Date posted: 30/01/2020 8 min read

The issue: Income and wealth inequality

Global wealth has grown to more than US$360 trillion, but the rich are getting richer faster than the rest of the population.

In Brief

  • Income inequality continues to grow in many countries, including 20 out of 29 advanced economies.
  • Wealth is significantly more unevenly distributed than income worldwide.
  • The middle class has shrunk with every generation since the baby boomers.

By Stuart Ridley

Global wealth has grown to more than US$360 trillion, but the rich are getting richer faster than the rest of the population. The World Economic Forum reports income inequality continues to grow in many countries, including 20 of 29 advanced economies, and wealth is significantly more unequally distributed than income in both advanced and emerging economies.

Wealth doesn’t ‘trickle down’

“We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20% results in lower growth – that is, when the rich get richer, benefits do not trickle down.” – International Monetary Fund.

Source: Causes and Consequences of Income Inequality: A Global Perspective, International Monetary Fund, June 2015

Global wealth

2019
US$360 trillion
global wealth

2024
US$459 trillion
global wealth (projected)

Top 1%
owns nearly half
(45%) of all global wealth

Bottom 50%
of the world’s adult population owns less than 1%
of total global wealth

Source: The Global Wealth Report 2019, Credit Suisse, October 2019

What is driving income inequality?

  • Global markets expanded by advances in transport, communication and automation create greater local competition but also drive skill biases.
  • Education improves occupational choice, access to jobs and level of pay, but a ‘good education’ is increasingly unaffordable for many.
  • Technology causes skill biases in the job market, raising demand for capital and skilled labour over low-skilled and unskilled labour.
  • Trade globalisation promotes competitiveness, but firms in advanced economies adopt labour-saving technologies and offshore work to cut costs; this in turn drives local declines in manufacturing and the value of skills.
  • Financial globalisation can concentrate assets and liabilities in higher skill and technology-intensive areas.
  • Financial development can boost top incomes in the early stages, but inequality can increase as those with higher incomes and assets have a disproportionately larger share of access to finance.
  • Changes in labour market dynamics such as flexible hiring rules (arise in part-time and casual jobs) and a decline in union bargaining power can stagnate wages.
  • Tax policies in advanced economies have changed, with declining top marginal tax rates. Higher-earning households and corporations are paying lower taxes than previously, reducing funds for public pensions and other benefits.

Source: International Monetary Fund

Demonstrations in Chile in October 2019, first sparked by a rise in public transport fares, quickly grew into a broader protest about inequality, corruption and deficient public services.	Picture: Demonstrations in Chile in October 2019, first sparked by a rise in public transport fares, quickly grew into a broader protest about inequality, corruption and deficient public services.

The shrinking middle class

The comfortable middle class has become much less comfortable in the past 30 years. The OECD’s May 2019 report, Under Pressure: The Squeezed Middle Class, states that every generation since the baby boomers has seen the middle-income group shrink. [The middle-income group earns between 75% and 200% of the median national income.]

While almost 70% of baby boomers were part of middle income households when they were in their 20s, only 60% of millennials are today.

Young people today are perhaps the most educated generation ever, but they are less likely to achieve the same standard of living as their parents enjoyed.

“Young people today are perhaps the most educated generation ever, but they are less likely to achieve the same standard of living as their parents enjoyed.”

Across the OECD, middle incomes have stalled. In most of the OECD, middle incomes are barely higher today than they were 10 years ago, rising just 0.3% per year.

But at the same time, the costs of middle-class ‘essentials’ such as housing and higher education have grown faster than inflation. There is also rising job insecurity, with one in six ‘middle class’ jobs at high risk of automation.

Over-indebtedness is higher for the middle-income group than for both low and high-income households. More than 20% of middle-income households spend more than they earn, and many are at risk of sliding into the lower-income class.

Global wealth inequality trends

Projected share of global wealth for top 1% in China, Europe and the US

Global wealth inequality, 1980-2050: China, Europe and the USFigure 1. Global wealth inequality, 1980-2050: China, Europe and the US. Source: World Inequality Report 2018, World Inequality Lab, June 2018.

What countries are the most equal?

The Gini Index, a statistical measure of wealth distribution developed by the Italian statistician Corrado Gini in 1912, represents the income or wealth distribution of a nation’s residents, with 0 (0%) representing total equality and 100 (100%) representing absolute inequality.

5 nations with least inequality

Country  Annual GDP per capita (US$)   Wealth GINI
 Albania  4,712  44.8
 Hungary  14,840  45.3
 Slovak Republic  19,238  46.3
 Iceland  48,614  46.7
 Moldova  2,063  47.9 

5 nations with most inequality

Country  Annual GDP per capita (US$)   Wealth GINI
Kazakhstan  10,570   92.6
Egypt  2,724  91.7
Namibia  6,021  91.0
Ukraine  2,906  90.1
South Africa   7,504  86.7 

Source: The Inclusive Development Index 2018, World Economic Forum, January 2018

Household wealth in Australia and New Zealand

The wealthiest 20% of households in Australia are 91 times as rich as the poorest 20%. In New Zealand, the richest households have 194 times the wealth of the poorest households.

Household net worth 2018

   Australia (mean)* New Zealand (median) 
Highest 20%   A$3.2 million  NZ$1.75 million
Middle 20%  A$570,000  NZ$340,000
Lowest 20%  A$35,200  NZ$9,000

* These mean and median figures are indicative only and are not meant to be used as a direct comparison of households between the two nations.

Sources: Inequality in Australia 2018, Australian Council of Social Service and UNSW, July 2018; Australian Bureau of Statistics; “Wealth of top 20 percent rises by $394,000”, Stats NZ, December 2018.

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