4.2: Background - What Does Global Inequality Look Like?

  ↵

Learning Objectives

By the end of this section, you will be able to:

• Understand various measures of global inequality
• Compare the various indices of global inequality

Introduction

In the discussion on the topic of global inequality, the issue of economic inequality often gets the utmost attention, given the fact that it is one of the most strikingly visible dimensions of global inequality. Economic inequity deals with the unequal distribution of financial resources, and the two primary measurements are income and wealth, which were defined in Section 6.1. Needless to say, these two economic indicators are intimately related to each other. Individuals who earn more than what is necessary to meet basic needs are more likely to be able to save and invest their discretionary income as opposed to people who are living paycheck-to-paycheck. It is also possible to have wealth without having a job if an individual has inherited generational wealth or their wealth is generating income by way of investment. 

In the simplest terms, income and wealth inequality are measured by the distribution of income or wealth across a given population. For example, a researcher can divide the income groups into upper-, middle-, and lower-income groups and compare the aggregated income of each group. With this type of measurement, it has been shown that in the United States a greater aggregate of income is going to the upper-income groups while the share of income amongst the other two groups are shrinking. This is an indication that income inequality in the United States is increasing. Another way of measuring income inequality is to use the 90/10 ratio — the ratio of the income needed to place among the top 10 percent of earners in the U.S. to the income at the threshold of the bottom 10 percent of earners (PEW).

According to the United Nations, income inequality has seen some improvement in the last 25 years. Due to the robust economic growth of China and other emerging economies, the gap between countries, in general, is shrinking. However, a substantial gap still does exist. For example, the gap between the average income earner of North America and sub-Saharan Africa is 16 to 1. More importantly, the income gap within countries has grown. 71 percent of the world's population has experienced a growing economic gap between themselves and their fellow countrymen. This is especially important because inequality within countries is the inequality that individuals feel on a day-to-day basis. These increases in income inequalities are observed mostly in the Global North and some middle-income countries. While income increases in the Global South have contributed to the decline of inequalities between countries, domestically, they have experienced a growth in income inequality. 

GINI Index

Similarly, wealth inequality is measured by assessing the degree of inequality in the distribution of wealth. Perhaps the most often used measurement of wealth inequality is the GINI coefficient.  The GINI index assesses income inequality in nations by analyzing how income is distributed among their populations. It is a statistical measure that quantifies the degree to which the distribution of income or consumption among individuals or households within an economy diverges from perfect equality. It is a widely used measure to assess the level of income inequality within a society. The GINI coefficient is a statistical measure of income inequality in a population that ranges from 0 (indicating absolute income equality) to 100 (indicating a perfectly unequal income distribution). Simply put, the higher the GINI index score, the more unequal a given country is in terms of income distribution. Amongst the G7 countries, the United States has the highest level of inequality at 0.434 in the GINI Coefficient measure in 2017.

It is critical to address the issue of disproportionate income distribution since it affects the country’s ability to economically grow and sustain such growth. The existing research identified an inverse relationship between income inequality, measured by the GINI coefficient, and its economic growth and sustainability. It means that a country with a wider income spread (i.e., high inequality) experiences lower economic growth. Also, it has been reported that an increase in the income of the top 20 percent actually could lead to the lowering of the GDP of a given country. This challenges the idea that the economic growth of the high-income learner “trickles down” to the low-income earner. 

 

Figure \(\PageIndex{1}\): Income inequality: Gini coefficient, 2022. The Gini coefficient measures inequality on a scale from 0 to 1. Higher values indicate higher inequality. Depending on the country and year, the data relates to income measured after taxes and benefits, or to consumption, per capita. (Gini Coefficient: World Bank by Our World in Data is licensed under CC BY 4.0 Deed)

 

Human Development Index

In addition to the GINI Index, we can measure the living condition of various countries by the Human Development Index (HDI). HDI is a metric which provides a summary of the average achievement in essential aspects of human development: longevity and health, knowledge, and a decent standard of living. HDI was created to underscore the notion that evaluating a country's development should prioritize people and their abilities, rather than focusing solely on economic expansion. As such, this measurement combines economic indicators with educational and health indicators. The economic indicator is based on gross national income (GNI) per capita. GNI per capita is a measure of the average income earned by individuals in a country in a given year. It is calculated by dividing the country's total GNI by its population. GNI per capita provides insight into the economic well-being of the citizens of a country on average. The health indicator is measured by the life-expectancy at birth, which means how long a particular newborn baby is likely to live. The education dimension is constructed by two key metrics: the average years of schooling for adults aged 25 and older, and the anticipated years of schooling for children at the age of school entry. The HDI serves as a tool for questioning national policy decisions, and can prompt inquiries into why two countries with similar levels of GNI per capita might yield different human development outcomes. Such disparities can spark discussions regarding government policy priorities.

 

Figure \(\PageIndex{2}\): A colored map showing countries and territories by Human Development Index, based on 2019 data from the 2020 Human Development Report. Dark green indicates highest levels of human development, whereas darker red indicates lower levels of human development. (Wikimedia Commons by JackintheBox is licensed under CC BY-SA 4.0 Deed)

 

Global Happiness Index

The Global Happiness Index can be used as an alternative way to examine the state of the world in terms of various living conditions. The Global Happiness Index, also known as the World Happiness Report, is a measure of subjective well-being and happiness among countries around the world and is based on survey data. It assesses various factors contributing to happiness, such as income, social support, life expectancy, freedom to make life choices, generosity, and perceptions of corruption. The index aims to provide insights into the overall well-being and quality of life experienced by people in different nations. Just like the Human Development Index, this scale includes measures that capture the living conditions and experiences of the ordinary people in a given country in order to add much needed context to its report.

 

Figure \(\PageIndex{3}\): A color coded map of the world levels of happiness as measured by the World Happiness Index (2023). Dark green indicates highest levels of happiness, whereas darker red indicates lower levels of happiness. (Wikimedia Commons by Mapsarecool123 is licensed under CC BY-SA 4.0 Deed)