The Countries with the Most (and Least) Income Equality
- Details
- Category: World News
- Published on Tuesday, 01 September 2015 06:40
- Written by Ben Taylor
You’ve heard statistics about how 10 percent of America owns 75 percent of the wealth and that the top 1 percent makes nearly 20 percent of all income. But is American prosperity really so unequal compared to the rest of the world?
In order to see how America stacks up against other nations, FindTheData turned to the Gini ratio. Developed by sociologist Corrado Gini in the early 20th century, the Gini ratio describes a country’s income distribution on a scale of zero to one. A Gini ratio of zero indicates that every person in the country makes exactly the same amount of money. A Gini ratio of one means that just one person makes all the money.
The United States' ratio? 0.41. Proportionally, this means the top 20 percent of earners make about 46 percent of the total national income.
While that might sound fairly unequal, America is actually near the middle of the pack compared to the rest of the world. Among the 88 countries we analyzed, the average Gini ratio was 0.38. For comparison, consider that Brazil’s Gini ratio is 0.53, where the top 20 percent make 57.2 percent of the wealth. South Africa’s Gini ratio is even higher, at 0.65.
Meanwhile, the countries with the most equal income distribution tend to have Gini ratios between 0.20 and 0.30, such as Sweden and Norway. That said, the top 20 percent in these countries still make nearly double their share of the nation’s income (~36 percent).
But even in countries with a high Gini ratio (and thus, high inequality), at least new generations can work hard, ascend the income ladder, and join the top 20 percent, right?
Wrong. Unfortunately, the Gini ratio is highly correlated with another metric, called intergenerational earnings elasticity. While it sounds complicated, earnings elasticity simply describes how closely a parent’s income will dictate future income for his or her child. It turns out that the most unequal countries, like Brazil, are also the most stagnant in terms of intergenerational income changes. In other words, rich families tend to stay rich, while poor families tend to stay poor.
Take Brazil’s elasticity score of 0.58. This means that if a father makes $10,000 more than average, his son will be expected to make $5,800 more than average. But the same is true on the opposite end. If a Brazilian father made an income $10,000 less than average, his son is estimated to make $5,800 less than average as a result.
Add it all up, and you get income immobility across the world. Countries with large income gaps—like Brazil and South Africa—might allow a rare individual to ascend the ranks, but the data says generations tend to fall in step with the one that came before.
Meanwhile, countries with more equal income distribution—like Denmark and Norway—allow for greater income flexibility between generations, but there’s less of a gap between the rich and poor in the first place, so generational changes in income aren’t as significant, anyway.
As a final note, it’s important to maintain the distinction between income and wealth. Both the Gini ratio and earnings elasticity metric focus on annual income—a figure that can change significantly throughout a person’s life.
Consider that 61 percent of American households will count themselves among the top 20 percent in income for at least two consecutive years, even if they begin or end their lives in a much lower bracket. Married professionals tend to break this barrier in their forties and fifties, once both partners are earning a solid salary at the same time.
Contrast income with wealth, where inheritance, investments and lifetime savings all contribute to the final number. Here, American inequality is more pronounced, a product of long-term habits, family systems and life circumstance.
So is America especially unequal, when compared to the rest of the world? It depends on the metrics you pick. For income, at least, the answer is no.
