Emerging Trends in The Social and Behavioral Sciences

Global Income Inequality

Item

Title

Global Income Inequality

Author

Firebaugh, Glenn

Research Area

Social Processes

Topic

Globalization

Abstract

This essay describes the evolution of global income inequality over the past two‐and‐a‐half centuries, and its likely evolution during the twenty‐first century. Global income inequality—the sum of inequality within and between nations—is massive today, the legacy of uneven growth in the world's regions since the advent of the Industrial Revolution. Because incomes shot up in the West while lagging behind in Asia and Africa over most of this period, between‐nation income inequality grew dramatically, and most global income inequality now lies between nations. Economic growth remains uneven across the world's regions, but the fastest growth is occurring in populous poor regions of the world, compressing between‐nation inequality. As a result, global income inequality is currently receding, according to most (but not all) investigations of the matter. The compression of global inequality is attributable to rapid economic growth in China and India: If the rate of economic growth in China and India were the same as in the rest of the world, global income inequality would not be declining. The slow rate of economic growth in sub‐Saharan Africa, on the other hand, is retarding the decline. A high level of global income inequality is problematic in large part because it results in abject poverty for masses of people. If average income in the world continues to rise, alleviating abject poverty in the twenty‐first century, for future generations the level of global income inequality might matter much less than the level of income inequality within local communities.

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Global Income Inequality
GLENN FIREBAUGH

Abstract
This essay describes the evolution of global income inequality over the past
two-and-a-half centuries, and its likely evolution during the twenty-first century.
Global income inequality—the sum of inequality within and between nations—is
massive today, the legacy of uneven growth in the world’s regions since the advent
of the Industrial Revolution. Because incomes shot up in the West while lagging
behind in Asia and Africa over most of this period, between-nation income inequality grew dramatically, and most global income inequality now lies between nations.
Economic growth remains uneven across the world’s regions, but the fastest growth
is occurring in populous poor regions of the world, compressing between-nation
inequality. As a result, global income inequality is currently receding, according to
most (but not all) investigations of the matter. The compression of global inequality
is attributable to rapid economic growth in China and India: If the rate of economic
growth in China and India were the same as in the rest of the world, global income
inequality would not be declining. The slow rate of economic growth in sub-Saharan
Africa, on the other hand, is retarding the decline. A high level of global income
inequality is problematic in large part because it results in abject poverty for masses
of people. If average income in the world continues to rise, alleviating abject
poverty in the twenty-first century, for future generations the level of global income
inequality might matter much less than the level of income inequality within local
communities.

INTRODUCTION
Global income inequality refers to the disproportionate distribution of income
among the world’s citizens. Over the past two-and-a-half centuries, dramatic growth in the world’s average income has benefited some regions and
population groups much more than others. As a result, the level of global
inequality observed in today’s world is massive. If you live in Germany or
Switzerland or the United States, you most likely are enjoying a standard
of living that your ancestors could scarcely imagine. If you live in a tribal
village in central Africa, on the other hand, your standard of living may be
roughly similar to that of your great-great grandparents.

Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Because nationality is the single most important determinant of income in
today’s world, investigations of global income inequality most often focus on
the question “Why are some countries and regions so rich and other countries and regions so poor?” It is useful to think of global income inequality
as consisting of two components: Inequality in the average income across
nations, or between-nation inequality, and inequality in the incomes of individuals within a nation, or within-nation inequality. That is:
IG = IB + IW

(1)

where IG refers to global income inequality, IB refers to between-nation
inequality, and IW refers to within-nation inequality. The between- and
within-nation components are weighted by the population size of each
nation. That weighting is necessary to give every citizen of the world equal
weight; otherwise, the income of an individual in less populous countries
(such as Luxembourg) would carry more weight than the income of an
individual in a more populous country (such as China or India).
To conceptualize global income inequality as the sum of between-nation
and within-nation income inequality, imagine that in every nation we redistributed incomes by taking from the rich and giving to the poor, so that everyone in a particular nation possessed the average income of that nation. In
doing so we would eliminate within-nation inequality. However, because
average incomes vary greatly from country to country, substantial global
inequality would remain. In fact, the differences in national incomes are so
large that at least two-thirds of global income inequality would persist if we
eliminated all inequality within nations (Goesling, 2001).
Because the majority of global income inequality is attributable to national
differences in average income, foundational research in this area has focused
on differences in the national and regional rates of income growth historically. A central finding is that world productivity has grown much faster
than world population over the past 250 years, so individuals in today’s
world generally are many times richer than individuals living in the 1700s.
At the same time, income is much more unequally distributed among the
world’s citizens today. In the next section I briefly overview the historical
trends. In the sections that follow I describe current trends in income inequality research and discuss potential areas of future research.
FOUNDATIONAL RESEARCH
PERIOD OF RISING INEQUALITY, MID-EIGHTEENTH CENTURY TO MID-TWENTIETH CENTURY
The Industrial Revolution ushered in a period of history characterized by
dramatic growth over the long run both in average income and in global

Global Income Inequality

3

income inequality. Average income grew because, contrary to the dire
predictions of Thomas Malthus (1798), unprecedented world population
growth was accompanied by an even faster rate of growth in world production. At the same time, global income inequality also grew because the
income growth was highly uneven. Incomes shot up rapidly in the Western
world in particular, while growth lagged behind in Asia and sub-Saharan
Africa.
Given the uncertainty of income estimates for the world’s regions in the
mid-eighteenth century, how do we know that since then there indeed
has been, in the words of Pritchett’s (1997) title, “divergence, big time”?
First, the level of global inequality witnessed today—where incomes in the
world’s richest and poorest regions differ by a factor of 20 or more—are
implausible in the context of the much poorer world of our ancestors.
In 1750, a large portion of the population would not survive under the
level of global inequality existing today. Second, on the basis of the best
income estimates available, Bourguignon and Morrisson (2002) find that
between-nation inequality increased greatly from 1820 (their first data
point) until the mid-twentieth century, thereby boosting global income
inequality. Finally, even with the uncertainty in income estimates, it is
clear that during the period of Western-led industrialization (the period
from about 1750 to about 1950) the growth poles in the world economy
were located in the richest regions. When income grows faster in richer
units than in poorer units, income inequality rises by definition. That is
what happened in the two centuries after 1750: Income generally grew the
fastest in the richest regions of the world and the slowest in the poorest
regions, resulting in the immense degree of global inequality observed
today.
CONTOURS OF GLOBAL INCOME INEQUALITY
In the pre-industrial world, before the rise of the middle class, the majority of
global income inequality was located within nations. With industrialization
the fraction of global income inequality attributable to between-nation
inequality grew, as rising between-nation inequality was accompanied by
stable or falling within-nation inequality (Bourguignon & Morrisson, 2002).
The result, as noted earlier, is that nationality has become the single most
important determinant of an individual’s income. Although still paramount,
the importance of nationality now may be lessening, as recent evidence
suggests a reversal of the trends in between-nation and within-nation
inequality (Bourguignon & Morrisson, 2002; Firebaugh, 2003). That is,
within-nation income inequality is rising in many regions of the world
whereas between-nation inequality is declining.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

BETWEEN-NATION INEQUALITY
It is not an easy task to compare the relative incomes of nations. Nations produce different commodities and services and value them differently (what is
the value of a ton of steel relative to a thousand haircuts?), and the mix of
products and services is constantly changing (the nineteenth century knew
nothing of computers or airplanes or cell phones). Despite these complications, even casual inspection indicates that Swedes generally enjoy higher
living standards than Chinese, and great efforts are expended in data collection worldwide to try to quantify these differences by measuring the quantity
and price of goods and services produced in nations around the world. (It is
also the case that within China residents of Shanghai generally enjoy higher
standards than do peasant farmers. But that bears on within-nation inequality, which we examine in the next section.)
After two centuries of growth, between-nation inequality stabilized in the
final decades of the twentieth century and is now declining. To be clear
on this point, it is important to distinguish the trend in between-nation
income inequality (component IB in Equation 1) from the trend in unweighted
between-nation income inequality (Milanovic, 2005). Because we want
to give everyone in the world equal weight when calculating global
inequality, it is weighted between-nation inequality (IB )—not unweighted
inequality—that bears on global income inequality. Some early research
caused confusion by inferring the trend in global income inequality on the
basis of the trend in unweighted between-nation inequality. Many small
poor nations in sub-Saharan Africa have experienced little or no income
growth in recent decades. As a result, there are more poor nations where
incomes are growing slowly than there are poor nations where incomes are
growing rapidly, so unweighted between-nation inequality has been growing.
Yet many more people live in the poor nations where economies are growing
rapidly, so weighted between-nation inequality has been declining.
In short, the trends in weighted (IB ) and unweighted between-nation
income inequality are going in opposite directions. The issue of whether
between-nation income inequality is boosting or compressing global income
inequality turns on whether incomes are rising faster on average for individuals in rich nations or in poor nations—on the trend in IB —and in recent
decades the overall rate of income growth has been faster for individuals in
poorer nations. This is the case because of rapid economic growth in China
and India, where 40% of the world’s people live. Outside of China and India,
between-nation income inequality is not declining. And if between-nation
inequality were not declining, global inequality would not be declining
either, since it is the decline in between-nation inequality that is driving the
decline in global inequality.

Global Income Inequality

5

The rate of economic growth in China and India, then, is a principal
determinant of the direction and rate of change in global income inequality
today. Another key is the rate of economic growth in sub-Saharan Africa.
The vast majority of the world’s poor live either in Asia or in Africa. In
sharp contrast to the robust income growth experienced by many Asian
nations in recent decades, many nations in sub-Saharan Africa have lagged
behind economically, resulting in the “Africanization” of world poverty.
This slower-than-world-average income growth in sub-Saharan Africa has
operated to retard the decline in global income inequality. In other words, if
incomes in sub-Saharan Africa grew as fast as in the rest of the world, global
income inequality would be declining faster than it is.
In short, in the two regions where most of the world’s poor live, the rates
of growth of national economies have had opposing effects on global income
inequality (Firebaugh & Goesling, 2004):
•

•

Faster-than-world-average income growth in Asia has worked to narrow global income inequality.
Slower-than-world-average income growth in sub-Saharan Africa has
worked to increase global income inequality.

