Inequality in the World: How It's Measured

Thursday, December 6, 2018

Inequality in the world is widespread. In most of the countries, a significant part of the wealth is confined to a few people, and the major part of the population suffers. Then, there are also countries which receive vast amounts of foreign investment, while others have to deal with a meager amount.

Well, those are problems associated with global economic inequality, but there also exists gender inequality. On some positions, employers prefer males while on others only females get the preference, but that’s not all. There also are instances when women face discrimination such as lower payment than their male counterparts in the same position. 

But is there any useful scale to measure inequality in the world? Branko Milanovic tries to answer it in his book – The Haves and the Have-Nots. He worked as a lead economist in the research department of the World Bank and thus, attempts to explore the different types of inequality prevailing in the society. In this book, you also will discover the causes behind this widespread inequality.

Listen to the summary at Blinkist or listen to the book at Audible.

Social development influences inequality

Whether the system is socialistic or capitalistic, when the economy starts to grow the inequality will rise between industrial and agriculture sector.
Whether the system is socialistic or capitalistic, when the economy starts to grow the inequality will rise between industrial and agriculture sector.

A socialist economy has better levels of equality than those countries having a purely capitalist system. Nationalization of large industries and a fair distribution of resources ensures equal opportunity for all citizens. However, this equality results in a lack of innovation which in turn hampers the economic growth.

Read more: The End of Poverty

When everyone has equal opportunities, and the state provides all resources irrespective of individual efforts, there is little motivation to perform. No one has the urge to compete, earn more and live a better life. But even then, the inequality develops whether the system is capitalistic or socialistic.

Simon Kuznets, a Russian-American economist, showed that economic growth does have an impact on inequality. As the economy starts developing, those involved in industries, start earning more than those in the agricultural sector. 

The socialist system, however, can decrease the gap with the help of government intervention. A change in the wealth cycle by the support of taxes, government aids, and various other policies leads to equality, again.

Is inequality good or bad?

Inequality can have a huge impact on living conditions, like in this city - where inequality radiates in the air.
Inequality can have a huge impact on living conditions, like in this city - where inequality radiates in the air.

There are different types of social inequality in the world. Apart from financial disparities, there are class-based inequality and gender inequality. Oh, I almost forgot, there also is another type of inequality, health care (and food).

We see many examples of gender inequality in everyday life, and they affect economic growth. When a significant part of the population can’t contribute to the economy, the growth is bound to suffer. But inequality and injustice aren’t only in the participation; there are differences in legal justice, income and also, status in the society.

Then there is the difference in health care services, which is inequality among countries. While some citizens enjoy good treatments when sick, a significant part of the population in some countries, don’t have access even to the basics. Lack of adequate health services and nutrition affects the efficiency of those people and thus, the economic growth.

The inequality in income and opportunities, however, can be either good or bad depending on the effect it has on the society. Prevalence of bias can motivate people. It drives them to work hard and reduce the growing inequality. Such people, at times, create groundbreaking advancements, which gives a significant boost to the economy.

But, what if those on the top of the ladder, with better access to resources or better resources, are hesitant to help. It’s the situation again when only a small part of people – the affluent ones – take part in economic growth and thus, limit it.

Industrial Revolution and Inequality

Rapid industralization has given rise to the inequality in the world.
Rapid industralization has given rise to the inequality in the world.

There isn’t a country where everyone is paid the same. Disparity exists, however, not only among the individuals but also among nations. Similar to the difference in the quality of healthcare services, there is inequality in the economic status of countries. And a significant reason for this growth in inequality in the world is the Industrial Revolution.

Countries like the US and Britain were capable of manufacturing, and they got richer. The others like Brazil and India who lacked such opportunities couldn’t be at par, and the gap of inequality kept widening. Another reason for the growth in global inequality is the Lucas Paradox.

Although globalization has almost leveled the playground, providing equal opportunities to all, most of the investment still goes to the rich countries. For example, before 2007 India received about $4 to $6 billion a year from other countries. It is the same amount of investment US gets in a week. The reason for such a trend is that the developed countries limit financial risk.

Read more: The Bottom Billion

Therefore, instead of the wealth flowing from the rich countries to the poor ones, it keeps making rounds among the rich ones. Moreover, economists also noticed that many times, the money flow is from the developing nations to the rich, instead of the other way round.

How to compare global inequality statistics?

Global inequality statistics can be measured in a few ways.
Global inequality statistics can be measured in a few ways.

Now that we know that inequality affects the socio-economic system of a country, how do we measure it? While we can’t measure the different types of difference in the world, we do have a unit to compare the inequalities in income among countries. This unit is the Gini coefficient.

The Gini coefficient

We can easily access the national income of a country by adding up all the income and thus, getting the GDP. But to know how the revenue is distributed is a cumbersome task. Corrado Gini, an Italian economist, however, tried and came up with what we know as the Gini coefficient. It ranges from zero (no inequality) to one (maximum inequality).

According to this coefficient, countries like Denmark and Sweden are the most equal (with a score between 0.25 and 0.3). African countries and Latin America, however, have a rating of around 0.6 and are the most unequal.

Purchase Power Parity

The next option we have is to convert different currencies into a standard currency, the term for which is PPP (purchase power parity). This PPP has the same purchasing capacity everywhere, and you can then calculate the GDPs of different countries for your comparison. The math involved though, is complicated.

Individual Income

Another way used by the economists is to measure individual income by their ability to pay for labor. And with this method, John D. Rockefeller was the wealthiest man ever. With his $1.4 billion in 1937, he could have bought 116,000 people. Even Bill Gates (at $50 billion in 2005) fell short of 75,000 laborers. This method also reveals that the Americans and Europeans are the richest ones and there aren’t any significant ones even in Russia.

Interesting, isn’t it? So, get your coffee and start digging into the global inequality in economics. But which method are you going to choose? Well, that’s up to you to decide. Good luck!

Abhijeet Kumar a freelance content writer for
We travel not to escape life, but for life not to escape us.