Mon | Jun 18, 2018

Briefing | Global income inequality increasing

Published:Wednesday | January 3, 2018 | 12:00 AMDr Andre Haughton

The year 2018 is one of endless possibilities for many countries that are desperate to increase economic growth, maintain stability, reduce poverty and reduce income inequality. Despite many attempts over the last four decades by many developing as well as developed countries, income inequality remains high.

The Global Income Inequality Report 2018 highlights that income inequality has been increasing across the world over the last four decades. The report attempts to measure changes in wealth and income equality across countries and regions, using data from 1980 to present with the intention of improving discussions on the subject area as well as improving global equality. The report indicates the importance of political and institutional factors to reducing income inequality between and across countries. Insufficient data limits the understanding of income inequality in many low-income countries.

Growth in Asia has helped the world

The report indicates that growth in income in Asia has resulted in an increase in the income of the poorer people of the world. While income inequality in North America and Asia has increased more rapidly than in Europe, it continues to remain high in sub-Saharan Africa and sections of Central America, mainly Brazil. Income inequality increased in Russia, China and India after 1980.

More specifically, after 1980, the total cumulative real income growth per adult in China was 831 per cent; income growth for the bottom 50 per cent of the population was 417 per cent as opposed to the income growth of 1,920 per cent for the top 0.1 per cent of the population.

The situation was not as dramatic in Europe, where cumulative real growth totalled 40 per cent per adult over the same period of time, ranging from 26 per cent of total cumulative real growth per adult for the bottom 50 per cent of the population to 76 per cent for the top 0.1 per cent. The growth in China is mainly attributed to industrial expansion. This is indicating that the top 0.1 percentile in most countries continue earn higher incomes relative to the bottom 50 per cent of the population in most countries.

Bottom income group shows low improvements in the USA

In the United States and Canada, total cumulative real growth per adult is 63 per cent. In this region the total cumulative real growth per adult is only five per cent for the poorer half of the country, while the top 0.1 per cent of the population total cumulative real growth per adult is about 320 per cent. The report outlines that this is attributed to an increase in labour income equality. The US experienced large increases in wages paid to CEOs and managers, which emerged as a trend among large financial and non-financial companies.

Where income inequality is highly concentrated

While in Europe and North America income inequality appears to be rising according to the report, income inequality remains highly concentrated in Africa, Brazil and the Middle East. Brazil has been making strides to increase the share of income afforded to the poor through successful cash transfers. These, although helpful to some extent are still insufficient. The extreme poverty visible in many parts of Africa has been attributed to the region's long history with slavery.

What does this mean for Jamaica?

There is limited data available on income inequality in many countries, including Jamaica. From observation, however, it is apparent that there is much work to be done to improve the earning potential of the poor and marginalised. Continuation of structural and institutional reform efforts is important. Likewise, improvements in infrastructure and roadworks must coincide with proper rural and urban development planning to increase the fluency of business operations across the island.