Because many more people live in Asia than in Africa, recent studies (Hung
& Kucinskas, 2011; Sala-i-Martin, 2006) find that the net effect has been a
reduction in global income inequality over the past several decades.
WITHIN-NATION INEQUALITY
Within-nation inequality is the second component of global income inequality (Equation 1). Measuring within-nation inequality is as challenging as
measuring between-nation inequality. In the case of between-nation inequality, there is the formidable challenge of quantifying differences in societies
that produce and consume different products and services. To calculate
between-nation inequality, we need data and methods for generating per
capita income figures that reliably reflect the relative economic standing of
average citizens of different nations.
Measuring within-nation income inequality requires data on the distribution of incomes within each nation—not just income means for each
nation. Standard national currencies make it easier to quantify the level of
income inequality within nations than between them. The task of estimating
within-nation inequality for every nation nonetheless is difficult. The first
challenge is the absence of nationally representative individual-level income
data for many nations. In some instances, there are no individual-level
income data at all. In other instances, the data that exist are for a sample of

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

residents (e.g., urban dwellers only) that are not nationally representative.
Even when nationally representative data exist, they might not be comparable across nations. Some are based on pre-tax incomes and others on
post-tax incomes; some include unearned income and some do not. And
nations vary significantly in terms of the services (health, housing, etc.) they
provide their citizens. How are these services factored in when comparing
the level of income inequality within one nation versus another?
On the basis of current data, income inequality most likely is rising in the
average nation, thus slowing the decline in global income inequality caused
by reductions in between-nation income inequality. The precise contribution
of the within-nation trend to the global trend is uncertain. Although there is
a vast research literature on income inequality within nations, that literature
focuses largely on trends in inequality within a particular nation or group of
kindred nations. Very often the objective is to determine why inequality is
rising or falling in a particular country (e.g., there is an extensive literature
on the causes of rising income inequality in the United States). No attempt
is made in this literature to estimate the contribution of those trends to the
more general trend in global income inequality. Because income inequality
appears to be rising in the world’s most populous nations (China, India,
United States, and Russia), most agree that the world-average trend in
within-nation income inequality is tracking upward. In the absence of
falling between-nation income inequality, then, it is thought that global
income inequality would be rising, as within-nation inequality is increasing
on average.
To summarize, world population has increased dramatically since the
advent of the Industrial Revolution, but world productivity has increased
even faster. As a result, a world where most people were poor has evolved to
a much richer world. In this much richer world, incomes are very unevenly
distributed because, historically, income growth in richer regions has far
outpaced income growth in poorer regions. I now describe how current
research finds different patterns of growth in today’s world.
CUTTING-EDGE RESEARCH
Global income inequality shot up during the period of Western-led industrialization (from the mid-eighteenth century to the mid-twentieth century)
as the West took off economically while Asia and Africa lagged behind. This
pattern of growth changed in the waning decades of the twentieth century,
with some of the poorer regions of the world experiencing the fastest income
growth. Because the fastest growth was concentrated in Asia, where a majority of the world’s poor live, the regional growth differential this time operated to compress global inequality, as many of the billions of individuals

Global Income Inequality

7

living in China, India, and adjacent regions saw their incomes rise toward the
world average. Because of this great compression from below, the period of
“divergence, big time” ended, and we have entered a new historical epoch
marked by declining inequality between nations and rising inequality within
them (Firebaugh, 2003).
Has the shifting of the world’s income growth pole to Asia reversed the
trend in global income inequality? Empirical research in the past decade has
been devoted to addressing this issue (Hung & Kucinskas, 2011; Milanovic,
2005; Sala-i-Martin, 2006). Most of this new research finds that global income
inequality is now declining. That conclusion is not universally accepted,
for two reasons. First, it runs contrary to theories stressing the ability of
richer nations to maintain their advantaged position through unequal
economic transactions with poorer nations (but not contrary to convergence
theories stressing diminishing returns to scale as nations become richer).
Second, some believe that the attempt to describe the trend in global income
inequality is a fool’s errand because the data on between- and within-nation
income inequality are so problematic (Anand & Segal, 2008).
The fool’s errand criticism is the more serious. It is fair to say that attempts
to estimate the trend in global income inequality have been hindered historically by the absence of reliable data on the relative incomes for many
nations. More recent studies have attempted to alleviate the problem by using
data sets that calibrate economic activity for different nations on the basis of
purchasing power parity (PPP) rather than on the basis of foreign exchange
rates. Foreign exchange rates are seen as unreliable bases for determining the
relative economic standing of nations because rates of exchange apply only
to goods that are traded, and are subject to manipulation by governments.
Although far from perfect, PPP methods for calibrating economic activity
are regarded by most as a significant advance over foreign-exhange-based
methods for estimating the relative living standards enjoyed by individuals
in different nations.
At the least, the new empirical studies have been able to rule out some
once-fashionable theories. Dependency theory, a popular theory in the
1980s and 1990s, was based on the assumption that international trade and
other forms of international transactions constitute a type of zero-sum game
rigged to favor rich nations, inevitably resulting in greater and greater global
income inequality. Some proponents of the theory referred to this process as
the “development of underdevelopment” to stress the point that poor countries are poor because rich countries are rich. It is now clear, however, that
the massive inequality seen today resulted from growing incomes in some
regions of the world, not from growing incomes in some regions combined
with declining incomes in other regions. Moreover, the empirical work that
appeared to support the development-of-underdevelopment argument was

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

found to be based on an erroneous interpretation of cross-national regression
coefficients (Firebaugh, 1992).
KEY ISSUES FOR FUTURE RESEARCH
BETTER INEQUALITY DATA
The discussion points clearly to the primary issue facing global income
inequality researchers: data quality. Despite earnest efforts to collect comparable data for every nation in the world, data quality is uneven, and our
estimates of both IB and IW are far from perfect. Because the data are so noisy,
it is generally not possible to draw firm conclusions about global trends on
the basis of a few years of data. A longer period of observation is required
to detect meaningful change. A key issue for future research involves the
steady expansion and improvement of data collection operations throughout the world. The success of this endeavor cannot be taken for granted
because it will depend on the cooperation of governments and on adequate
funding. Because international agencies such as the United Nations have
other priorities, it is not certain that researchers can count on better income
data in the future.
In addition to the attempt to improve the measurement of income itself,
there are movements a foot in the social sciences that could shed new light
on global income inequality by altering the conceptualization and measurement of income inequality. One approach is to expand measures of global
income inequality to incorporate poverty and inequality in the same framework (Atkinson & Brandolini, 2010). Alternatively, future research on global
income inequality might draw on the burgeoning literatures in psychology
and behavioral economics on subjective well-being. “Happiness studies,” as
they are sometimes called, seek to compare happiness and life satisfaction
across individuals and societies. Whether measures of happiness and satisfaction are seen as substitutes or complements for measures of income, they
are likely to infiltrate research on global income inequality. As cross-national
investigations of happiness and life satisfaction become more standard, a literature on “global happiness inequality” might be close behind.
WHITHER GLOBAL INCOME INEQUALITY?
Barring a collapse of the global economic system, what is the likely course
for global income inequality in the twenty-first century? For the foreseeable
future, the direction of change in global inequality will be driven by the
direction of change in between-nation inequality. First, as noted earlier, the
majority of global income inequality lies between nations. Second, the other
component of global income inequality, IW , is unlikely to change drastically

Global Income Inequality

9

over a short period of time. Change in the income inequality in a particular
nation is the result of many factors that are unlikely to be the same across all
nations. At any point in time, income inequality grows in some nations and
declines in others. Because change in IW is the net result of national trends
that generally are, to some degree, offsetting, we expect change in IW to be
relatively gradual.
Hence, the relative income growth rates of richer and poorer nations
will determine the direction of change in global income inequality over
the next few decades. If economic growth in Asia—and China and India
in particular—continues to outstrip growth in the West, we can anticipate
compression of global inequality. This compression will slow as average
incomes in China and India approach the world income average; and if
incomes in China and India eventually surpass the world average, continued
faster-than-world-average income growth in these two countries will work
to boost, not compress, global income inequality.
A key issue for future research, then, is whether the income growth poles
we see in today’s world will continue to be the growth poles throughout this
century. If current patterns prevail, at some point we can expect a reversal
of the current decline in the between-nation component of global income
inequality.
Although between-nation inequality will drive most of the change in global
income inequality, this does not mean that the within-nation component is
inconsequential. Especially relevant here will be the direction and magnitude
of changes in within-nation inequality in populous nations, as it is the big
national differences that matter with respect to global income inequality. We
do not need to know, for instance, whether the degree of income inequality
is larger in Norway or in Sweden; it suffices to obtain a reasonable estimate
of income inequality in both societies, which will show that it is substantially less than inequality in South Africa, for example. Because within-nation
inequality constitutes only about one-third of global income inequality, and
is weighted by population size, conclusions about the direction of change in
global income inequality are relatively impervious to measurement uncertainty for small nations. For the most populous nations, though, it is important to obtain reliable estimates of the magnitude of income inequality to
reduce the uncertainty in estimates of global income inequality. Increasing
the reliability of estimates of global income inequality will require more accurate estimates of income growth and income inequality for China and India.
Future debates over the magnitude and change in global income inequality
are likely to hinge on alternative methods for estimating the incomes of China
and India.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

