Unit 1 Prosperity, inequality, and planetary limits

1.4 Inequality in global income

Before the upward kink in history’s hockey stick, some people were rich by the standards of their day, but most people in the world lived in extreme poverty.

Global poverty and income inequality

To explore the latest data on extreme poverty, read Our World in Data’s webpage on ‘Poverty’.

Mirroring the hockey sticks of income and carbon is the transformation from a world in which the vast majority of people were unable to meet their basic needs of minimal nutrition and adequately heated shelter to today, when that is true of around one in ten (Figure 1.3). These people are often hungry, don’t have access to electricity (and therefore to light at night, for example), and have limited access to schooling or healthcare.

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Figure 1.3 Share of the world population living in extreme poverty, 1820–2018.

Michail Moatsos. 2021. ‘Global extreme poverty: Present and past since 1820’. Published in OECD. 2021. How Was Life? Volume II: New Perspectives on Well-Being and Global Inequality Since 1820, OECD Publishing, Paris.

A thousand years ago, the world was flat, economically speaking. There were major differences in income within the world’s countries and regions; but as shown in Figure 1.1, the differences between countries were small, especially when compared to what was to follow.

Income inequality between countries

For example, 14% of the world’s population live in countries with lower average income than India. Since 18% of the world’s population live in India, a total of 32% live in countries with average income less than or equal to that in India.

purchasing power parity (PPP): PPPs are price indices that measure how much it costs to purchase a basket of goods and services compared to how much it costs to purchase the same basket in a reference country in a particular year, such as the United States in 2011.

Nobody thinks the world is flat today, when it comes to income. Figure 1.4 provides a snapshot for 2019. The countries of the world are lined up from left to right by average income, the poorest (South Sudan) on the left and the richest (United Arab Emirates) on the right. The width of the bars reflects the size of the population, with the bars for China and India much the widest. The horizontal scale shows the cumulative share of the world’s population, with 100% at the far right. On the vertical axis is the average daily income—measured in such a way that $20, for example, is what a person in any given country can buy in goods and services that cost $20 in the US. Economists measure prices using purchasing power parity to make these comparisons. In the bottom 10% of countries, where people on average live in extreme poverty, the daily income is just a few dollars a day. The snapshot provided by average incomes shows big differences between countries, but it does not show the vast differences in living standards within each country.

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Figure 1.4 The global income distribution in 2019: average daily income by country.

M. Roser. 2021. ‘Global poverty in an unequal world: Who is considered poor in a rich country? And what does this mean for our understanding of global poverty?’ Our World in Data. ‘‌Income inequality within and between countries’.; The World Bank. 2022. Poverty and Inequality Platform. ‘Mean income or expenditure per day’.; The World Bank. 2022. ‘Population, total’.
Note: Average income is measured in ‘international dollars’, which enables comparisons of the purchasing power of incomes to be made across countries; this is known as purchasing power parity.

Figure 1.1 showed the great divergence in fortunes across the world beginning around the seventeenth century and taking off in the eighteenth. Extreme poverty has shrunk. But stark inequalities in income persist within countries—and have increased in recent decades. While Figure 1.4 shows the average income in each country, Figure 1.5 goes a step further by building a 3D picture that shows the distribution of income within countries as well as between them, and how this changed between 1980 and 2020.

Again, countries are arranged from the poorest (according to average income in that year) on the left of the diagram (South Sudan in 1980) to the richest on the right (Switzerland in 1980), with the width of each country’s bars representing its population.

decile, decile groups: Deciles split a set of observations into ten equally-sized groups. The full set of observations is ordered according to a particular variable (e.g. income). The first decile group is the observations in the bottom 10% (e.g. the 10% with the lowest incomes), the second is the next lowest 10%, and the tenth or top decile group is the highest 10%. The deciles are the cutoff values that separate the groups; the first decile is the cutoff between the first and second decile groups, and so on.

