International Trade and Economic News from Euromonitor: Rising Global Income Inequality

Income Inequality Rising Across the Globe: Income inequality has risen in most countries in the world over 2006-2011, driven by rapid population ageing, rising unemployment and government spending cuts in advanced economies, and urban/rural and skills divides in developing countries. Rising income inequality is changing consumer spending patterns and creating substantial opportunities for adaptable businesses, although it can also undermine a country’s business environment and growth potential. Key Points:

• Developed economies tend to have lower income inequality levels, mainly thanks to their effective income redistribution policies. In developing countries, income inequality remains relatively high due to greater disparities between regions, genders, ethnicities and education. In 2011, Norway had the lowest Gini coefficient of 25.6% in the world, while South Africa was the country with the most unequal income distribution, at 63.6%;
• During 2006-2011, income inequality has increased within most countries around the world, mainly due to population ageing and high government debts in developed economies as well as a lack of government policies and high levels of corruption in developing and emerging countries.
• Rising income inequality within countries leads to a change in spending patterns, creating good business opportunities at opposite ends of the economic spectrum, especially in the luxury and budget goods sectors. It can, however, affect a country’s social stability, limit the expansion of the middle class and the country’s economic growth potential.
• Economic slowdown and fiscal austerity measures as a result of the financial crisis in the eurozone and the USA could spell greater income inequality in advanced economies in the future.

Global differences in income distribution. There are large variations in income distributions within countries worldwide:

• Income inequality is relatively low in developed countries, particularly in Europe, due to strong income redistribution policies through the tax and benefit systems. High taxes and expansive social welfare structures maintain egalitarianism in Scandinavian nations, while Eastern Europe is still shaped by its equality-based communist past.
• Among developed economies, the USA has one of the highest income inequality levels.
• Countries with the most unequal income distribution are clustered in southern Africa and Latin America. Due to its history of racial inequality under the Apartheid regime during 1948-1994, South Africa has the highest income inequality in the world.
• In most developing countries, income inequality remains relatively high due to the existing income gap between gender, ethnicity, regions and educational/skills levels. In many countries, a lack of adequate government policy and resources to help the poor also contribute to poor distributions of income.

Note: A society that scores 0% on the Gini index has perfect equality, where every inhabitant has the same income. The higher the number over 0%, the higher the inequality, and a score of 100% indicates total inequality, where only one person receives all the income.