Inequality, Global Economic

Measuring Global Economic Inequality

There is no consensus about the most appropriate way of measuring global economic inequality. Many studies use multiple approaches; three are common. First, between-country estimates calculate the average income per capita in each nation, so mapping income inequality across the world by nation. Or, average income per capita is estimated, weighted by national population, producing a different estimate of global inequality. Second, within-country estimates calculate levels of inequality within nations, making apparent the variability of national inequality worldwide. Third, the divergence of individual or household economic standing is estimated, regardless of national location. Often, studies seek to determine the relationships among these different types of inequalities. In addition, some studies analyze how global economic inequality is associated with particular social groups, like classes, genders, different ethnic and religious minorities, the able-bodied and disabled, sexual minorities, and so on.

Each approach uses different units of analyses, making assumptions about what kinds of economic inequality matter. Focusing on nations as [Page 906]units masks important inequalities within nations. Clearly, it is not the case that all Canadians earn the “average” Canadian income. In most nations, there are important differences in income across classes, genders, urban and rural areas, and so on. Likewise, statistics generated at the individual or household levels obscure other inequalities, notably those within households, as such measures imply that households share resources. However, this masks systematic inequalities, for example, between men's and women's income and men's and women's respective control over “household” economic resources. Each choice of unit of analysis makes some kinds of economic inequality visible while obscuring others.

Measuring economic inequality means decisions about what sort of economic resources are analyzed. Wealth inequalities typically include an assessment of property owned, savings, stocks and bonds, and so on. Income inequality may be measured using pre-or post-tax income. Wages only may be taken into account or other sources, like pensions, may be included. It is difficult to assess income from informal and illegal work, an important source of revenue for many, especially in developing nations. Individual or household consumption over varying periods of time may be used to measure inequality, in the absence of wealth or income data.

The use of different measures has consequences, making comparisons of economic inequality across different data sets difficult. For example, household income inequalities cannot be compared in any straightforward way with household wealth inequalities. In other instances, researchers achieve cross-national comparability by developing special measures. Purchasing power parity (PPP) adjusts for the ways that differences in currency values affect the prices of identical goods. Expressed in a common currency, one kilogram of rice, for example, may be less expensive in India than in Australia, implying that a lower Indian average income may buy a better standard of living than a “higher” average Australian income. Average income calculated using PPP is typically higher in developing nations than average incomes calculated other ways. Thus, adjustments to achieve international comparability affect the apparent extent of global economic inequalities. When comparing countries, the distribution of income and wealth, not simply the average, matters, since averages are sensitive to extreme values.

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