WILL GLOBAL INCOME INEQUALITY MATTER AS MUCH IN THE FUTURE?
Growing world income raises the possibility that abject poverty—income
levels insufficient to provide for basic human needs—could largely disappear in the twenty-first century despite the continuation of massive global
inequality. There would still be poverty in a relative sense because under the
current level of global income inequality some individuals would be much
poorer than others, even if everyone had enough income to provide for adequate food, shelter, and clothing. That raises the issue of why global income
inequality matters in the first place. Does global income inequality matter
only (or mainly) because it bears on poverty in the absolute sense? Or are
there other compelling reasons—such as social stability—for concern about
a high level of global income inequality?
Those questions have remained largely in the background before because
of more pressing concerns about alleviating abject poverty. To this point we
have lived in a world where a high level of global income inequality necessarily meant abject poverty for a significant fraction of the world’s population.
Until the waning decades of the twentieth century, mass poverty had been
the norm in the most populous region of the world, and it continues to be
all too prevalent in some regions today. In today’s world we want to reduce
global income inequality in large part because we want to reduce the level of
abject poverty in the world.
The motivation might be different in a world in which all poverty is relative. Of course we are far from such a world today. But suppose average
world income quadrupled during the twenty-first century as it did during
the twentieth century [based on Maddison’s (2001) income data]—an average annual rate of about 1.4%. Even if global income inequality persisted at
its current level, growth of this magnitude would substantially reduce abject
poverty by the end of the century. In the long run, then, there might be less
urgency in reducing global income inequality to alleviate the misery of abject
poverty.
In a world where everyone has enough, how much does it matter that
some have lots more than others? More than a century ago Veblen (1899,
Chapter 2, paragraph 16) asserted that “the end sought by accumulation is
to rank high in comparison with the rest of the community in the point of
pecuniary strength.” Veblen’s assertion has been supported by subsequent
research. People desire not just to be rich, but to be richer than others like
them. Moreover, as incomes rise so that everyone has enough to meet
basic needs, relative income matters all the more, compared to absolute
income.
If relative income effects increasingly trump absolute income effects as
incomes rise, future research on global income inequality will need to pay

Global Income Inequality

11

more attention to the largely unresearched question of how much global
income inequality actually matters to individuals as they go about their daily
lives. In a world where global inequality is predominantly between nations,
it is not clear how much global income inequality matters to ordinary
citizens who are largely interested in comparing their well-being to that of
those who are “like them” in their own nation.
The point I am making is similar to David Miller’s (1999) point about
justice. Inequality within communities or nations differs qualitatively from
inequality between nations. As an American, I may protest if the standard of
medical treatment I am offered is vastly inferior to that of other Americans,
but I am not as offended if the standard is inferior to that available in France.
From the viewpoint of an individual, inequality is more problematic within
a community than across communities. If relative income effects matter
most in a rich world, and if relative income effects are based on comparison
to others in one’s community, within-nation inequality is more salient than
between-nation inequality in individuals’ daily lives.
Ascertaining the human costs of global income inequality for the
twenty-first century will depend on the rate of world economic growth as
well as on the magnitude of global inequality. If world income continues
to grow and abject poverty becomes less common, there will be important
work for social scientists in linking global income inequality to the emerging
research on relative income effects and subjective well-being. If history
ordains instead a sharp decline in global economic fortunes in the remainder
of the twenty-first century, then the foregoing argument is turned on its
head. In that case, the costs deriving from relative income differences
become secondary to the more urgent issue of the contribution of global
income inequality to absolute poverty in the world.
HOW IS GLOBAL INCOME INEQUALITY RELATED TO GLOBALIZATION?
The question is difficult to answer because we do not know what the level of
global income inequality would be today if the level of globalization were different (either higher or lower). The fact that global income inequality recently
has leveled off or declined in the face of the rising economic integration globally may provide pause for those who believe that globalization exacerbates
global income inequality. But other things have changed as well, so it is difficult to single out the causal effect of globalization itself on global inequality;
perhaps global inequality would be declining even faster under lower levels of intercountry economic integration. Because a definitive resolution is
unlikely, the debate over the globalization–global inequality link is likely to
continue well into the future.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

CONCLUSION
Global income inequality is important in large part because it is linked to
poverty in today’s world. By redistributing income to the poor globally, we
could reduce poverty. But world poverty rates could also be reduced by
continued world economic growth, absent any reduction in global income
inequality. Inequality constant, poverty in an absolute sense becomes
increasingly delinked from global income inequality as the world become
richer, and the focus of global inequality research then naturally shifts
from the effect of income inequality on objective well-being to its effect
on subjective well-being. A poorer future world implies the opposite. In a
poorer world, global income inequality is more closely linked to the objective
well-being of the world’s citizens because redistributing the world’s income
in favor of the poor is even more imperative for reducing the rate of absolute
poverty in a poor world than in a rich world.
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Firebaugh, G. (2003). The new geography of global income inequality. Cambridge, MA:
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Maddison, A. (2001). The world economy: A millennial perspective. Paris, France: Organization for Economic Cooperation and Development.
Milanovic, B. (2005). Worlds apart: Measuring international and global inequality. Princeton, NJ: Princeton University Press.
Miller, D. (1999). Justice and global inequality. In A. Hurrell & N. Woods (Eds.),
Inequality, globalization, and world politics (pp. 187–210). Oxford, England: Oxford
University Press.

Global Income Inequality

13

Pritchett, L. (1997). Divergence, big time. Journal of Economic Perspectives, 11, 3–17.
Sala-i-Martin, X. (2006). The world distribution of income: Falling poverty and …
convergence, period. Quarterly Journal of Economics, 121, 351–397. doi:10.1162/
qjec.2006.121.2.351
Veblen, T. (1899). The theory of the leisure class. New York, NY: MacMillan.

FURTHER READING
Amsden, A. H. (2001). The rise of “the Rest:” Challenges to the west from lateindustrializing economies. Oxford, England: Oxford University Press.
Easterlin, R. A. (1996). Growth triumphant: The twenty-first century in historical perspective. Ann Arbor: University of Michigan.
Garrett, G. (2004). Globalization’s missing middle. Foreign Affairs, 83(6), 84–96.
Goesling, B., & Baker, D. A. (2008). Three faces of international inequality. Research
in Social Mobility and Stratification, 26, 183–196. doi:10.1016/j.rssm.2007.11.001
Milanovic, B. (2011). The haves and the have-nots: A brief and idiosyncratic history of global
inequality. New York, NY: Basic Books. http://www.ted.com/talks/hans_rosling_
shows_the_best_stats_you_ve_ever_seen.html

GLENN FIREBAUGH SHORT BIOGRAPHY
Glenn Firebaugh—currently Roy C. Buck Professor of American Institutions, Sociology, and Demography at the Pennsylvania State University—has
also held regular or visiting appointments at Vanderbilt, the University of
Michigan (Summer Institute), and Harvard. Firebaugh served as Editor
of the American Sociological Review from 1997 to 1999 and as Head of the
Sociology Department at Penn State from 2001 to 2004. He has lectured
and published widely in the areas of stratification, social demography,
and methods. In work in progress, Firebaugh is investigating racial
inequality in neighborhood conditions as well as investigating the “final
inequality”—inequality in age at death. He is author of The New Geography
of Global Income Inequality (Harvard, 2003) and Seven Rules for Social Research
(Princeton, 2008). Website: http://sociology.la.psu.edu/people.
RELATED ESSAYS
Political Conflict and Youth: A Long-Term View (Psychology), Brian K. Barber
A Social Psychological Approach to Racializing Wealth Inequality (Sociology), Joey Brown
State of the Art in Competition Research (Psychology), Márta Fülöp and
Gábor Orosz
Globalization of Capital and National Policymaking (Political Science),
Steven R. Hall

14

EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

The Future of Employment, Wages, and Technological Change (Economics),
Michael J. Handel
Political Inequality (Sociology), Jeff Manza
Health and Social Inequality (Sociology), Bernice A. Pescosolido
Impact of Limited Education on Employment Prospects in Advanced
Economies (Sociology), Heike Solga
Public Opinion, The 1%, and Income Redistribution (Sociology), David L.
Weakliem



Global Income Inequality
GLENN FIREBAUGH

Abstract
This essay describes the evolution of global income inequality over the past
two-and-a-half centuries, and its likely evolution during the twenty-first century.
Global income inequality—the sum of inequality within and between nations—is
massive today, the legacy of uneven growth in the world’s regions since the advent
of the Industrial Revolution. Because incomes shot up in the West while lagging
behind in Asia and Africa over most of this period, between-nation income inequality grew dramatically, and most global income inequality now lies between nations.
Economic growth remains uneven across the world’s regions, but the fastest growth
is occurring in populous poor regions of the world, compressing between-nation
inequality. As a result, global income inequality is currently receding, according to
most (but not all) investigations of the matter. The compression of global inequality
is attributable to rapid economic growth in China and India: If the rate of economic
growth in China and India were the same as in the rest of the world, global income
inequality would not be declining. The slow rate of economic growth in sub-Saharan
Africa, on the other hand, is retarding the decline. A high level of global income
inequality is problematic in large part because it results in abject poverty for masses
of people. If average income in the world continues to rise, alleviating abject
poverty in the twenty-first century, for future generations the level of global income
inequality might matter much less than the level of income inequality within local
communities.

INTRODUCTION
Global income inequality refers to the disproportionate distribution of income
among the world’s citizens. Over the past two-and-a-half centuries, dramatic growth in the world’s average income has benefited some regions and
population groups much more than others. As a result, the level of global
inequality observed in today’s world is massive. If you live in Germany or
Switzerland or the United States, you most likely are enjoying a standard
of living that your ancestors could scarcely imagine. If you live in a tribal
village in central Africa, on the other hand, your standard of living may be
roughly similar to that of your great-great grandparents.

Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

1

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Because nationality is the single most important determinant of income in
today’s world, investigations of global income inequality most often focus on
the question “Why are some countries and regions so rich and other countries and regions so poor?” It is useful to think of global income inequality
as consisting of two components: Inequality in the average income across
nations, or between-nation inequality, and inequality in the incomes of individuals within a nation, or within-nation inequality. That is:
IG = IB + IW

(1)

where IG refers to global income inequality, IB refers to between-nation
inequality, and IW refers to within-nation inequality. The between- and
within-nation components are weighted by the population size of each
nation. That weighting is necessary to give every citizen of the world equal
weight; otherwise, the income of an individual in less populous countries
(such as Luxembourg) would carry more weight than the income of an
individual in a more populous country (such as China or India).
To conceptualize global income inequality as the sum of between-nation
and within-nation income inequality, imagine that in every nation we redistributed incomes by taking from the rich and giving to the poor, so that everyone in a particular nation possessed the average income of that nation. In
doing so we would eliminate within-nation inequality. However, because
average incomes vary greatly from country to country, substantial global
inequality would remain. In fact, the differences in national incomes are so
large that at least two-thirds of global income inequality would persist if we
eliminated all inequality within nations (Goesling, 2001).
Because the majority of global income inequality is attributable to national
differences in average income, foundational research in this area has focused
on differences in the national and regional rates of income growth historically. A central finding is that world productivity has grown much faster
than world population over the past 250 years, so individuals in today’s
world generally are many times richer than individuals living in the 1700s.
At the same time, income is much more unequally distributed among the
world’s citizens today. In the next section I briefly overview the historical
trends. In the sections that follow I describe current trends in income inequality research and discuss potential areas of future research.
FOUNDATIONAL RESEARCH
PERIOD OF RISING INEQUALITY, MID-EIGHTEENTH CENTURY TO MID-TWENTIETH CENTURY
The Industrial Revolution ushered in a period of history characterized by
dramatic growth over the long run both in average income and in global

Global Income Inequality

3

income inequality. Average income grew because, contrary to the dire
predictions of Thomas Malthus (1798), unprecedented world population
growth was accompanied by an even faster rate of growth in world production. At the same time, global income inequality also grew because the
income growth was highly uneven. Incomes shot up rapidly in the Western
world in particular, while growth lagged behind in Asia and sub-Saharan
Africa.
Given the uncertainty of income estimates for the world’s regions in the
mid-eighteenth century, how do we know that since then there indeed
has been, in the words of Pritchett’s (1997) title, “divergence, big time”?
First, the level of global inequality witnessed today—where incomes in the
world’s richest and poorest regions differ by a factor of 20 or more—are
implausible in the context of the much poorer world of our ancestors.
In 1750, a large portion of the population would not survive under the
level of global inequality existing today. Second, on the basis of the best
income estimates available, Bourguignon and Morrisson (2002) find that
between-nation inequality increased greatly from 1820 (their first data
point) until the mid-twentieth century, thereby boosting global income
inequality. Finally, even with the uncertainty in income estimates, it is
clear that during the period of Western-led industrialization (the period
from about 1750 to about 1950) the growth poles in the world economy
were located in the richest regions. When income grows faster in richer
units than in poorer units, income inequality rises by definition. That is
what happened in the two centuries after 1750: Income generally grew the
fastest in the richest regions of the world and the slowest in the poorest
regions, resulting in the immense degree of global inequality observed
today.
CONTOURS OF GLOBAL INCOME INEQUALITY
In the pre-industrial world, before the rise of the middle class, the majority of
global income inequality was located within nations. With industrialization
the fraction of global income inequality attributable to between-nation
inequality grew, as rising between-nation inequality was accompanied by
stable or falling within-nation inequality (Bourguignon & Morrisson, 2002).
The result, as noted earlier, is that nationality has become the single most
important determinant of an individual’s income. Although still paramount,
the importance of nationality now may be lessening, as recent evidence
suggests a reversal of the trends in between-nation and within-nation
inequality (Bourguignon & Morrisson, 2002; Firebaugh, 2003). That is,
within-nation income inequality is rising in many regions of the world
whereas between-nation inequality is declining.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

BETWEEN-NATION INEQUALITY
It is not an easy task to compare the relative incomes of nations. Nations produce different commodities and services and value them differently (what is
the value of a ton of steel relative to a thousand haircuts?), and the mix of
products and services is constantly changing (the nineteenth century knew
nothing of computers or airplanes or cell phones). Despite these complications, even casual inspection indicates that Swedes generally enjoy higher
living standards than Chinese, and great efforts are expended in data collection worldwide to try to quantify these differences by measuring the quantity
and price of goods and services produced in nations around the world. (It is
also the case that within China residents of Shanghai generally enjoy higher
standards than do peasant farmers. But that bears on within-nation inequality, which we examine in the next section.)
After two centuries of growth, between-nation inequality stabilized in the
final decades of the twentieth century and is now declining. To be clear
on this point, it is important to distinguish the trend in between-nation
income inequality (component IB in Equation 1) from the trend in unweighted
between-nation income inequality (Milanovic, 2005). Because we want
to give everyone in the world equal weight when calculating global
inequality, it is weighted between-nation inequality (IB )—not unweighted
inequality—that bears on global income inequality. Some early research
caused confusion by inferring the trend in global income inequality on the
basis of the trend in unweighted between-nation inequality. Many small
poor nations in sub-Saharan Africa have experienced little or no income
growth in recent decades. As a result, there are more poor nations where
incomes are growing slowly than there are poor nations where incomes are
growing rapidly, so unweighted between-nation inequality has been growing.
Yet many more people live in the poor nations where economies are growing
rapidly, so weighted between-nation inequality has been declining.
In short, the trends in weighted (IB ) and unweighted between-nation
income inequality are going in opposite directions. The issue of whether
between-nation income inequality is boosting or compressing global income
inequality turns on whether incomes are rising faster on average for individuals in rich nations or in poor nations—on the trend in IB —and in recent
decades the overall rate of income growth has been faster for individuals in
poorer nations. This is the case because of rapid economic growth in China
and India, where 40% of the world’s people live. Outside of China and India,
between-nation income inequality is not declining. And if between-nation
inequality were not declining, global inequality would not be declining
either, since it is the decline in between-nation inequality that is driving the
decline in global inequality.

Global Income Inequality

5

The rate of economic growth in China and India, then, is a principal
determinant of the direction and rate of change in global income inequality
today. Another key is the rate of economic growth in sub-Saharan Africa.
The vast majority of the world’s poor live either in Asia or in Africa. In
sharp contrast to the robust income growth experienced by many Asian
nations in recent decades, many nations in sub-Saharan Africa have lagged
behind economically, resulting in the “Africanization” of world poverty.
This slower-than-world-average income growth in sub-Saharan Africa has
operated to retard the decline in global income inequality. In other words, if
incomes in sub-Saharan Africa grew as fast as in the rest of the world, global
income inequality would be declining faster than it is.
In short, in the two regions where most of the world’s poor live, the rates
of growth of national economies have had opposing effects on global income
inequality (Firebaugh & Goesling, 2004):
•

•

Faster-than-world-average income growth in Asia has worked to narrow global income inequality.
Slower-than-world-average income growth in sub-Saharan Africa has
worked to increase global income inequality.

Because many more people live in Asia than in Africa, recent studies (Hung
& Kucinskas, 2011; Sala-i-Martin, 2006) find that the net effect has been a
reduction in global income inequality over the past several decades.
WITHIN-NATION INEQUALITY
Within-nation inequality is the second component of global income inequality (Equation 1). Measuring within-nation inequality is as challenging as
measuring between-nation inequality. In the case of between-nation inequality, there is the formidable challenge of quantifying differences in societies
that produce and consume different products and services. To calculate
between-nation inequality, we need data and methods for generating per
capita income figures that reliably reflect the relative economic standing of
average citizens of different nations.
Measuring within-nation income inequality requires data on the distribution of incomes within each nation—not just income means for each
nation. Standard national currencies make it easier to quantify the level of
income inequality within nations than between them. The task of estimating
within-nation inequality for every nation nonetheless is difficult. The first
challenge is the absence of nationally representative individual-level income
data for many nations. In some instances, there are no individual-level
income data at all. In other instances, the data that exist are for a sample of

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

residents (e.g., urban dwellers only) that are not nationally representative.
Even when nationally representative data exist, they might not be comparable across nations. Some are based on pre-tax incomes and others on
post-tax incomes; some include unearned income and some do not. And
nations vary significantly in terms of the services (health, housing, etc.) they
provide their citizens. How are these services factored in when comparing
the level of income inequality within one nation versus another?
On the basis of current data, income inequality most likely is rising in the
average nation, thus slowing the decline in global income inequality caused
by reductions in between-nation income inequality. The precise contribution
of the within-nation trend to the global trend is uncertain. Although there is
a vast research literature on income inequality within nations, that literature
focuses largely on trends in inequality within a particular nation or group of
kindred nations. Very often the objective is to determine why inequality is
rising or falling in a particular country (e.g., there is an extensive literature
on the causes of rising income inequality in the United States). No attempt
is made in this literature to estimate the contribution of those trends to the
more general trend in global income inequality. Because income inequality
appears to be rising in the world’s most populous nations (China, India,
United States, and Russia), most agree that the world-average trend in
within-nation income inequality is tracking upward. In the absence of
falling between-nation income inequality, then, it is thought that global
income inequality would be rising, as within-nation inequality is increasing
on average.
To summarize, world population has increased dramatically since the
advent of the Industrial Revolution, but world productivity has increased
even faster. As a result, a world where most people were poor has evolved to
a much richer world. In this much richer world, incomes are very unevenly
distributed because, historically, income growth in richer regions has far
outpaced income growth in poorer regions. I now describe how current
research finds different patterns of growth in today’s world.
CUTTING-EDGE RESEARCH
Global income inequality shot up during the period of Western-led industrialization (from the mid-eighteenth century to the mid-twentieth century)
as the West took off economically while Asia and Africa lagged behind. This
pattern of growth changed in the waning decades of the twentieth century,
with some of the poorer regions of the world experiencing the fastest income
growth. Because the fastest growth was concentrated in Asia, where a majority of the world’s poor live, the regional growth differential this time operated to compress global inequality, as many of the billions of individuals

