This post is the first of a series of three posts that are intended as an introduction to the state and evolution of poverty and inequality in the world, the topic in which the PoRESP project is inscribed. The content is taken from an article that François Bourguignon* recently wrote for the 19eme congrès des économistes belges de langue française (19th Congress of French speaking Belgian economists).
We investigate inequalities of revenue because they can be considered as a proxy of the inequalities of well-being. Talking about economic well-being of individuals is difficult because of the many dimensions the concept can have. There exist, for now, no satisfying indicator for it. Although it has been severely criticized (see for example the report Sen-Stiglitz-Fitoussi), GDP per person (or available annual revenue per person, called revenue hereunder) has a positive correlation with other indicators of well-being. Therefore, revenue can serve as a first estimation for economic well-being.
The measure of inequality is another issue. There are many of them, not always giving the same information about the distribution of the revenue in a population. We will consider here 2 different measures:
- The factor between the mean revenue of the 10% poorest agents of a population and the mean revenue of the 10% richest (called factor hereunder).
- The Gini coefficient (which is a measure of the inequality of a distribution, a value of 0 expressing perfect equality where everyone has equal shares of income and a value of 1 expresses maximal inequality where only one person has all the income.
If we consider the global distribution of revenue in the world population without looking at the country a person is living in, we consider global inequality. This global inequality is today higher than the inequality any country experience in its own population (intra-country inequality). This is because there is also a considerable inter-country inequality, inequality between the mean revenue of different countries.
In order to have a first idea of world’s current inequality, we illustrate it for three different countries: a rich country (France), an emerging country (Brazil) and a developing country (Ethiopia).
- France has mean revenue of 26000 €/pers and a factor of about 6 (the 10% poorest get 6000€ while the 10% richest get 40000€). Its Gini coefficient is 0.29, making it a country with rather low intra-inequality.
- Brazil has mean revenue of 7200 €/pers and a factor of about 40 (the 10% poorest get 500€ while the 10% richest get 22000€). Its Gini coefficient is 0.58, one of the world’s highest intra-country inequalities.
- Ethiopia has mean revenue of 513 €/pers. The 10% poorest get 160€ while the 10% richest get 1000€.
With those figures, it is already possible to grasp the difference existing between the rich countries and the developing one. A striking fact is that the 10% poorest ofFrance earn on average more than the 10% richest of Ethiopia. Of course, you can’t purchase the same items with 1 € inFrance than in Ethiopia. If you want to have a better picture of inequality of well-being, you must compare the revenues on basis of the purchasing power they give in each country. Comparing the revenues in terms of purchasing power parity would reduce the inequality of well-being between countries.
But above that large inter-country inequality, global inequality also accounts for the intra-country inequality. Globally, the Gini coefficient of the world is 0.66 and the factor between the 10% poor and 10% rich is of about 90. This global inequality is so high that it would most certainly threaten civil peace of a country having an intra-inequality that high.
Finally, it is important to insist on the fact that we have only considered inequality through the revenue dimension. Many more other dimensions should be included to the analysis of well-being like health, education, access to justice, autonomy, opportunity to participate to one’s community, etc. We won’t talk about them here but one should be aware that, unfortunately, those other potential sources of inequality are most often correlated to revenue and hence reinforce each other.
*François Bourguignon is an economist acknowledge among his peers for the contributions he brought to the study of poverty and inequality. The article he wrote in the report « La crise économique et financière: quelles consequences? » is called « L’inégalité mondiale et ses composantes ».