in chapter 3.5). general evolution, but the liberalization and this is an important source of wealth to include public asset privatization strategies chosen in estimates for Russia as it represents approx- Private capital also rose sharply in emerging countries...
Figure 3.3.1 net private wealth to net national income ratios in China, russia and rich countries, 1980–2015: the rise of private wealth
600%
550% China France Russia UK US 500%
450%
400%
350%
300%
250%
(% of national income) 200% Value of net private wealth 150%
100%
50% 1980 1984 1988 1992 1996 2000 2004 2008 2012
Source: World Inequality Report 2018, Figure 3.1.1. See wir2018.wid.world for data sources and notes. 45 Source: Novokmet, Piketty & Zucman (2017). See wir2018.wid.world for data series and notes. In 2015, the value of private wealth in the US was 500% of national income, i.e. it was worth 5 years of national income. Net private wealth is equal to net private assets minus net private debt.
World inequality report 2018 175 taCklinG eConomiC inequality Part v
Figure 5.2.4 top inheritance tax rates in emerging and rich countries, 2017
70%
60% 55%61%
50% 40%61% 38%61% 40%
30%
20% Top marginal tax rate (%)
10% 61%4% 0% 0% 0% 0% 0% China India Russia South Africa Brazil Europe US Japan (FR+DE+UK) Source: WID.world (2017). See wir2018.wid.world for data series and notes. In 2017, the top marginal tax rate of inheritance tax (applying to the highest inheritances) was 55% in Japan, compared to 4% in Brazil. Europe is represented by France, Germany and the UK. WID.WORLD THE SOURCE FOR GLOBAL INEQUALITY DATA
income tax rate from 40% to 50% in 2010 in Germany, top inheritance tax rates have been part to curb top pay excesses. In the United historically lower than in the united states, states, the occupy Wall street movement uk, and Japan. in earlier chapters of this and its famous “We are the 99%” slogan also report we described the two world wars and refected the view that the top 1% gained too various economic and political shocks of the much at the expense of the 99%. Whether twentieth century.10 these durably reduced this marked the beginning of a new tax policy wealth concentration through other means cycle that will counterbalance the steep fall than tax policy. As with the question of income observed since the 1970s remains a question. tax progressivity, it is impossible to know in the uk, the 2010 increase in top income whether this increase marks a new era of tax rate was followed by slight reduction progressivity. The US tax overhaul plan plans down to 45% in 2013. As we are writing these to abolish the inheritance tax. lines, the new us republican administration and congress are preparing a major tax over- Inheritance is exempted from tax while haul plan. The French government also proj- the poor face high consumption taxes ects to reduce tax rates on top incomes and in emerging countries wealth owners. While the past ten years saw some increases Top inheritance tax rates were recently in tax progressivity in rich countries, it is worth increased in france, Japan, and the united noting that major emerging economies still do states, as shown on Figure 5.2.3. in Japan and not have any tax on inheritance, despite the in the united states, this increase halted a extreme levels of inequality observed there. progressive reduction in top inheritance tax Inheritance is taxed at a particularly small rate rates initiated in the 1980s. in france and in Brazil (at a national average of around 4%,
World inequality report 2018 261