Global Income Inequality

7

living in China, India, and adjacent regions saw their incomes rise toward the
world average. Because of this great compression from below, the period of
“divergence, big time” ended, and we have entered a new historical epoch
marked by declining inequality between nations and rising inequality within
them (Firebaugh, 2003).
Has the shifting of the world’s income growth pole to Asia reversed the
trend in global income inequality? Empirical research in the past decade has
been devoted to addressing this issue (Hung & Kucinskas, 2011; Milanovic,
2005; Sala-i-Martin, 2006). Most of this new research finds that global income
inequality is now declining. That conclusion is not universally accepted,
for two reasons. First, it runs contrary to theories stressing the ability of
richer nations to maintain their advantaged position through unequal
economic transactions with poorer nations (but not contrary to convergence
theories stressing diminishing returns to scale as nations become richer).
Second, some believe that the attempt to describe the trend in global income
inequality is a fool’s errand because the data on between- and within-nation
income inequality are so problematic (Anand & Segal, 2008).
The fool’s errand criticism is the more serious. It is fair to say that attempts
to estimate the trend in global income inequality have been hindered historically by the absence of reliable data on the relative incomes for many
nations. More recent studies have attempted to alleviate the problem by using
data sets that calibrate economic activity for different nations on the basis of
purchasing power parity (PPP) rather than on the basis of foreign exchange
rates. Foreign exchange rates are seen as unreliable bases for determining the
relative economic standing of nations because rates of exchange apply only
to goods that are traded, and are subject to manipulation by governments.
Although far from perfect, PPP methods for calibrating economic activity
are regarded by most as a significant advance over foreign-exhange-based
methods for estimating the relative living standards enjoyed by individuals
in different nations.
At the least, the new empirical studies have been able to rule out some
once-fashionable theories. Dependency theory, a popular theory in the
1980s and 1990s, was based on the assumption that international trade and
other forms of international transactions constitute a type of zero-sum game
rigged to favor rich nations, inevitably resulting in greater and greater global
income inequality. Some proponents of the theory referred to this process as
the “development of underdevelopment” to stress the point that poor countries are poor because rich countries are rich. It is now clear, however, that
the massive inequality seen today resulted from growing incomes in some
regions of the world, not from growing incomes in some regions combined
with declining incomes in other regions. Moreover, the empirical work that
appeared to support the development-of-underdevelopment argument was

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

found to be based on an erroneous interpretation of cross-national regression
coefficients (Firebaugh, 1992).
KEY ISSUES FOR FUTURE RESEARCH
BETTER INEQUALITY DATA
The discussion points clearly to the primary issue facing global income
inequality researchers: data quality. Despite earnest efforts to collect comparable data for every nation in the world, data quality is uneven, and our
estimates of both IB and IW are far from perfect. Because the data are so noisy,
it is generally not possible to draw firm conclusions about global trends on
the basis of a few years of data. A longer period of observation is required
to detect meaningful change. A key issue for future research involves the
steady expansion and improvement of data collection operations throughout the world. The success of this endeavor cannot be taken for granted
because it will depend on the cooperation of governments and on adequate
funding. Because international agencies such as the United Nations have
other priorities, it is not certain that researchers can count on better income
data in the future.
In addition to the attempt to improve the measurement of income itself,
there are movements a foot in the social sciences that could shed new light
on global income inequality by altering the conceptualization and measurement of income inequality. One approach is to expand measures of global
income inequality to incorporate poverty and inequality in the same framework (Atkinson & Brandolini, 2010). Alternatively, future research on global
income inequality might draw on the burgeoning literatures in psychology
and behavioral economics on subjective well-being. “Happiness studies,” as
they are sometimes called, seek to compare happiness and life satisfaction
across individuals and societies. Whether measures of happiness and satisfaction are seen as substitutes or complements for measures of income, they
are likely to infiltrate research on global income inequality. As cross-national
investigations of happiness and life satisfaction become more standard, a literature on “global happiness inequality” might be close behind.
WHITHER GLOBAL INCOME INEQUALITY?
Barring a collapse of the global economic system, what is the likely course
for global income inequality in the twenty-first century? For the foreseeable
future, the direction of change in global inequality will be driven by the
direction of change in between-nation inequality. First, as noted earlier, the
majority of global income inequality lies between nations. Second, the other
component of global income inequality, IW , is unlikely to change drastically

Global Income Inequality

9

over a short period of time. Change in the income inequality in a particular
nation is the result of many factors that are unlikely to be the same across all
nations. At any point in time, income inequality grows in some nations and
declines in others. Because change in IW is the net result of national trends
that generally are, to some degree, offsetting, we expect change in IW to be
relatively gradual.
Hence, the relative income growth rates of richer and poorer nations
will determine the direction of change in global income inequality over
the next few decades. If economic growth in Asia—and China and India
in particular—continues to outstrip growth in the West, we can anticipate
compression of global inequality. This compression will slow as average
incomes in China and India approach the world income average; and if
incomes in China and India eventually surpass the world average, continued
faster-than-world-average income growth in these two countries will work
to boost, not compress, global income inequality.
A key issue for future research, then, is whether the income growth poles
we see in today’s world will continue to be the growth poles throughout this
century. If current patterns prevail, at some point we can expect a reversal
of the current decline in the between-nation component of global income
inequality.
Although between-nation inequality will drive most of the change in global
income inequality, this does not mean that the within-nation component is
inconsequential. Especially relevant here will be the direction and magnitude
of changes in within-nation inequality in populous nations, as it is the big
national differences that matter with respect to global income inequality. We
do not need to know, for instance, whether the degree of income inequality
is larger in Norway or in Sweden; it suffices to obtain a reasonable estimate
of income inequality in both societies, which will show that it is substantially less than inequality in South Africa, for example. Because within-nation
inequality constitutes only about one-third of global income inequality, and
is weighted by population size, conclusions about the direction of change in
global income inequality are relatively impervious to measurement uncertainty for small nations. For the most populous nations, though, it is important to obtain reliable estimates of the magnitude of income inequality to
reduce the uncertainty in estimates of global income inequality. Increasing
the reliability of estimates of global income inequality will require more accurate estimates of income growth and income inequality for China and India.
Future debates over the magnitude and change in global income inequality
are likely to hinge on alternative methods for estimating the incomes of China
and India.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

WILL GLOBAL INCOME INEQUALITY MATTER AS MUCH IN THE FUTURE?
Growing world income raises the possibility that abject poverty—income
levels insufficient to provide for basic human needs—could largely disappear in the twenty-first century despite the continuation of massive global
inequality. There would still be poverty in a relative sense because under the
current level of global income inequality some individuals would be much
poorer than others, even if everyone had enough income to provide for adequate food, shelter, and clothing. That raises the issue of why global income
inequality matters in the first place. Does global income inequality matter
only (or mainly) because it bears on poverty in the absolute sense? Or are
there other compelling reasons—such as social stability—for concern about
a high level of global income inequality?
Those questions have remained largely in the background before because
of more pressing concerns about alleviating abject poverty. To this point we
have lived in a world where a high level of global income inequality necessarily meant abject poverty for a significant fraction of the world’s population.
Until the waning decades of the twentieth century, mass poverty had been
the norm in the most populous region of the world, and it continues to be
all too prevalent in some regions today. In today’s world we want to reduce
global income inequality in large part because we want to reduce the level of
abject poverty in the world.
The motivation might be different in a world in which all poverty is relative. Of course we are far from such a world today. But suppose average
world income quadrupled during the twenty-first century as it did during
the twentieth century [based on Maddison’s (2001) income data]—an average annual rate of about 1.4%. Even if global income inequality persisted at
its current level, growth of this magnitude would substantially reduce abject
poverty by the end of the century. In the long run, then, there might be less
urgency in reducing global income inequality to alleviate the misery of abject
poverty.
In a world where everyone has enough, how much does it matter that
some have lots more than others? More than a century ago Veblen (1899,
Chapter 2, paragraph 16) asserted that “the end sought by accumulation is
to rank high in comparison with the rest of the community in the point of
pecuniary strength.” Veblen’s assertion has been supported by subsequent
research. People desire not just to be rich, but to be richer than others like
them. Moreover, as incomes rise so that everyone has enough to meet
basic needs, relative income matters all the more, compared to absolute
income.
If relative income effects increasingly trump absolute income effects as
incomes rise, future research on global income inequality will need to pay

Global Income Inequality

11

more attention to the largely unresearched question of how much global
income inequality actually matters to individuals as they go about their daily
lives. In a world where global inequality is predominantly between nations,
it is not clear how much global income inequality matters to ordinary
citizens who are largely interested in comparing their well-being to that of
those who are “like them” in their own nation.
The point I am making is similar to David Miller’s (1999) point about
justice. Inequality within communities or nations differs qualitatively from
inequality between nations. As an American, I may protest if the standard of
medical treatment I am offered is vastly inferior to that of other Americans,
but I am not as offended if the standard is inferior to that available in France.
From the viewpoint of an individual, inequality is more problematic within
a community than across communities. If relative income effects matter
most in a rich world, and if relative income effects are based on comparison
to others in one’s community, within-nation inequality is more salient than
between-nation inequality in individuals’ daily lives.
Ascertaining the human costs of global income inequality for the
twenty-first century will depend on the rate of world economic growth as
well as on the magnitude of global inequality. If world income continues
to grow and abject poverty becomes less common, there will be important
work for social scientists in linking global income inequality to the emerging
research on relative income effects and subjective well-being. If history
ordains instead a sharp decline in global economic fortunes in the remainder
of the twenty-first century, then the foregoing argument is turned on its
head. In that case, the costs deriving from relative income differences
become secondary to the more urgent issue of the contribution of global
income inequality to absolute poverty in the world.
HOW IS GLOBAL INCOME INEQUALITY RELATED TO GLOBALIZATION?
The question is difficult to answer because we do not know what the level of
global income inequality would be today if the level of globalization were different (either higher or lower). The fact that global income inequality recently
has leveled off or declined in the face of the rising economic integration globally may provide pause for those who believe that globalization exacerbates
global income inequality. But other things have changed as well, so it is difficult to single out the causal effect of globalization itself on global inequality;
perhaps global inequality would be declining even faster under lower levels of intercountry economic integration. Because a definitive resolution is
unlikely, the debate over the globalization–global inequality link is likely to
continue well into the future.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

CONCLUSION
Global income inequality is important in large part because it is linked to
poverty in today’s world. By redistributing income to the poor globally, we
could reduce poverty. But world poverty rates could also be reduced by
continued world economic growth, absent any reduction in global income
inequality. Inequality constant, poverty in an absolute sense becomes
increasingly delinked from global income inequality as the world become
richer, and the focus of global inequality research then naturally shifts
from the effect of income inequality on objective well-being to its effect
on subjective well-being. A poorer future world implies the opposite. In a
poorer world, global income inequality is more closely linked to the objective
well-being of the world’s citizens because redistributing the world’s income
in favor of the poor is even more imperative for reducing the rate of absolute
poverty in a poor world than in a rich world.
REFERENCES
Anand, S., & Segal, P. (2008). What do we know about global income inequality?
Journal of Economic Literature, 46, 57–94.
Atkinson, A., & Brandolini, A. (2010). On analyzing the world distribution of income.
World Bank Economic Review, 24, 1–37. doi:10.1093/wber/hjp020
Bourguignon, F., & Morrisson, C. (2002). Inequality among world citizens: 1820–1992.
American Economic Review, 92, 727–744.
Firebaugh, G. (1992). Growth effects of foreign and domestic investment. American
Journal of Sociology, 98, 105–130.
Firebaugh, G. (2003). The new geography of global income inequality. Cambridge, MA:
Harvard University Press.
Firebaugh, G., & Goesling, B. (2004). Accounting for the recent decline in global
income inequality. American Journal of Sociology, 110, 283–312.
Goesling, B. (2001). Changing income inequalities within and between nations: New
evidence. American Sociological Review, 66, 745–761.
Hung, H., & Kucinskas, J. (2011). Globalization and global inequality: Assessing the
impact of the rise of China and India, 1980–2005. American Journal of Sociology,
116(5), 1478–1513.
Malthus, T. (1798). An essay on the principle of population (1st ed.). London, England:
Penguin Classics.
Maddison, A. (2001). The world economy: A millennial perspective. Paris, France: Organization for Economic Cooperation and Development.
Milanovic, B. (2005). Worlds apart: Measuring international and global inequality. Princeton, NJ: Princeton University Press.
Miller, D. (1999). Justice and global inequality. In A. Hurrell & N. Woods (Eds.),
Inequality, globalization, and world politics (pp. 187–210). Oxford, England: Oxford
University Press.

