Global Inequality is a Political Choice
by Jayati Ghosh
The World Inequality Report 2022, produced by the Paris-based World Inequality Lab, is a remarkable document for many reasons—starting with its demonstration of the immense power of patient collective research.
The report provides the latest estimates, based on careful aggregation of national data from a multitude of sources, of income and wealth inequality at the national, regional, and global level. It gives long-run time-series data for these indicators, allowing us to consider recent patterns in a broader historical context. And it expands on different dimensions of inequality in revealing new ways.
Any research enterprise as ambitious as this one will inevitably elicit quibbles about the datasets used, the assumptions required to generate particular series, and the ways in which some data gaps have been filled.
My own minor criticism relates to the World Inequality Lab's use of purchasing power parity (PPP) exchange rates to determine and compare national incomes across countries.
As I have argued elsewhere, while PPP exchange rates appear to control for cross-country differences in price levels and living standards, they are ridden with conceptual, methodological, and empirical problems.
For starters, PPP exchange rates assume that the structure of each country's economy is similar to that of the benchmark country (the United States) and changes in the same way over time. When applied to developing economies, this assumption is especially weak.
Moreover, the convoluted weighting procedure for goods can result in the inclusion of unrepresentative, high-priced products that are rarely consumed in some countries. For example, Angus Deaton has noted how packaged cornflakes may be available in poor countries but are bought by only a relatively small minority of rich people. Expenditure weights from national accounts do not reflect the consumption patterns of people who are poor by global standards.
There is a further, and possibly even more troubling, conceptual issue. High-PPP countries—that is, those where the actual purchasing power of the local currency is deemed to be much higher than its nominal value—are typically low-income economies with low average wages.
PPP is high precisely because a significant section of the workforce receives very low remuneration, which means that goods and services are available more cheaply than in countries where the majority of workers receive higher wages.
The widespread incidence of unpaid labor in many poor households in low-income countries further amplifies the effect. So, it is clear that the local currency's greater purchasing power reflects conditions of indigence and low or no remuneration for what could even be the majority of workers.
PPP-modified GDP data may therefore miss the point. By regarding greater purchasing power of a given monetary income as an advantage, rather than a reflection of the greater absolute poverty of the majority of an economy's workers, PPP estimates effectively overstate poorer countries' incomes compared to those of rich economies.
For all these reasons, relying on PPP exchange rates in cross-country income comparisons—including for poverty and inequality measures—is extremely problematic. There is a strong case for sticking to market exchange rates in measuring cross-country inequality, which would likely reveal much greater disparities than those evident in the World Inequality Report.
This objection notwithstanding, the report adds much to our understanding of inequality, especially through two new measures. The first is the female share of labor income, which is a useful indicator of gender inequality.
Globally, this share has remained largely unchanged over the past three decades, at one-third, and has been as low as 10-15% in the Middle East and North Africa (MENA) and below 20% in Asia excluding China. This indicator captures not just labor-market imbalances, but also, implicitly, the greater proportion of unpaid work performed by women within households and communities, which reduces their access to paid work and affects their remuneration in paid employment.
The second innovative measure examines inequality in carbon-dioxide emissions by assessing contributions by income category across countries. The important finding here is that, while inequalities in emissions across regions are high and persistent, such disparities exist not only between rich and poor countries, but within them. There are high emitters among the rich in low- and middle-income countries, and relatively low emitters among the poor in high-income countries.
For example, the richest 10% of people in the MENA region emit 33.6 tons of CO2 per person per year, compared to less than ten tons among the bottom half of the income distribution in North America. (The bottom 50% in Sub-Saharan Africa emit one-twentieth of the North American amount, or 0.5 tons per capita per year.)
Globally, the richest 10% of the population is responsible for more than half of all CO2 emissions. This point is especially important because, as the report notes, environmental policies like carbon taxes hit the poor the hardest, but this group is rarely if ever compensated for such measures. The new indicator enables a much richer consideration of what socially just climate policies should look like, both within and across countries.
Predictably, the report is strong on appropriate redistributive policies, especially the potential for increased taxation of wealth and corporate profits. There is also scope for looking more closely at "predistribution," or the range of regulatory regimes and legal codes that have enabled today's excessive concentration of wealth and income in the first place.
The primary cause of "predistributive" inequality is, in a word, privatization: of finance, the natural commons, the knowledge commons (through intellectual-property rights), and public services and amenities. One could add to that states' tendency—glaringly obvious since the 2008 global financial crisis—to protect large-scale private capital, while allowing it to wreak havoc on ordinary citizens.
The reality captured by the World Inequality Report reflects human choices, which means that it can be changed by making other choices. That is why the report is much more than a valuable compendium of useful data and analysis. It is a guide to action.
