3 topics: global inequality, growth and inequality,...
TRANSCRIPT
3 topics: global inequality, growth and inequality, international transmission of
inequality
Branko Milanovic
New York, December 2, 2014
A. How has the world changed between the fall of the Berlin Wall and the Great Recession (based on a joint work with Christoph Lakner)
Branko Milanovic
Real income growth at various percentiles of global income distribution, 1988-2008 (in 2005 PPPs)
From twenty_years\final\summary_data
X“US lower middle class”
X “China’s middle class”
Branko Milanovic
$PPP2
$PPP4.5 $PPP12
$PPP 110
Estimated at mean-over-mean
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0 20 40 60 80 100
Re
al P
PP
inco
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ange
(in
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rce
nt)
Percentile of global income distribution
-20
-10
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0 10 20 30 40 50 60 70 80 90 100
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al P
PP
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Percentile of global income distribution
Real income gains (in $PPP) at different percentile of global income distribution 1988-2008
Without China
World
Quasi non-anonymous GIC: Average growth rate 1988-2008 for different percentiles of the 1988 global income distribution
Branko Milanovic
Growth incidence curve (1988-2008) estimated at percentiles of the income distribution
Branko Milanovic
mean growth
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cu
mula
tive
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al g
row
th r
ate
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een
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8 a
nd 2
008
2 10 20 30 40 50 60 70 80 90 95 100percentile of global income distribution
Using my_graphs.do Mean-on-mean
0 0 1 1 1 1 1 2 2 2 3 3 4 5 4
1 3
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25 27
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Dis
trib
uti
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(in
pe
rce
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of
gain
ventile/percentile of global income distribution
Distribution of the global absolute gains in income, 1988-2008: more than ½ of the gains went to the top 5%
From summary_data.xls
Branko Milanovic
Global income distributions in 1988 and 2008
twoway (kdensity logRRinc [w=pop] if logRRinc>2 & bin_year==2008 & keep==1 & mysample==1) (kdensity logRRinc [w=pop] if logRRinc>2 & bin_year==1988 & keep==1 & mysample==1, legend(off) xtitle(log of annual PPP real income) ytitle(density) text(0.95 2.5 "1988") text(0.85 3 "2008")) Or using adding_xlabel.do; always using final_complete7.dta
1988
2008
0.2
.4.6
.81
den
sity
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100
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00
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log of annual PPP real income
Emerging global “middle class” between $3 and $16
Branko Milanovic
500
5000
1988 1993 1998 2003 2008 2011
An
nu
al p
er
cap
ita
afte
r-ta
x in
com
e in
in
tern
atio
nal
do
llars
US 2nd decile
Chinese 8th urban decile
From summary_data.xls
Political issue: Global vs. national level
• Our income and employment is increasingly determined by global forces
• But political decision-making still takes place at the level of the nation-state
• If stagnation of income of rich countries’ middle classes continues, will they continue to support globalization?
• Two dangers: populism and plutocracy
• To avert both, need for within-national redistributions: those who lose have to be helped
Branko Milanovic
Another aspect or explanation: Transmission of inequality under globalization • Let inequality increase in China & Russia only, and nowhere else
• For whatever reason, their rich demand land in Portugal (which e.g. is used for wine-making, but now will be used for housing)
• Such demand reduces K directly by withdrawing a part of T out of production.
• But it also increases domestic W. This is a real (non-fictitious) increase in W (although T has remained constant and is now owned by the Chinese) because the Portuguese can now by liquidating their wealth buy more goods
• So, Portugal’s LT growth is unaffected since Q=f(K,L) is the same, but its W/Y ratio has increased and its W and Y distribution are more unequal
• An interesting twist is whether this increased W and Y inequality might in turn have negative effects on future growth
C. New research approaches in economics of inequality
Branko Milanovic
New promising developments: unpacking inequality and growth Inequality of opportunity
• Inequality due to circumstances and to effort (and luck); Romer
• Intuitive idea that there is a good & bad inequality (apply it empirically)
• Link these 2 types of inequalities to growth (Marrero & Rodriguez, Ferreira)
Inequality and growth along income spectrum
• Unpack inequality: inequality among the poor (50/10) bad for growth; inequality among the rich (90/10) good for growth
• Unpack both inequality and growth. Inequality among the rich slows down the growth rate of the poor (van der Weide & Milanovic)
US growth incidence curves 1960-70 and 1990-2000: from pro-poor to pro-rich
Based on joint work with Roy van der Weide
Total, top and bottom Gini: average across US states
Inequality and growth rate at different percentiles of income distribution (state-level data, 1950-2010)
5th 10th 25th median 75th 90th 95th 99th
Overall Gini
-0.245** -0.242** -0.127** -0.028 +0.032 +0.05** +0.06** +0.07**
Bottom Gini
-0.038** -0.018* -0.03 +0.03 +0.05 +0.06* +0.075**
+0.07**
Top Gini -0.12 -0.16* -0.14* -0.08* -0.01 +0.00 -0.00 +0.02
Dep. variable: growth rate at a given percentile of income distribution Controlling for demography (age, gender), education level, labor force participation, 4 geographical regions (n=245; R2 between 0.75 and 0.89)
Summary of the results
Pooled regressions (regional FE)
GMM estimation State fixed effects
Bottom growth
Top growth
Bottom growth
Top growth
Bottom growth
Top growth
Overall Gini Negative
≤25
Positive
≥75
Negative
≤25
Positive
≥75
Negative
≤75
----
Bottom Gini Negative
≤10
Positive
≥90
--- Positive
≥50
Negative
≤10
----
Top Gini Negative
≤50
----- Negative
≤50
--- ---- ----
What do the results imply?
• Inequality of any kind today is bad for the future growth rate of the poor
• Conjuncture re. why it happens
• Social separatism of the rich: lack of interest in investing in public education, health, infrastructure; presumably, things from which the poor benefit disproportionately
• But inequality is neutral or good for the growth rate of the rich
• Thus, no interest of the rich to reduce inequality
• As political process gets more controlled by the rich (empirical studies in the US), lower likelihood of a change of policies
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US vs. Germany: comparison of real per capita incomes across decile: (% difference)
Final_dataNYT.xls under voter/forNYTimes/
Redistribution: USA and Germany
Germany
USA
.05
.1.1
5.2
gin
i_m
ark
et-
gin
i_d
isp
osa
ble
.35 .4 .45 .5 .55gini_market
twoway (scatter gini_reduction gini_market if source=="LIS" & decile==1 & contcod=="USA", connect(l)) (scatter gini_reduction gini_market if source=="LIS" & decile==1 & contcod=="DEU", connect(l) legend(off) text(0.13 0.4 "Germany") text(0.08 0.5 "USA"))