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Pritchett, L. (1997). Divergence, big time. Journal of Economic Perspectives, 11, 3–17.
Sala-i-Martin, X. (2006). The world distribution of income: Falling poverty and …
convergence, period. Quarterly Journal of Economics, 121, 351–397. doi:10.1162/
qjec.2006.121.2.351
Veblen, T. (1899). The theory of the leisure class. New York, NY: MacMillan.

FURTHER READING
Amsden, A. H. (2001). The rise of “the Rest:” Challenges to the west from lateindustrializing economies. Oxford, England: Oxford University Press.
Easterlin, R. A. (1996). Growth triumphant: The twenty-first century in historical perspective. Ann Arbor: University of Michigan.
Garrett, G. (2004). Globalization’s missing middle. Foreign Affairs, 83(6), 84–96.
Goesling, B., & Baker, D. A. (2008). Three faces of international inequality. Research
in Social Mobility and Stratification, 26, 183–196. doi:10.1016/j.rssm.2007.11.001
Milanovic, B. (2011). The haves and the have-nots: A brief and idiosyncratic history of global
inequality. New York, NY: Basic Books. http://www.ted.com/talks/hans_rosling_
shows_the_best_stats_you_ve_ever_seen.html

GLENN FIREBAUGH SHORT BIOGRAPHY
Glenn Firebaugh—currently Roy C. Buck Professor of American Institutions, Sociology, and Demography at the Pennsylvania State University—has
also held regular or visiting appointments at Vanderbilt, the University of
Michigan (Summer Institute), and Harvard. Firebaugh served as Editor
of the American Sociological Review from 1997 to 1999 and as Head of the
Sociology Department at Penn State from 2001 to 2004. He has lectured
and published widely in the areas of stratification, social demography,
and methods. In work in progress, Firebaugh is investigating racial
inequality in neighborhood conditions as well as investigating the “final
inequality”—inequality in age at death. He is author of The New Geography
of Global Income Inequality (Harvard, 2003) and Seven Rules for Social Research
(Princeton, 2008). Website: http://sociology.la.psu.edu/people.
RELATED ESSAYS
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State of the Art in Competition Research (Psychology), Márta Fülöp and
Gábor Orosz
Globalization of Capital and National Policymaking (Political Science),
Steven R. Hall

14

EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

The Future of Employment, Wages, and Technological Change (Economics),
Michael J. Handel
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Health and Social Inequality (Sociology), Bernice A. Pescosolido
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Economies (Sociology), Heike Solga
Public Opinion, The 1%, and Income Redistribution (Sociology), David L.
Weakliem


Global Income Inequality
GLENN FIREBAUGH

Abstract
This essay describes the evolution of global income inequality over the past
two-and-a-half centuries, and its likely evolution during the twenty-first century.
Global income inequality—the sum of inequality within and between nations—is
massive today, the legacy of uneven growth in the world’s regions since the advent
of the Industrial Revolution. Because incomes shot up in the West while lagging
behind in Asia and Africa over most of this period, between-nation income inequality grew dramatically, and most global income inequality now lies between nations.
Economic growth remains uneven across the world’s regions, but the fastest growth
is occurring in populous poor regions of the world, compressing between-nation
inequality. As a result, global income inequality is currently receding, according to
most (but not all) investigations of the matter. The compression of global inequality
is attributable to rapid economic growth in China and India: If the rate of economic
growth in China and India were the same as in the rest of the world, global income
inequality would not be declining. The slow rate of economic growth in sub-Saharan
Africa, on the other hand, is retarding the decline. A high level of global income
inequality is problematic in large part because it results in abject poverty for masses
of people. If average income in the world continues to rise, alleviating abject
poverty in the twenty-first century, for future generations the level of global income
inequality might matter much less than the level of income inequality within local
communities.

INTRODUCTION
Global income inequality refers to the disproportionate distribution of income
among the world’s citizens. Over the past two-and-a-half centuries, dramatic growth in the world’s average income has benefited some regions and
population groups much more than others. As a result, the level of global
inequality observed in today’s world is massive. If you live in Germany or
Switzerland or the United States, you most likely are enjoying a standard
of living that your ancestors could scarcely imagine. If you live in a tribal
village in central Africa, on the other hand, your standard of living may be
roughly similar to that of your great-great grandparents.

Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

1

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Because nationality is the single most important determinant of income in
today’s world, investigations of global income inequality most often focus on
the question “Why are some countries and regions so rich and other countries and regions so poor?” It is useful to think of global income inequality
as consisting of two components: Inequality in the average income across
nations, or between-nation inequality, and inequality in the incomes of individuals within a nation, or within-nation inequality. That is:
IG = IB + IW

(1)

where IG refers to global income inequality, IB refers to between-nation
inequality, and IW refers to within-nation inequality. The between- and
within-nation components are weighted by the population size of each
nation. That weighting is necessary to give every citizen of the world equal
weight; otherwise, the income of an individual in less populous countries
(such as Luxembourg) would carry more weight than the income of an
individual in a more populous country (such as China or India).
To conceptualize global income inequality as the sum of between-nation
and within-nation income inequality, imagine that in every nation we redistributed incomes by taking from the rich and giving to the poor, so that everyone in a particular nation possessed the average income of that nation. In
doing so we would eliminate within-nation inequality. However, because
average incomes vary greatly from country to country, substantial global
inequality would remain. In fact, the differences in national incomes are so
large that at least two-thirds of global income inequality would persist if we
eliminated all inequality within nations (Goesling, 2001).
Because the majority of global income inequality is attributable to national
differences in average income, foundational research in this area has focused
on differences in the national and regional rates of income growth historically. A central finding is that world productivity has grown much faster
than world population over the past 250 years, so individuals in today’s
world generally are many times richer than individuals living in the 1700s.
At the same time, income is much more unequally distributed among the
world’s citizens today. In the next section I briefly overview the historical
trends. In the sections that follow I describe current trends in income inequality research and discuss potential areas of future research.
FOUNDATIONAL RESEARCH
PERIOD OF RISING INEQUALITY, MID-EIGHTEENTH CENTURY TO MID-TWENTIETH CENTURY
The Industrial Revolution ushered in a period of history characterized by
dramatic growth over the long run both in average income and in global

Global Income Inequality

3

income inequality. Average income grew because, contrary to the dire
predictions of Thomas Malthus (1798), unprecedented world population
growth was accompanied by an even faster rate of growth in world production. At the same time, global income inequality also grew because the
income growth was highly uneven. Incomes shot up rapidly in the Western
world in particular, while growth lagged behind in Asia and sub-Saharan
Africa.
Given the uncertainty of income estimates for the world’s regions in the
mid-eighteenth century, how do we know that since then there indeed
has been, in the words of Pritchett’s (1997) title, “divergence, big time”?
First, the level of global inequality witnessed today—where incomes in the
world’s richest and poorest regions differ by a factor of 20 or more—are
implausible in the context of the much poorer world of our ancestors.
In 1750, a large portion of the population would not survive under the
level of global inequality existing today. Second, on the basis of the best
income estimates available, Bourguignon and Morrisson (2002) find that
between-nation inequality increased greatly from 1820 (their first data
point) until the mid-twentieth century, thereby boosting global income
inequality. Finally, even with the uncertainty in income estimates, it is
clear that during the period of Western-led industrialization (the period
from about 1750 to about 1950) the growth poles in the world economy
were located in the richest regions. When income grows faster in richer
units than in poorer units, income inequality rises by definition. That is
what happened in the two centuries after 1750: Income generally grew the
fastest in the richest regions of the world and the slowest in the poorest
regions, resulting in the immense degree of global inequality observed
today.
CONTOURS OF GLOBAL INCOME INEQUALITY
In the pre-industrial world, before the rise of the middle class, the majority of
global income inequality was located within nations. With industrialization
the fraction of global income inequality attributable to between-nation
inequality grew, as rising between-nation inequality was accompanied by
stable or falling within-nation inequality (Bourguignon & Morrisson, 2002).
The result, as noted earlier, is that nationality has become the single most
important determinant of an individual’s income. Although still paramount,
the importance of nationality now may be lessening, as recent evidence
suggests a reversal of the trends in between-nation and within-nation
inequality (Bourguignon & Morrisson, 2002; Firebaugh, 2003). That is,
within-nation income inequality is rising in many regions of the world
whereas between-nation inequality is declining.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

