The Credit Suisse 2019 World Report is an eye-opener for understanding income inequalities worldwide. To start, the global income inequity has come down in the last two decades with the Gini Coefficient coming down. But the trend in the top 1 percent of the wealthy international individuals started reversing after the financial crisis, especially in America. In fig. Gini Coefficient is multiplied by 100. Today, the top 1 percent of the population holds about 44 percent of the worldwide wealth of the world. In a disturbing trend, the lower half of the population own less than 1 percent of the global wealth while the wealthiest 10 percent own 82 percent of all the wealth. However, the top 1 percent owned 46.9 percent of global net assets in 2000, giving clear evidence that globalization has reduced inequality to a certain extent.
The $10,000 to $1,00,000 saw the most significant increase in size in population from 514 million to 1.7 billion, a 230.7 percent increase with assets totaling $55.7 trillion. This increase in the middle-income segment is primarily due to the growth of emerging economies, especially China, and one of the biggest enablers in lowering the inequality in income around the world. North America registered the highest increase in wealth at $4.1 trillion with the US, adding $3.9 trillion followed by China and Europe at $3 trillion. India (5.3 percent) and Latin America (4.9 percent) accounted for the top two highest increases in percentage terms. The rise in millionaires, which is increasing income inequality, is a result of changes to the distribution curve, a factor of rising average wealth, and an increasing global population. To understand the effect of inequality as a contributing factor to the increase in the number of millionaires, the Credit Suisse team studied the effect of the Lorentz Curve on the income distribution of the population. Lorentz curve is the graphical distribution of wealth to highlight the proportion of income earned as the percentage of the population. Gini Coefficient uses the Lorentz curve to qualify a numerical value that ranges from 0 to 1, with 0 being the most equitable distribution of wealth and one the most unequal, i.e., one person owns all the wealth in the economy. The higher the Gini Coefficient value, the higher the unequal distribution of wealth. The result shares a holistic picture; inequality only contributes 6 percent to the rise in millionaires, with an increase in average wealth contributing to the lion’s share of 78 percent and population growth 16 percent.
The study did include the proliferation of technology as a contributor. Is technology an omitted variable bias? So, what is omitted variable bias?
In India, 75 percent of the adult population owns wealth below $10,000, making it one of the highest countries in the world based on inequality with a Gini Coefficient of 83.2. Among the wealthiest countries covered in the analysis, Japan has one of the lowest Gini Coefficient at 62.6 compared to other countries. The report enunciates the reduction in inequalities in wealth globally contrary to the popular opinion that globalization increased differences in income, although it’s not profound. Although the middle-income group segment’s rise over the last two decades, especially in emerging economies, enabled Gini Coefficient to reduce, keeping other factors constant, still a whopping 2.9 billion or 57 percent of all adults in the own world wealth below $10,000 in 2019. Over the last two decades, globalization has not significantly benefited the world in lowering the systemic income inequalities within the global wealth ecosystem.
Refer to the Inequalities Publication here. Subscribe to The middle Road to read the report.