Global Income Inequality

Global Income Inequality

Global income inequality is on the rise after making decades of progress, and it is now emerging that the pandemic lockdowns have affected the poorest people in society the most.

Moreover, the war in Europe is adding to supply chain problems for soft commodities and energy, which is fueling a cost of living crisis where the burden is felt the most by those scraping a living.

So global income inequality and rising homelessness, and even HIV infection rates in Europe, which were all in reverse a few years ago, are now on the rise again. 

But how has global income inequality paid out over two centuries?

The good news is that absolute incomes across many poorer countries have significantly risen over the last century. So poverty levels in the poorest countries have fallen dramatically despite stark inequality.

Our World in Data looks at three periods from 1800, 1975, and 2015 spanning two hundred years to analyze global income inequality.

For global income estimates, data gathered by country across three key variables:

• Population
• GDP per capita
• Gini coefficient, which measures income inequality by a statistical distribution

Daily incomes were measured in a hypothetical “international-$” currency, equal to what a U.S. dollar would buy in America in 2011, to allow for comparable incomes across periods and countries.

So in 1800, over 80% of the world lived in what we consider extreme poverty today.

By 1975, global income inequality became a tale of two worlds. Most citizens in developing countries live below the poverty line. Meanwhile, most people living in developed countries lived above the poverty line by 1975, with incomes ten times higher on average compared with developing countries. 

Developed countries experienced an economic boom during the Post-WWII era.

But how has global income inequality changed 40 years on from 1975?

Developing countries played catch up as incomes rose faster in poorer countries than in developing ones. So global income inequality was reduced, with many people in developing countries lifted out of poverty. Between 1975 and 2015, poverty declined faster than at any other time. But steep inequality persisted.

So the data illustrates that economic activity was better distributed across the world in the 19th century, with GDP per capita at approximately $1,100 with nearly everyone living below the poverty line. 

Today, the global average GDP per capita is approximately $15,212 or about 14 times higher, but it is not as equally distributed. At one end of the spectrum were Western and European countries with strong economic growth and greater industrial output. Meanwhile, countries with the lowest average incomes have not seen the same levels of growth.

From the data, we can conclude that economic prosperity is heavily influenced by where one lives.

But could this change in the next 40 years as the world becomes more digital, making proximity insignificant?