BETWEEN-NATION INEQUALITY
It is not an easy task to compare the relative incomes of nations. Nations produce different commodities and services and value them differently (what is
the value of a ton of steel relative to a thousand haircuts?), and the mix of
products and services is constantly changing (the nineteenth century knew
nothing of computers or airplanes or cell phones). Despite these complications, even casual inspection indicates that Swedes generally enjoy higher
living standards than Chinese, and great efforts are expended in data collection worldwide to try to quantify these differences by measuring the quantity
and price of goods and services produced in nations around the world. (It is
also the case that within China residents of Shanghai generally enjoy higher
standards than do peasant farmers. But that bears on within-nation inequality, which we examine in the next section.)
After two centuries of growth, between-nation inequality stabilized in the
final decades of the twentieth century and is now declining. To be clear
on this point, it is important to distinguish the trend in between-nation
income inequality (component IB in Equation 1) from the trend in unweighted
between-nation income inequality (Milanovic, 2005). Because we want
to give everyone in the world equal weight when calculating global
inequality, it is weighted between-nation inequality (IB )—not unweighted
inequality—that bears on global income inequality. Some early research
caused confusion by inferring the trend in global income inequality on the
basis of the trend in unweighted between-nation inequality. Many small
poor nations in sub-Saharan Africa have experienced little or no income
growth in recent decades. As a result, there are more poor nations where
incomes are growing slowly than there are poor nations where incomes are
growing rapidly, so unweighted between-nation inequality has been growing.
Yet many more people live in the poor nations where economies are growing
rapidly, so weighted between-nation inequality has been declining.
In short, the trends in weighted (IB ) and unweighted between-nation
income inequality are going in opposite directions. The issue of whether
between-nation income inequality is boosting or compressing global income
inequality turns on whether incomes are rising faster on average for individuals in rich nations or in poor nations—on the trend in IB —and in recent
decades the overall rate of income growth has been faster for individuals in
poorer nations. This is the case because of rapid economic growth in China
and India, where 40% of the world’s people live. Outside of China and India,
between-nation income inequality is not declining. And if between-nation
inequality were not declining, global inequality would not be declining
either, since it is the decline in between-nation inequality that is driving the
decline in global inequality.

Global Income Inequality

5

The rate of economic growth in China and India, then, is a principal
determinant of the direction and rate of change in global income inequality
today. Another key is the rate of economic growth in sub-Saharan Africa.
The vast majority of the world’s poor live either in Asia or in Africa. In
sharp contrast to the robust income growth experienced by many Asian
nations in recent decades, many nations in sub-Saharan Africa have lagged
behind economically, resulting in the “Africanization” of world poverty.
This slower-than-world-average income growth in sub-Saharan Africa has
operated to retard the decline in global income inequality. In other words, if
incomes in sub-Saharan Africa grew as fast as in the rest of the world, global
income inequality would be declining faster than it is.
In short, in the two regions where most of the world’s poor live, the rates
of growth of national economies have had opposing effects on global income
inequality (Firebaugh & Goesling, 2004):
•

•

Faster-than-world-average income growth in Asia has worked to narrow global income inequality.
Slower-than-world-average income growth in sub-Saharan Africa has
worked to increase global income inequality.

Because many more people live in Asia than in Africa, recent studies (Hung
& Kucinskas, 2011; Sala-i-Martin, 2006) find that the net effect has been a
reduction in global income inequality over the past several decades.
WITHIN-NATION INEQUALITY
Within-nation inequality is the second component of global income inequality (Equation 1). Measuring within-nation inequality is as challenging as
measuring between-nation inequality. In the case of between-nation inequality, there is the formidable challenge of quantifying differences in societies
that produce and consume different products and services. To calculate
between-nation inequality, we need data and methods for generating per
capita income figures that reliably reflect the relative economic standing of
average citizens of different nations.
Measuring within-nation income inequality requires data on the distribution of incomes within each nation—not just income means for each
nation. Standard national currencies make it easier to quantify the level of
income inequality within nations than between them. The task of estimating
within-nation inequality for every nation nonetheless is difficult. The first
challenge is the absence of nationally representative individual-level income
data for many nations. In some instances, there are no individual-level
income data at all. In other instances, the data that exist are for a sample of

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

residents (e.g., urban dwellers only) that are not nationally representative.
Even when nationally representative data exist, they might not be comparable across nations. Some are based on pre-tax incomes and others on
post-tax incomes; some include unearned income and some do not. And
nations vary significantly in terms of the services (health, housing, etc.) they
provide their citizens. How are these services factored in when comparing
the level of income inequality within one nation versus another?
On the basis of current data, income inequality most likely is rising in the
average nation, thus slowing the decline in global income inequality caused
by reductions in between-nation income inequality. The precise contribution
of the within-nation trend to the global trend is uncertain. Although there is
a vast research literature on income inequality within nations, that literature
focuses largely on trends in inequality within a particular nation or group of
kindred nations. Very often the objective is to determine why inequality is
rising or falling in a particular country (e.g., there is an extensive literature
on the causes of rising income inequality in the United States). No attempt
is made in this literature to estimate the contribution of those trends to the
more general trend in global income inequality. Because income inequality
appears to be rising in the world’s most populous nations (China, India,
United States, and Russia), most agree that the world-average trend in
within-nation income inequality is tracking upward. In the absence of
falling between-nation income inequality, then, it is thought that global
income inequality would be rising, as within-nation inequality is increasing
on average.
To summarize, world population has increased dramatically since the
advent of the Industrial Revolution, but world productivity has increased
even faster. As a result, a world where most people were poor has evolved to
a much richer world. In this much richer world, incomes are very unevenly
distributed because, historically, income growth in richer regions has far
outpaced income growth in poorer regions. I now describe how current
research finds different patterns of growth in today’s world.
CUTTING-EDGE RESEARCH
Global income inequality shot up during the period of Western-led industrialization (from the mid-eighteenth century to the mid-twentieth century)
as the West took off economically while Asia and Africa lagged behind. This
pattern of growth changed in the waning decades of the twentieth century,
with some of the poorer regions of the world experiencing the fastest income
growth. Because the fastest growth was concentrated in Asia, where a majority of the world’s poor live, the regional growth differential this time operated to compress global inequality, as many of the billions of individuals

Global Income Inequality

7

living in China, India, and adjacent regions saw their incomes rise toward the
world average. Because of this great compression from below, the period of
“divergence, big time” ended, and we have entered a new historical epoch
marked by declining inequality between nations and rising inequality within
them (Firebaugh, 2003).
Has the shifting of the world’s income growth pole to Asia reversed the
trend in global income inequality? Empirical research in the past decade has
been devoted to addressing this issue (Hung & Kucinskas, 2011; Milanovic,
2005; Sala-i-Martin, 2006). Most of this new research finds that global income
inequality is now declining. That conclusion is not universally accepted,
for two reasons. First, it runs contrary to theories stressing the ability of
richer nations to maintain their advantaged position through unequal
economic transactions with poorer nations (but not contrary to convergence
theories stressing diminishing returns to scale as nations become richer).
Second, some believe that the attempt to describe the trend in global income
inequality is a fool’s errand because the data on between- and within-nation
income inequality are so problematic (Anand & Segal, 2008).
The fool’s errand criticism is the more serious. It is fair to say that attempts
to estimate the trend in global income inequality have been hindered historically by the absence of reliable data on the relative incomes for many
nations. More recent studies have attempted to alleviate the problem by using
data sets that calibrate economic activity for different nations on the basis of
purchasing power parity (PPP) rather than on the basis of foreign exchange
rates. Foreign exchange rates are seen as unreliable bases for determining the
relative economic standing of nations because rates of exchange apply only
to goods that are traded, and are subject to manipulation by governments.
Although far from perfect, PPP methods for calibrating economic activity
are regarded by most as a significant advance over foreign-exhange-based
methods for estimating the relative living standards enjoyed by individuals
in different nations.
At the least, the new empirical studies have been able to rule out some
once-fashionable theories. Dependency theory, a popular theory in the
1980s and 1990s, was based on the assumption that international trade and
other forms of international transactions constitute a type of zero-sum game
rigged to favor rich nations, inevitably resulting in greater and greater global
income inequality. Some proponents of the theory referred to this process as
the “development of underdevelopment” to stress the point that poor countries are poor because rich countries are rich. It is now clear, however, that
the massive inequality seen today resulted from growing incomes in some
regions of the world, not from growing incomes in some regions combined
with declining incomes in other regions. Moreover, the empirical work that
appeared to support the development-of-underdevelopment argument was

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

found to be based on an erroneous interpretation of cross-national regression
coefficients (Firebaugh, 1992).
KEY ISSUES FOR FUTURE RESEARCH
BETTER INEQUALITY DATA
The discussion points clearly to the primary issue facing global income
inequality researchers: data quality. Despite earnest efforts to collect comparable data for every nation in the world, data quality is uneven, and our
estimates of both IB and IW are far from perfect. Because the data are so noisy,
it is generally not possible to draw firm conclusions about global trends on
the basis of a few years of data. A longer period of observation is required
to detect meaningful change. A key issue for future research involves the
steady expansion and improvement of data collection operations throughout the world. The success of this endeavor cannot be taken for granted
because it will depend on the cooperation of governments and on adequate
funding. Because international agencies such as the United Nations have
other priorities, it is not certain that researchers can count on better income
data in the future.
In addition to the attempt to improve the measurement of income itself,
there are movements a foot in the social sciences that could shed new light
on global income inequality by altering the conceptualization and measurement of income inequality. One approach is to expand measures of global
income inequality to incorporate poverty and inequality in the same framework (Atkinson & Brandolini, 2010). Alternatively, future research on global
income inequality might draw on the burgeoning literatures in psychology
and behavioral economics on subjective well-being. “Happiness studies,” as
they are sometimes called, seek to compare happiness and life satisfaction
across individuals and societies. Whether measures of happiness and satisfaction are seen as substitutes or complements for measures of income, they
are likely to infiltrate research on global income inequality. As cross-national
investigations of happiness and life satisfaction become more standard, a literature on “global happiness inequality” might be close behind.
WHITHER GLOBAL INCOME INEQUALITY?
Barring a collapse of the global economic system, what is the likely course
for global income inequality in the twenty-first century? For the foreseeable
future, the direction of change in global inequality will be driven by the
direction of change in between-nation inequality. First, as noted earlier, the
majority of global income inequality lies between nations. Second, the other
component of global income inequality, IW , is unlikely to change drastically