© 2021 Project Syndicate
* Jayati Ghosh is Professor of Economics and currently also Chairperson at the Center for Economic Studies and Planning, School of Social Sciences, at the Jawaharlal Nehru University, in New Delhi, India.
http://wir2022.wid.world/ http://wir2022.wid.world/executive-summary/ http://www.project-syndicate.org/commentary/tackling-the-food-price-inflation-problem-by-jayati-ghosh-2022-01 http://socialeurope.eu/the-price-increases-that-matter-for-the-poor/
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Stalled COVID-19 recovery leaves workers in Informal Employment struggling with lower earnings
by Dr. Sally Roever, Dr. Mike Rogan
Women in Informal Employment: Globalizing and Organizing (WIEGO)
A global study tracking informal workers’ lives during the COVID-19 crisis has found their economic recovery has stalled, with households experiencing high levels of hunger amidst waning government support.
The WIEGO-led COVID-19 and the Informal Economy study examines how workers in informal employment from 11 cities in nine countries are faring now compared to their pre-COVID economic conditions in February 2020.
The latest research paints a picture of a stalled recovery: most respondents have not fully returned to work, their earnings are far below pre-pandemic levels, and few have received a vaccine. WIEGO’s data aligns with ILO predictions of a “great divergence” in recovery paths of higher and lower income countries.
It also showed how governments, despite their goal for economic recovery post-COVID, have failed to help the majority of the world’s workers get back to work and re-establish their livelihoods.
WIEGO’s International Coordinator, Dr. Sally Roever, says the severe and sustained disruptions to work and earnings create challenges in meeting basic food needs.
“Across the sample in mid-2021, 29% of respondents reported an adult in their household had gone hungry over the last month, 27% reported that a child had gone hungry and the majority, just under 60%, reported a decrease in dietary diversity or less-frequent meals,” she says.
“Households in Lima, Durban and Dakar were the hardest hit on this front. These findings are a stark and sobering reminder of how the slow recovery unfolding in the global South has a very real human cost. Informal workers and their families are still living this crisis, and the longer they live without policy support, the wider the gulf between developed and developing countries will be.”
Dr. Mike Rogan, Lead Researcher for the COVID-19 Crisis and the Informal Economy Study, mentions this is combined with access to government relief dropping off.
“Access to government cash support stagnated during the course of the study, and the percentage of respondents who received food support declined since the first three months of the pandemic. The percentages of workers who received forgiveness of rent, utilities and/or school tuition were in the single digits. This lack of support forced many workers to take on new loans, draw down on their savings, and reduce their food intake.”
“Beyond relief measures, the study showed government interventions did more harm than good, particularly in regards to workers getting back to work. Our research found almost 50% of respondents needed money to get back to work, and only 7% received government loans, while governments also prevented people from working in public spaces”, says Dr. Rogan. The study found that by contrast, over one quarter of street vendors and market traders, as well as 15% of waste pickers, reported harassment by law enforcement officials.
Workers in informal employment interviewed in the study highlighted the following needs for recovery:
Providing immediate material needs, notably food aid and cash grants to replace savings, pay off debt and restore assets.
Providing working capital for livelihoods and businesses, through grants or low-interest loans.
Supporting employment and/or livelihood recovery and transition, by creating and/or facilitating new employment, skills training and widespread vaccination for reopening.
Expanding social protection, including access to social insurance, health care and basic income support on terms equal to those of formal workers.
Promoting an enabling policy and legal framework, including inclusive urban planning for the self-employed, minimum wages or piece rates, fair working hours, and health and safety requirements for employees and dependent contractors.
Following the principle of “Do no harm”, by allowing workers to pursue their livelihoods, protecting their workplaces, and ending punitive practices of harassment, confiscation, fines and evictions.
* Women in Informal Employment: Globalizing and Organizing (WIEGO) is a global network focused on empowering the working poor, especially women, in the informal economy to secure their livelihoods. We believe all workers should have equal economic opportunities, rights, protection and voice. WIEGO promotes change by expanding knowledge on the informal economy, building networks and capacity among informal worker organizations and, jointly with the networks and organizations, influencing local, national and international policies. There are over 2,000 million informal workers, predominantly in economically developing countries.
The COVID-19 Crisis and the Informal Economy study is a collaboration between Women in Informal Employment: Globalizing and Organizing (WIEGO) and partner organizations representing informal workers in 12 cities: Accra, Ghana; Ahmedabad, India; Bangkok, Thailand; Dakar, Senegal; Dar es Salaam, Tanzania; Delhi, India; Durban, South Africa; Lima, Peru; Mexico City, Mexico; Pleven, Bulgaria; New York City, USA; and Tiruppur, India; with support from the International Development Research Centre, Canada.
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