The history of global economic inequality

The chart shows estimates of the distribution of annual income among all world citizens over the last two centuries.

To make incomes comparable across countries and time, daily incomes are measured in international-$ — a hypothetical currency that would buy a comparable amount of goods and services that a U.S. dollar would buy in the United States in 2011 (for a more detailed explanation, see here).

The distribution of incomes is shown at 3 points in time:

• By 1800, few countries had achieved economic growth. The chart shows that most of the world lived in poverty with an income similar to today's poorest countries. At the beginning of the 19th century, the vast majority—roughly 80%—of the world lived in material conditions that we would refer to as extreme poverty today.
• In 1975, 175 years later, the world had changed—it had become very unequal. The world income distribution was 'bimodal', with the two-humped shape of a camel: one hump below the international poverty line and a second hump at considerably higher incomes. The world had divided into a poor, developing world and a developed world more than 10-times richer.
• Over the following 4 decades, the world income distribution has again changed dramatically. There has been a convergence in incomes: in many poorer countries, especially in South-East Asia, incomes have grown faster than in rich countries. While enormous income differences remain, the world can no longer be neatly divided into 'developed' and 'developing' countries. We have moved from a two-hump to a one-hump world. And at the same time, the distribution has also shifted to the right—the incomes of many of the world's poorest citizens have increased, and extreme poverty has fallen faster than ever before in human history.

We have visualized a similar dataset from the OECD here.¹

This visualization shows the distribution of incomes between 1988 and 2011. The data was compiled by the economists Branko Milanovic and Christoph Lakner.³

To see the change over time, select the years above the distribution.

The previous visualization, which showed the change from 1820 to the year 2015, is based on estimates of inflation-adjusted average incomes per country (GDP per capita) and a measure of income inequality within a country only. It gives us a rough idea of how the distribution of incomes changed, but it is not very detailed or precise. In contrast to this, the work by Branko Milanovic and Christoph Lakner is based on much more detailed household survey data. This data measures household income at each decile of the income distribution, and the two authors used this information to arrive at the global income distribution. The downside of this approach is that we can only go as far back in time as household surveys were conducted in many countries around the world.

The visualization shows the end of the long era in human history in which global inequality was increasing. Starting with industrialization in North-Western Europe, incomes in this part of the world started to increase while material prosperity in the rest of the world remained low. While some countries followed European industrialization – first Northern America, Oceania, and parts of South America and later Japan and East Asia – other countries in Asia and Africa remained poor. As a consequence of this, global inequality increased over a long period. Only in the period shown in this visualization did this change: with rapid growth in much of Asia and Latin America, the global distribution of incomes became less unequal. The incomes of the poorer half of the world population rose faster than the incomes of the richer half.

This visualization shows how the global income distribution has changed over the decade up to 2013. Tomáš Hellebrandt and Paolo Mauro, the authors of the paper⁴ from which this data is taken, confirm the finding that global inequality has declined but remains very high: the Gini coefficient of global inequality has declined from 68.7 to 64.9.

The visualizations above show the income distribution on a logarithmic x-axis. This chart, in contrast, plots incomes on a linear x-axis and thereby emphasizes how very high global inequality still is: The bulk of the world population lives on very low incomes, and the income distribution stretches out very far to the higher incomes at the right-hand side of the chart; incomes over 14,000 international-$ are cut off as they would make this chart with a linear x-axis unreadable.

A second positive global development shown in this chart is the rise of the global median income. In 2003 half of the world's population lived on less than 1,090 international-$ per year, and the other half lived on more than 1,090 international-$. This level of global median income has almost doubled over the last decade and was 2,010 international-$ in 2013.

Finally, the authors also dare to project what global inequality will look like in 2035. Assuming the growth rates shown in the insert in the top-right corner, the authors project global inequality to decline further and to reach a Gini of 61.3. At the same time, the incomes of the world's poorer half would continue to increase significantly, so that the global median income could again double and reach 4,000 international-$ in 2035.

If you are looking for a visualization of only the observed global income distribution in 2003 and 2013, you can find it here.

The following visualization offers an alternative view of the data by Hellebrandt and Mauro⁴ shown in the chart before.

The chart shows the yearly disposable income for all world citizens in both 2003 and 2013. On the x-axis, you see the position of an individual in the global distribution of incomes. On the logarithmic y-axis, you see the annual disposable income at that position.

The increase in prosperity—and decrease in poverty—is substantial. The income cut-off of the poorest 10% has increased from 260 international-$ to 480 international-%, and the median income has almost doubled from 1,100 international-$ to 2,010. Global mean income in 2013 was 5,375 international-$.⁵

At the same it is still the case, as emphasized before, that incomes are very low for most people in the world.

The visualization presents the same data in the same way, except that the y-axis is now not logarithmic but linear. This perspective shows the still very high level of global inequality even more clearly.

The previous and the following visualization show how high global income inequality is. The cut-off to the richest 10% of the world in 2013 was 14,500 int-$; the cut-off for the poorest 10% was 480 int-$. The ratio is 30.2.

While global inequality is still very high, we live in a period of falling inequality. In 2003, this ratio was 37.6. The Gini coefficient has also fallen from 68.7 to 64.9.

Taking the historical experience as a guide for what is possible in the future, we have to conclude that global inequality will remain high for a long time. To understand this, we can ask how long it would take for those with incomes at the poorest 10% cutoff to achieve the current incomes of the richest 10% cutoff (14,500 international-$). This income level is roughly the level of GDP per capita above which the extreme poverty headcount gets close to 0% for most countries (see here).

Even under a very optimistic scenario, it will take several decades for the poorest regions to reach the income level of the global top 10%.

2% is roughly the growth rate that the richest countries of today experienced over the last decades (see here). We have seen that poorer countries can achieve faster growth, but we have not seen growth rates of more than 6% over a time frame as long as necessary to reach the level of the global 10% in such a short time. If the past is a good guide for the future, the world will likely be highly unequal for a long time.