The Many Dimensions of Inequality

By: Lykke E. Andersen*

“The future is already here, it’s just not evenly distributed”
William Gibson

The scale of inequality in this world is almost unfathomable. In 2013, the average inhabitant of Denmark, Norway, Sweden and Qatar earned more in one day than what the average inhabitant of Malawi and Burundi earned during an entire year^[1]. Apart from the staggering between-country inequality, there is also vast and increasing inequality within countries. According to United Nations, on average—and taking into account population size—income inequality increased by 11 per cent in developing countries between 1990 and 2010[2]. Currently, about 60% of the variation in incomes across the globe is explained by country citizenship alone, while another 20% is explained by parental income class[3]. This means that at least 80% of the variation in incomes are determined already by birth, leaving less than 20% to be determined by own effort, ingenuity, planning, determination, risk-taking and passion. Thus, the world is not just a place of huge inequality of outcomes, but also of huge inequality of opportunity.

Apart from these well-known dimensions of inequality, there is one additional dimension that is rarely considered, namely inter-temporal inequality. During most of human history, that was not an important issue as the level of income was almost constant, amounting to somewhere between $1 and $2 per day. However, that started to change dramatically during the 19^th century. In 1820, average per capita income in the World amounted to $712 per year, corresponding to roughly $2 per day. By 1913 it had increased to $1543, by 1950 to $2104, by 2000 to $6057, and by 2010 it reached an average of $7814, corresponding to $21 per day (all expressed in inflation-adjusted dollars of 1990, in order to reflect real purchasing power) [4].

According to these numbers, real per capita income growth has been accelerating, reaching 2.58% per year during the first decade of this century, despite the global financial crisis starting in 2008 (see table below).

Table 1: Growth in average real per capita income in the World

If we assume that growth continues at 2.58% per year (no further acceleration)[5], then average per capita income in the World would reach almost a million dollars per person per year by 2200 (see Figure 1).

Figure 1: Average real per capita income in the World

Obviously, it is very different to be born into the World at a time when average daily income is $21 (now) than when it is $2100 (most likely sometime next century), so we can add inter-temporal inequality to the already high between-country and within-country inequalities.

There are roughly 1 billion extremely poor people living in the World today, and they are not poor because they are lazy or stupid. They were simply unlucky to be born in the wrong place at the wrong time.

It should be an absolute priority for the international community to help bring these unfortunate people into the 21^st century. If we leave them behind, then the already staggering between-country inequality will keep increasing as the modern part of civilization reaps the benefits of the process of exponential technological innovation that we have managed to create.

The main problem with inequality is obviously in the low end of the distribution, where people – especially women – are struggling every day just to survive, and have to spend inordinate amounts of time on basic things, like fetching water and washing clothes. To have any chance of substantially increasing their productivity and escape poverty, these people need to be provided with basic services, like electricity, piped water, sanitation services, education and Internet access.

However, it is also a problem that there are rich people who accept and even support policies that perpetuate and increase inequality. For example, many poor people could instantly increase their productivity ten-fold, if they were allowed to migrate to a country in need of unskilled labor. But most rich countries severely and irrationally restrict immigration, to the detriment of both their own quality of life and the level of inequality in the World. Having access to plenty of cheap labor is very productivity-enhancing, especially for women and labor-intensive businesses. Singapore and Qatar have figured this out. Both countries have very high shares of foreign workers (74% and 43%, respectively)[6], and it is not a coincidence that they are among the absolutely richest countries in the World, easily doubling GDP per capita compared to the Euro Area.

[1] According to the World Bank’s World Development Indicators. GNI per capita, Atlas Method, 2014.

[2] See http://www.un.org/sustainabledevelopment/inequality/.

[3] Milanovic, B. (2011) The Haves and the Have-Nots. A Brief and Idiosyncratic History of Global Inequality. New York: Basic Books.

[4] According to homogenized data from the Maddison-Project, http://www.ggdc.net/maddison/maddison-project/home.htm, 2013 version.

[5] Growth rates may turn out lower if people decide that they prefer more free time rather than more income. But the point is that, unless we totally screw up things, even the poorest people on the planet will be much, much better off during the next century than the current generation is.

[6] https://en.wikipedia.org/wiki/List_of_countries_by_immigrant_population

* The author is a Senior Researcher at INESAD, Ph.D. in Economics, landersen@inesad.edu.bo.   

The views expressed in this article are those of the authors and do not necessarily reflect the views of Fundación INESAD.