Global Income Inequality

9

over a short period of time. Change in the income inequality in a particular
nation is the result of many factors that are unlikely to be the same across all
nations. At any point in time, income inequality grows in some nations and
declines in others. Because change in IW is the net result of national trends
that generally are, to some degree, offsetting, we expect change in IW to be
relatively gradual.
Hence, the relative income growth rates of richer and poorer nations
will determine the direction of change in global income inequality over
the next few decades. If economic growth in Asia—and China and India
in particular—continues to outstrip growth in the West, we can anticipate
compression of global inequality. This compression will slow as average
incomes in China and India approach the world income average; and if
incomes in China and India eventually surpass the world average, continued
faster-than-world-average income growth in these two countries will work
to boost, not compress, global income inequality.
A key issue for future research, then, is whether the income growth poles
we see in today’s world will continue to be the growth poles throughout this
century. If current patterns prevail, at some point we can expect a reversal
of the current decline in the between-nation component of global income
inequality.
Although between-nation inequality will drive most of the change in global
income inequality, this does not mean that the within-nation component is
inconsequential. Especially relevant here will be the direction and magnitude
of changes in within-nation inequality in populous nations, as it is the big
national differences that matter with respect to global income inequality. We
do not need to know, for instance, whether the degree of income inequality
is larger in Norway or in Sweden; it suffices to obtain a reasonable estimate
of income inequality in both societies, which will show that it is substantially less than inequality in South Africa, for example. Because within-nation
inequality constitutes only about one-third of global income inequality, and
is weighted by population size, conclusions about the direction of change in
global income inequality are relatively impervious to measurement uncertainty for small nations. For the most populous nations, though, it is important to obtain reliable estimates of the magnitude of income inequality to
reduce the uncertainty in estimates of global income inequality. Increasing
the reliability of estimates of global income inequality will require more accurate estimates of income growth and income inequality for China and India.
Future debates over the magnitude and change in global income inequality
are likely to hinge on alternative methods for estimating the incomes of China
and India.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

WILL GLOBAL INCOME INEQUALITY MATTER AS MUCH IN THE FUTURE?
Growing world income raises the possibility that abject poverty—income
levels insufficient to provide for basic human needs—could largely disappear in the twenty-first century despite the continuation of massive global
inequality. There would still be poverty in a relative sense because under the
current level of global income inequality some individuals would be much
poorer than others, even if everyone had enough income to provide for adequate food, shelter, and clothing. That raises the issue of why global income
inequality matters in the first place. Does global income inequality matter
only (or mainly) because it bears on poverty in the absolute sense? Or are
there other compelling reasons—such as social stability—for concern about
a high level of global income inequality?
Those questions have remained largely in the background before because
of more pressing concerns about alleviating abject poverty. To this point we
have lived in a world where a high level of global income inequality necessarily meant abject poverty for a significant fraction of the world’s population.
Until the waning decades of the twentieth century, mass poverty had been
the norm in the most populous region of the world, and it continues to be
all too prevalent in some regions today. In today’s world we want to reduce
global income inequality in large part because we want to reduce the level of
abject poverty in the world.
The motivation might be different in a world in which all poverty is relative. Of course we are far from such a world today. But suppose average
world income quadrupled during the twenty-first century as it did during
the twentieth century [based on Maddison’s (2001) income data]—an average annual rate of about 1.4%. Even if global income inequality persisted at
its current level, growth of this magnitude would substantially reduce abject
poverty by the end of the century. In the long run, then, there might be less
urgency in reducing global income inequality to alleviate the misery of abject
poverty.
In a world where everyone has enough, how much does it matter that
some have lots more than others? More than a century ago Veblen (1899,
Chapter 2, paragraph 16) asserted that “the end sought by accumulation is
to rank high in comparison with the rest of the community in the point of
pecuniary strength.” Veblen’s assertion has been supported by subsequent
research. People desire not just to be rich, but to be richer than others like
them. Moreover, as incomes rise so that everyone has enough to meet
basic needs, relative income matters all the more, compared to absolute
income.
If relative income effects increasingly trump absolute income effects as
incomes rise, future research on global income inequality will need to pay

Global Income Inequality

11

more attention to the largely unresearched question of how much global
income inequality actually matters to individuals as they go about their daily
lives. In a world where global inequality is predominantly between nations,
it is not clear how much global income inequality matters to ordinary
citizens who are largely interested in comparing their well-being to that of
those who are “like them” in their own nation.
The point I am making is similar to David Miller’s (1999) point about
justice. Inequality within communities or nations differs qualitatively from
inequality between nations. As an American, I may protest if the standard of
medical treatment I am offered is vastly inferior to that of other Americans,
but I am not as offended if the standard is inferior to that available in France.
From the viewpoint of an individual, inequality is more problematic within
a community than across communities. If relative income effects matter
most in a rich world, and if relative income effects are based on comparison
to others in one’s community, within-nation inequality is more salient than
between-nation inequality in individuals’ daily lives.
Ascertaining the human costs of global income inequality for the
twenty-first century will depend on the rate of world economic growth as
well as on the magnitude of global inequality. If world income continues
to grow and abject poverty becomes less common, there will be important
work for social scientists in linking global income inequality to the emerging
research on relative income effects and subjective well-being. If history
ordains instead a sharp decline in global economic fortunes in the remainder
of the twenty-first century, then the foregoing argument is turned on its
head. In that case, the costs deriving from relative income differences
become secondary to the more urgent issue of the contribution of global
income inequality to absolute poverty in the world.
HOW IS GLOBAL INCOME INEQUALITY RELATED TO GLOBALIZATION?
The question is difficult to answer because we do not know what the level of
global income inequality would be today if the level of globalization were different (either higher or lower). The fact that global income inequality recently
has leveled off or declined in the face of the rising economic integration globally may provide pause for those who believe that globalization exacerbates
global income inequality. But other things have changed as well, so it is difficult to single out the causal effect of globalization itself on global inequality;
perhaps global inequality would be declining even faster under lower levels of intercountry economic integration. Because a definitive resolution is
unlikely, the debate over the globalization–global inequality link is likely to
continue well into the future.

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CONCLUSION
Global income inequality is important in large part because it is linked to
poverty in today’s world. By redistributing income to the poor globally, we
could reduce poverty. But world poverty rates could also be reduced by
continued world economic growth, absent any reduction in global income
inequality. Inequality constant, poverty in an absolute sense becomes
increasingly delinked from global income inequality as the world become
richer, and the focus of global inequality research then naturally shifts
from the effect of income inequality on objective well-being to its effect
on subjective well-being. A poorer future world implies the opposite. In a
poorer world, global income inequality is more closely linked to the objective
well-being of the world’s citizens because redistributing the world’s income
in favor of the poor is even more imperative for reducing the rate of absolute
poverty in a poor world than in a rich world.
REFERENCES
Anand, S., & Segal, P. (2008). What do we know about global income inequality?
Journal of Economic Literature, 46, 57–94.
Atkinson, A., & Brandolini, A. (2010). On analyzing the world distribution of income.
World Bank Economic Review, 24, 1–37. doi:10.1093/wber/hjp020
Bourguignon, F., & Morrisson, C. (2002). Inequality among world citizens: 1820–1992.
American Economic Review, 92, 727–744.
Firebaugh, G. (1992). Growth effects of foreign and domestic investment. American
Journal of Sociology, 98, 105–130.
Firebaugh, G. (2003). The new geography of global income inequality. Cambridge, MA:
Harvard University Press.
Firebaugh, G., & Goesling, B. (2004). Accounting for the recent decline in global
income inequality. American Journal of Sociology, 110, 283–312.
Goesling, B. (2001). Changing income inequalities within and between nations: New
evidence. American Sociological Review, 66, 745–761.
Hung, H., & Kucinskas, J. (2011). Globalization and global inequality: Assessing the
impact of the rise of China and India, 1980–2005. American Journal of Sociology,
116(5), 1478–1513.
Malthus, T. (1798). An essay on the principle of population (1st ed.). London, England:
Penguin Classics.
Maddison, A. (2001). The world economy: A millennial perspective. Paris, France: Organization for Economic Cooperation and Development.
Milanovic, B. (2005). Worlds apart: Measuring international and global inequality. Princeton, NJ: Princeton University Press.
Miller, D. (1999). Justice and global inequality. In A. Hurrell & N. Woods (Eds.),
Inequality, globalization, and world politics (pp. 187–210). Oxford, England: Oxford
University Press.

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Pritchett, L. (1997). Divergence, big time. Journal of Economic Perspectives, 11, 3–17.
Sala-i-Martin, X. (2006). The world distribution of income: Falling poverty and …
convergence, period. Quarterly Journal of Economics, 121, 351–397. doi:10.1162/
qjec.2006.121.2.351
Veblen, T. (1899). The theory of the leisure class. New York, NY: MacMillan.

FURTHER READING
Amsden, A. H. (2001). The rise of “the Rest:” Challenges to the west from lateindustrializing economies. Oxford, England: Oxford University Press.
Easterlin, R. A. (1996). Growth triumphant: The twenty-first century in historical perspective. Ann Arbor: University of Michigan.
Garrett, G. (2004). Globalization’s missing middle. Foreign Affairs, 83(6), 84–96.
Goesling, B., & Baker, D. A. (2008). Three faces of international inequality. Research
in Social Mobility and Stratification, 26, 183–196. doi:10.1016/j.rssm.2007.11.001
Milanovic, B. (2011). The haves and the have-nots: A brief and idiosyncratic history of global
inequality. New York, NY: Basic Books. http://www.ted.com/talks/hans_rosling_
shows_the_best_stats_you_ve_ever_seen.html

GLENN FIREBAUGH SHORT BIOGRAPHY
Glenn Firebaugh—currently Roy C. Buck Professor of American Institutions, Sociology, and Demography at the Pennsylvania State University—has
also held regular or visiting appointments at Vanderbilt, the University of
Michigan (Summer Institute), and Harvard. Firebaugh served as Editor
of the American Sociological Review from 1997 to 1999 and as Head of the
Sociology Department at Penn State from 2001 to 2004. He has lectured
and published widely in the areas of stratification, social demography,
and methods. In work in progress, Firebaugh is investigating racial
inequality in neighborhood conditions as well as investigating the “final
inequality”—inequality in age at death. He is author of The New Geography
of Global Income Inequality (Harvard, 2003) and Seven Rules for Social Research
(Princeton, 2008). Website: http://sociology.la.psu.edu/people.
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