How unequal are incomes across countries?
The answer is very unequal.
In 2024, the average income in the 10 highest income countries is $88,000 a year, which is 73 times $1,200 a year, the average in the 10 lowest income countries.
Are incomes across countries becoming more unequal?
The answer is no: Incomes across the world are becoming more equal.
To see the trend toward less inequality, we will look at two ways of measuring it.
How is inequality measured?
The two tools for measuring inequality are the Lorenze curve and the Gini ratio.
Figure 1 illustrates these tools.
The income Lorenz curve arranges a population into a line running from the lowest to highest income and graphs the cumulative percentage of income on the y-axis against the cumulative percentage of population on the x-axis. If everyone had the same income, the Lorenz curve would be an upward-sloping line with a slope of one—the line of equality in the figure.
The farther the Lorenz curve is from the line of equality, the more unequal is the distribution of income.
An alternative measure of income inequality is the Gini ratio. The Gini ratio equals area between the line of equality and the Lorenz curve, area A in the figure, divided by the area beneath the line of equality, area A + B, so the Gini ratio is between 1, perfect equality, and zero, extreme inequality.
What do the Lorenz curve and Gini ratio tell us about the inequality of per capita incomes across countries?
The graph has five Lorenz curves for the distribution of per capita income across the 196 countries in the International Monetary Fund’s World Economic Outlook database.
The Lorenz curves for 1980 and 1990 show that per capita incomes were more unequally distributed in those years than in the later years in Figure 2. But the Lorenz curves for 1980 and 1990 intersect, with less inequality at low incomes and more inequality at high incomes. The Lorenz curves for 2000 and 2010 move closer to the line of equality, which indicates large fall in inequality. The Lorenz curve for 2020 shows a further fall in inequality, but a smaller change than in the previous 20 years.
The Gini ratio in Figure 3 confirm these moves toward less income per person inequality.
What is the story behind the numbers and the graphs?
The main story is that incomes per person have grown faster in lower income countries than in higher income countries, and by a very large gap.
The fastest growing low-income countries are 30 classified in the World Economic Outlook database as Emerging and Developing Asia. The largest in this group are China and India. The slower-growing higher income countries are 41 classified as Advanced Economies. The largest in this group are the United States, Japan, and the countries of Western Europe.
Figure 4 shows the gap between the real income per person growth rate of these two groups.
The variable graphed is the average growth rate of real GDP per person in Emerging and Developing Asia minus the same growth rate for the Advanced Economies.
Over the 44 years since 1980, the average real GDP growth rate per person is 2.4 percent in the Advanced Economies and 7.0 percent in Emerging and Developing Asia. In 2009, when a financial crisis in the United States brought a global recession, the Asian economies escaped its worse effects and grew an astonishing 11 percent faster than the Advanced Economies. Only in 1998, when a financial collapse hit Thailand and spread across Asia, were the two growth rates the same, shown as a zero gap in the figure.
Now take a short quiz to ensure you understand what you just read.