For every country there are ten bars, corresponding to the ten decile groups of income. Each group contains 10% of the population, and the height of the bar is the average income of the group, ranging from the poorest 10% of people at the front of the diagram to the richest 10% at the back, measured in 2021 US dollars. Note that this measure doesn’t mean ‘the richest 10% of income earners’. It is the richest 10% of people, where each person in a household, including children, is assumed to have an equal share of the household’s income.

The skyscrapers (the highest columns) at the back of the right-hand side of the figure represent the income of the richest 10% in the richest countries. In 2020, the tallest skyscraper represents the richest 10% of people in the United Arab Emirates. In 2020, this exclusive group had an income per capita of around $390,000. Norway, the country with the second-highest GDP per capita, does not have a particularly tall skyscraper (it is hidden between the skyscrapers for the United Arab Emirates and the third-richest country, the US) because income is more evenly distributed in Norway than in some other rich countries. Go through the steps in Figure 1.6 to understand how income within and between countries has changed over time.

There are two 3-dimensional bar charts with three axis. In bar chart 1, a first axis lists countries from poorer to richer ones by GDP per capita in 1980. A second axis shows annual income in 2021 US dollars, and ranges from 0 to 400,000. A third axis shows the ten deciles of the income distribution of the population. The bar chart shows the income distribution of all countries of the world, ordered from poorer to richer ones by GDP per capita. The countries labelled on the chart are, from poorer to richer: Somalia, Venezuela, India, Nigeria, Indonesia, South Africa, Brazil, China, Russia, UK, USA, Norway, United Arab Emirates. In bar chart 2, a first axis lists countries from poorer to richer ones by GDP per capita in 2020. A second axis shows annual income in 2021 US dollars, and ranges from 0 to 400,000. A third axis shows the ten deciles of the income distribution of the population. The bar chart shows the income distribution of all countries of the world, ordered from poorer to richer ones by GDP per capita. The countries labelled on the chart are, from poorer to richer: Somalia, Venezuela, India, Nigeria, Indonesia, South Africa, Brazil, China, Russia, UK, USA, Norway, United Arab Emirates.

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Figure 1.5 Global income inequality 1980 (top panel) and 2020 (bottom panel).
Countries are ranked by income per capita from left to right. For each country, the heights of the bars show average income for deciles groups of the population, from the poorest 10% at the front to the richest 10% at the back. The width of the bar indicates the country’s population.

GCIP. 2015. Global Consumption and Income Project. Bob Sutcliffe designed the representation of global inequality in Figure 1.5. A first version was published in: Robert B. Sutcliffe. 2001. 100 Ways of Seeing an Unequal World. London: Zed Books. A larger version of this graph and an interactive visualization of it are available.

In this 3-dimensional bar chart with three axis, a first axis lists countries from poorer to richer ones by GDP per capita in 2020. A second axis shows annual income in 2021 US dollars, and ranges from 0 to 400,000. A third axis shows the ten deciles of the income distribution of the population. The bar chart shows the income distribution of the poorest 10% and richest 10% of all countries of the world, ordered from poorer to richer ones by GDP per capita. The countries labelled on the chart are, from poorer to richer: Somalia, Venezuela, India, Nigeria, Indonesia, South Africa, Brazil, China, Russia, UK, USA, Norway, United Arab Emirates. There is a stark difference in the height of the bars for the poorest and the richest 10% of the population.

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Figure 1.6 Understanding the global income distribution.

GCIP. 2015. Global Consumption and Income Project. Bob Sutcliffe designed the representation of global inequality in Figure 1.6. A first version was published in: Robert B. Sutcliffe. 2001. 100 Ways of Seeing an Unequal World. London: Zed Books. A larger version of this graph and an interactive visualization of it are available.

The richest and poorest countries in 2020: In this 3-dimensional bar chart with three axis, a first axis lists countries from poorer to richer ones by GDP per capita in 2020. A second axis shows annal income in 2021 US dollars, and ranges from 0 to 400,000. A third axis shows the ten deciles of the income distribution of the population. The bar chart shows the income distribution of two countries in the world: Somalia, which is the poorest, and the United Arab Emirates, which is the richest.

