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Household income inequality: ladders to climb

Income inequality varies widely from country to country, and will continue to do so for some considerable time

By The Data Team

IN 1980 living standards in China were the lowest among the G20 countries. Since then, median income in China has grown at an average pace of nearly 12% a year: twice the rate of a fast-growing economy like South Korea and three times faster than India. As a result, China’s middle class is richer today than Brazil’s, according to data from the Global Consumption and Income Project, which compares disposable incomes across countries.

America’s position on the income ladder, meanwhile, has been slipping. Middle incomes in America have grown barely 1% a year: one of the lowest rates in the G20, and less than half the rate of Australia or Britain. Today it is Canada’s middle class, rather than America’s, that is the richest in the G20. Further down the income spectrum, where growth has been even less pronounced, America has been surpassed by Western European countries such as France and Germany. The bottom 10% of American households are now level with South Korea and Japan.

Faster-growing incomes in the developing world, particularly since 2000, have contributed to a convergence with incomes in rich countries. According to the GCIP authors, inequality within countries has increased since 1980, but between countries it has decreased. Assuming the growth rates of the past 35 years continue in the future (a big if), and adjusting for differences in purchasing power, median incomes in South Korea will catch up with those in America in ten years. For China, that would take 25 years. But growth at the top in China has been so turbo-charged that catch-up with the top 1% of households in other countries will be much quicker than for the median household: just six years for Britain or Germany, and just over ten for America. The cost of this top-heavy income-surge is that China has become the second-most unequal country in the G20 after South Africa.

In other developing countries such as India and Brazil, incomes have grown much more inclusively than in China. But when it comes to catching up with the rich world, the picture for such countries is considerably less upbeat. While incomes are growing faster than America in percentage terms, they are growing from a much lower base, meaning that in absolute terms the gap is still increasing. According to Gregor Semieniuk, of Sussex University in Britain, and Sanjay Reddy of the GCIP team, middle incomes in India won’t even start closing in on those in America for another 100 years, while for Brazil the gap won’t start to close for another 60 years. In the uncertain world of economic forecasting, Mr Semieniuk notes, one might as well say that it will never happen.

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