Tuesday, 6 October 2015

Changing global inequality, migration and open borders

In the last couple of months, I've written a couple of blog posts on Branko Milanovic's research on global inequality over recent centuries (see here and here). In this post, I want to update to some of his latest research on global income inequality published in Global Policy in 2013 (ungated version here).

In the paper, Milanovic again looks at how global inequality has changed over time. This time the important comparisons are only from 1952-2011 (rather than over past centuries) - his Figure 2 is reproduced below.

"Concept 1" inequality is inequality between countries, i.e. differences in average incomes between countries (without weighting by country size, so for example India and Israel would count the same). "Concept 2" inequality takes the population size into account, but still measures inequality as if everyone had the average income in their country, i.e. it ignores inequality within countries. "Concept 3" inequality is closest to true global inequality because it is between individuals the world over (or at least, those covered adequately by household surveys). Concept 3 is obviously the best measure of inequality of the three, and I guess you can see almost whatever pattern you want to see from those dots (maybe it is trending upwards; or maybe you focus on the downward trend of the last three dots?). Milanovic labels this diagram "the mother of all inequality disputes".

Anyway, regardless of what you think is happening to "Concept 3" inequality, it is clear that "Concept 1" inequality increased substantially from the 1950s to 2000, then declined since then, while "Concept 2" inequality has been declining slowly over most of the period, before accelerating since the 1990s. If you remember my post of Milanovic's earlier work, he showed that inequality between countries had grown substantially over the last two centuries. The lastest data is showing a reversal of that long term trend. The poorest countries are growing the fastest, and this is lowering between-country inequality substantially. And when you consider that the most populous poor countries (China, India) have been growing fast, then the decrease in "Concept 2" inequality has been substantial.

What's surprising then is the persistence of "Concept 3" inequality remaining high, which must be due to increases in within-country inequality, particularly in fast-growing populous countries like China. So, while the growing middle class in poor countries is getting much better off, the poorest in those countries may not be much better off than they were years ago.

Milanovic notes that there are three ways in which to reduce global inequality:

  1. Increasing the growth rates of poor countries (relative to rich countries), especially those of populous poor countries like China, India, Indonesia, Nigeria, etc.
  2. Introducing global redistributive schemes, e.g. through much-increased development assistance for poor countries
  3. Migration.
Migration would enable the poor to improve their living standards. Even if they are within the poorest sections of the population in a rich country, they may be better off than being around the median (or below) in a poorer country. Michael Clemens has made a similar case for the benefits of freer migration. However, completely opening borders for economic migrants is unlikely to happen any time soon, even though rich western nations could benefit greatly from an influx of young migrants to offset their rapidly ageing labour forces (more on that in a later post). Milanovic notes:

...there are seven points in the world where rich and poor countries are geographically closest to each other, whether it is because they share a border, or because the sea distance between them is minimal. You would not be surprised to find out that all these seven points have mines, boat patrols, walls and fences to prevent free movement of people.
For the record, those seven borders are on land: U.S.-Mexico; Greece-Macedonia/Albania; Saudi Arabia-Yemen; North Korea-South Korea; Israel-Palestine; and by sea: Spain-Morocco; and Indonesia-Malaysia.

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