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The richest and poorest countries in 2020

In the United Arab Emirates, the richest country, on the furthest right, the average incomes of the richest and poorest 10% are $389,750 and $1,522 respectively. In Somalia, the furthest left, the corresponding incomes are $6,894 and $16.

Skyscrapers: In this 3-dimensional bar chart with three axis, a first axis lists countries from poorer to richer ones by GDP per capita in 2020. A second axis shows annal income in 2021 US dollars, and ranges from 0 to 400,000. A third axis shows the ten deciles of the income distribution of the population. The bar chart shows the income of the richest 10% of the population for a selection of the richest countries in the world.

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Skyscrapers

The skyscraper bars in the back right of the figure are the richest 10% in some of the richest countries.

World income distribution in 1980 (Figure 1.5, top panel): In this 3-dimensional bar chart with three axis, a first axis lists countries from poorer to richer ones by GDP per capita in 1980. A second axis shows annual income in 2021 US dollars, and ranges from 0 to 400,000. A third axis shows the ten deciles of the income distribution of the population. The bar chart shows the income distribution of all countries of the world, ordered from poorer to richer ones by GDP per capita. The countries labelled on the chart are, from poorer to richer: South Sudan, India, China, Indonesia, Nigeria, South Africa, Brazil, UK, Russia, Norway, USA, and Switzerland.

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World income distribution in 1980 (Figure 1.5, top panel)

In 1980 the ranking of countries by GDP was different. The poorest countries, coloured darkest red, were South Sudan, Somalia, and Mozambique. The richest (darkest green) were Switzerland, Netherlands, and Germany. At that time the skyscrapers were not as tall: the differences between the richest 10% and the rest of a country’s population were not as pronounced.

World income distribution in 2000: In this 3-dimensional bar chart with three axis, a first axis lists countries from poorer to richer ones by GDP per capita in 2000. A second axis shows annual income in 2021 US dollars, and ranges from 0 to 400,000. A third axis shows the ten deciles of the income distribution of the population. The bar chart shows the income distribution of all countries of the world, ordered from poorer to richer ones by GDP per capita. The countries labelled on the chart are, from poorer to richer: Somalia, India, China, Nigeria, Indonesia, South Africa, Russia, Brazil, Venezuela, UK, Norway, USA, and the United Arab Emirates.

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World income distribution in 2000

The colours indicate how some countries changed their ranking between 1980 and 2000. Both China and Indonesia used to be relatively poor (red) but have now moved towards the middle of the distribution. Some taller skyscrapers have appeared at the back: inequality increased in many countries during the 1980s and 1990s.

World income distribution in 2020 (Figure 1.5, bottom panel): In this 3-dimensional bar chart with three axis, a first axis lists countries from poorer to richer ones by GDP per capita in 2020. A second axis shows annual income in 2021 US dollars, and ranges from 0 to 400,000. A third axis shows the ten deciles of the income distribution of the population. The bar chart shows the income distribution of all countries of the world, ordered from poorer to richer ones by GDP per capita. The countries labelled on the chart are, from poorer to richer: Somalia, Venezuela, India, Nigeria, Indonesia, South Africa, Brazil, China, Russia, UK, USA, Norway, United Arab Emirates.

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World income distribution in 2020 (Figure 1.5, bottom panel)

By 2020, many countries have changed their ranking. China has grown rapidly since 2000. But the countries that were richest in 1980 (darkest green), such as the US and Norway, are still near the top in 2020.

Inequality within countries has risen: In this 3-dimensional bar chart with three axis, a first axis lists countries from poorer to richer ones by GDP per capita in 2020. A second axis shows annual income in 2021 US dollars, and ranges from 0 to 400,000. A third axis shows the ten deciles of the income distribution of the population. The bar chart shows the income distribution of the poorest 10% and richest 10% of all countries of the world, ordered from poorer to richer ones by GDP per capita. The countries labelled on the chart are, from poorer to richer: Somalia, Venezuela, India, Nigeria, Indonesia, South Africa, Brazil, China, Russia, UK, USA, Norway, United Arab Emirates. There is a stark difference in the height of the bars for the poorest and the richest 10% of the population.

