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Income inequality refers to the unequal distribution of income across units (usually individuals or households). Global income inequality refers to the unequal distribution of income across the world’s citizens.
Global income inequality consists of two components, between-nation income inequality – the unequal distribution of average income across nations – and within-nation income inequality – the unequal distribution of income across individuals or households within countries. Sociological studies of inequality very often focus on inequality within nations. Most of the inequality in the distribution of the world’s income, however, lies between nations. Average incomes in the world’s richest and poorest nations vary by a factor of 30 or more, so the average person in a rich country receives as much in a single day as the average person in a poor country does in a month. As a result, even if we eliminated all inequality within countries – so citizens in every country earned the average income for their country – the majority of global income inequality would remain.
Global income inequality is massive today largely because of the highly uneven growth of regional and national incomes in the nineteenth and early twentieth centuries. During this period the world divided roughly into three income camps as the industrializing west surged ahead economically and Asia and Africa lagged badly behind. Incomes in a middle group, consisting of most of Latin America and Eastern Europe (including the former Soviet Union), grew at very roughly the world average. Because it was the richer regions that were growing faster, this unevenness in growth rates resulted in the great inequality in income across regions and nations that we see today. The legacy of the Industrial Revolution, then, is that ofa world where incomes are much higher (on average) but also much more unevenly distributed.
Today, however, richer regions are no longer the growth leaders. Large poor countries such as China and India are experiencing faster income growth than rich nations. Although incomes continue to decline relatively (and in some instances absolutely) in many poor nations in sub-Saharan Africa, many more poor individuals live in poor nations where incomes are growing faster than the world average than in poor nations where incomes are growing slower than average. The result is declining income inequality across countries.
At the same time, inequality is rising within many, but not all, countries in the west and elsewhere. This new pattern of uneven income growth – declining inequality across nations, rising inequality within the average nation – reflects the reversal of a longstanding trend of rising inequality across nations and constant or declining inequality within nations. This reversal has been called the ”new geography of global income inequality” (Firebaugh 2003).
What most social scientists, policy makers, and activists want to know is whether the decline in inequality across nations more than offsets the rising inequality within nations. Is global income inequality now declining, or is it still growing as it did over the nineteenth century and first half of the twentieth century? Studies give mixed results: Some find evidence that global income inequality continues to rise and others find that it is falling. This ambiguity is not surprising, given the difficulty of comparing income levels across countries. Despite heroic data collection efforts, with current data it is difficult to determine authoritatively whether global income inequality is trending up or down. What we can ascertain from the data is that global inequality is not moving rapidly in either direction, so concerns of rapidly worsening global income inequality are misplaced.
The major challenge for future research on global inequality, then, is data reliability. The measurement issues are pretty well settled: There is general consensus on the best ways to measure income, and on how to measure and decompose income inequality. But our measurements and decompositions are only as reliable as the data we input, and that is where much of the effort should be expended in future research on global income inequality.
- Anand, S. and Segal, P. (2008) What do we know about global income inequality? Journal of Economic Literature 46: 57-94.
- Firebaugh, G. (2003) The New Geography of Global Income Inequality. Harvard University Press, Cambridge, MA.
- Milanovic, (2005) Worlds Apart: Measuring International and Global Inequality. Princeton University Press, Princeton, NJ.