In economics, income and wealth disparities have long been a topic of discussion. In the 1970s and early 1980s, the growth of inequality sparked interest as to its origins and implications. Since then, economists have agreed that economic development and prosperity no longer significantly reduce economic disparity within a state.
Continuous inequities and a growing social gap between the rich and the poor within and across nations raise important concerns that require innovative and out-of-the-box policies to solve them.
So far, the trend of the rich getting richer and the poor falling deeper into poverty has not been reversed or even slowed down. Does this mean the expanding gap between the two groups is a new normal?
What is the distribution of wealth and income?
Wealth and income distribution are two indicators that basically explain and characterize a country’s economy. These metrics are used by governments and non-governmental organizations to rank countries and help to formulate plans to combat poverty.
Wealth distribution
The distribution of wealth represents a comparison of assets held by various individuals in a certain society. It examines the economic distribution of ownership within a community rather than its income.
The data regarding wealth distribution is staggering:
- 50% of people from the second half of the list possess 2% of the total wealth (!)
- The richest 10% of people own 76% of the world’s wealth (!)
Income distribution
The distribution of income evaluates how a country’s total economic income (GDP) is allocated among its population.
Last year, global income reached US$122 trillion. According to the World Inequality Report, the average annual income of an adult was US$23,380.
- However, just 10% of the Earth’s richest people (about 517 million adults) earn over 50% of the whole income while the bottom half takes home just 8%.
- The report states that an individual from the top 10% of richest adults earns US$122,100. annually while a person from the bottom 50% makes just US$3,920 per year.
- The middle 40% of adults earn almost US$17,700 per year.
Fig.1. Global income and wealth inequality, 2021
Source: World Inequality Report
COVID-19’s effect on wealth distribution
The COVID-19 crisis has worsened existing disparities according to recent analysis. The World Inequality Report concluded that wealth and income divergences remain widespread but the pandemic is the factor that has widened the gap between the rich and the poor.
While government action averted a major increase in poverty in rich nations, poor nations were seriously affected.
Regional wealth distribution in the world
In 2020, total wealth increased in some regions across the world:
- North America by US$12.4 trillion
- Europe by US$9.2 trillion
- China by US$4.2 trillion
- The Asia-Pacific area (minus China and India) by US$4.7 trillion
In India, total wealth dropped by US$594 billion.
Latin America has shown the worst performance with total wealth dropping by 11.4%, or US$1.2 trillion.
This chart illustrates worldwide wealth distribution by region:
Source: Visual Capitalist
Wealth distribution in the U.S.
The richest 10% of Americans hold about 70% of the nation’s total wealth according to Statista.com. At the same time, the richest 1% owned 32.1% of the total while the next 9% owned 37.7%.
- The bottom 50% of the U.S. population owned 2% of the country’s wealth.
- The COVID-19 crisis worsened the situation of lower- and middle-income households in the U.S. while considerably enriching the wealth of the ultra-wealthy top 1%.
Wealth distribution in China
In terms of the global economic downturn brought about by the COVID-19 outbreak, surprisingly China has mostly avoided the consequences. The country reported a 7.9% increase in GDP in the second quarter of 2021 compared to the same period in 2020, far more than most wealthy countries.
The Chinese economy has registered the world’s fastest growth with annual growth rates of 10% over the last three decades.
Although this rapid growth has helped millions of people to climb out of poverty, it has also expanded the gap between the wealthiest and poorest.
China is one of the planet’s 20% most unequal nations. Inequality has grown both inside cities and within rural regions. Urban inhabitants earn around 2.5 times as much as those living in rural areas.
One of the key issues is imbalanced growth with the household registration system limiting individuals’ movement resulting in various forms of discrimination against migrant labor. Furthermore, China’s general growth policy has prioritized cities over villages.
The gap between the rich and the poor in China is much wider when total wealth is considered which, besides income, also includes all assets including stocks, bonds, and estate. When all of these are taken into account, it emerges that the wealthiest 10% own approximately 70% of overall household wealth.
In 2022, the country was once again hit by COVID-19 and economists predict that the country’s GDP growth rate will fall to 4.1% following a lengthy lockdown in Shanghai caused by the zero-COVID policy which has halted the economy and disrupted global supply lines. Despite a rebound being forecast in the second part of 2022, experts consider that the set target of 5.5% will not be met in 2022.
Wealth distribution in the European Union
The wealth in the EU is highly concentrated to a limited number of people resulting in rising economic disparities.
- In 2020, Switzerland registered the biggest average wealth rise since 2010 (EUR 2 trillion).
- The richest 1% of EU citizens own 19% of the Union’s total wealth.
This inequality is expected to increase and there are several key factors for this:
- Economic growth is likely to remain low due to the pandemic but the wealth held by some categories of the population will continue to grow more rapidly than the economy.
- In most nations, the COVID-19 crisis has already exacerbated disparities, making it much more difficult for families with little money to gain a larger share of European wealth.
Final word
For several decades, income and wealth disparity has been a hot topic. Today, the gap between the rich and the poor continues to increase and the COVID-19 crisis has worsened the situation with the wealthiest becoming even richer while the poor slide further into poverty. It will take deliberate and smart governmental interventions to create a genuinely thriving planet Earth.