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Inequality within countries has risen

Income distributions have become more unequal in many of the richer countries: some very tall skyscrapers have appeared. In the middle-income countries, too, there is a big step up at the back of the figure: the incomes of the richest 10% are now high relative to the rest of the population.

Two things are clear from the 2020 distribution. First, in every country, the rich have much more than the poor. We can use the ratio between the heights of the front and back bars as one measure of inequality in a country. We will call it the rich/poor ratio, for obvious reasons. Even in a relatively equal country such as Norway, the rich/poor ratio is 66; in the US, it is 244; and in Botswana in southern Africa, it is 489. Inequality within the very poorest countries is difficult to determine from the graph because the height of all the bars are much smaller than those of the richer countries, but inequality is definitely there: the rich/poor ratio is 174 in Nigeria, and 246 in India.

The second thing that jumps out from Figure 1.5 is the huge difference in income between countries. In 2020, the average income in Norway is nearly seven times the average income in Nigeria.

Imagine the traveller Ibn Battuta’s journey across regions of the world in the fourteenth century and think of how a diagram like Figure 1.5 would have looked then. He would, of course, notice that everywhere he went there were differences between the richest and poorest groups in the population of each region. He would report back that the differences in income between the countries of the world were relatively minor by comparison.

The vast differences in income between the countries of the world today take us back to Figure 1.1, where we can begin to understand how this came about. The countries that took off economically before 1900, such as Britain, Japan, and Italy, are now rich. They (and countries like them) are in the skyscraper part of Figure 1.5. The countries that took off only recently, or not at all, are in the flatlands.

What lies behind the upward kink in the hockey sticks that we have seen in some countries but not others, and the accompanying changes in poverty and inequality? We begin to answer this question in the next section.

Question 1.3 Choose the correct answer(s)

Figure 1.5 shows the global income distribution in 1980 and 2020. Based on this figure, read the following statements and choose the correct option(s).

China and Indonesia had similar average incomes in 1980.
From 1980 to 2020, income distributions have become more unequal in many countries.
The rankings of countries by average income have remained similar from 1980 to 2020.
Indonesia and Brazil had a similar population size in 2020.

Countries are shaded according to their average income in 1980. China and Indonesia have a similar shade, indicating that they had a similar average income in 1980.
In many middle-income and richer countries, some very tall skyscrapers appeared by 2020, indicating that income distributions have become more unequal.
Countries are shaded according to their average income in 1980 (darkest red for poorest countries and darkest green for richest countries). The order of the colours in the figure indicates that the rankings have changed for many countries except the very rich. Some countries that were relatively poor in 1980 have moved up in the rankings (for example, China and Indonesia).
The width of the bars represents the country’s population size. Indonesia and Brazil have bars of similar width, indicating similar populations.

Exercise 1.2 Inequality in the fourteenth century

Ibn Battuta (1304–1368), who we discussed in Section 1.1, was a Moroccan traveller and merchant. His travels, which lasted 30 years, took him across north and west Africa, eastern Europe, the Middle East, south and central Asia, and China.

What do you think a ‘skyscraper’ figure like that in Figure 1.5 would have looked like at the time of Ibn Battuta (early to mid-fourteenth century)? (Use his descriptions of the countries he visited to support your answer.)

Exercise 1.3 Working with income data

Go to our interactive visualization which contains the data used to create Figure 1.5. Choose five countries that you are interested in.

In the visualization, use the ‘Rich/poor income ratios’ tab to find the rich/poor ratio in 1980, 2000, and 2020 for each of your chosen countries.
Describe the differences between countries and the changes over time that you find.
Suggest some explanations for your answers to question 2.