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EXTREME INEQUALITY
MEASURING INEQUALITY: GINI, PALMA AND THE WORLD
TOP INCOMES DATABASE
Accurately and regularly measuring inequality is politically difficult
and often neglected, especially in developing countries. A reliance on
household surveys and tax records systematically under-reports the
incomes and wealth of the richest in society, as they often have the
resources to avoid tax and are rarely captured by surveys. The reliance
on household surveys also means that gender inequalities are not
adequately measured.
Inequality of income, wealth and other assets, such as land, have been
historically measured by the Gini coefficient, named after the Italian
statistician Corrado Gini. This is a measure of inequality where a rating
of 0 represents total equality, with everyone taking an equal share,
and a rating of 1 (or sometimes 100) would mean that one person has
everything. Throughout this paper we rely heavily on comparisons using
Gini coefficients, as this tends to be most prevalent in the research
and evidence available on economic inequality.
However, one critique of the Gini is that it is overly sensitive to the
middle 50 percent. 138 The Palma ratio, named after the Chilean economist
Gabriel Palma, seeks to overcome this by measuring the ratio of the
income share between the top 10 percent and the bottom 40 percent.
This measure is gaining traction, for instance it has been proposed
by Joseph Stiglitz as the basis for a target in a post-2015 global goal
to reduce income inequality. The Palma ratio is crucial for gauging
increases in income and wealth concentration at the very top, making
it a useful tool for future research.
Tax records have also recently been used very successfully to get
a more accurate record of top incomes. The World Top Incomes
Database, co-founded by Thomas Piketty, covers 26 countries, with
information on the share of pre-tax income going to the richest one
percent since the 1980s.
There is no doubt that governments and institutions like the World Bank
must greatly increase and improve the measurement of inequality as
a fundamental foundation to tackle extreme inequality.
IN THE HANDS OF THE FEW: INCOME AND WEALTH
Global inequality – the inequality between countries – rose rapidly between
1980 and 2002, 139 but has fallen slightly since due to growth in emerging
countries, particularly China.
The bottom billion have increased their share of world income by 0.2 percent
since 1990, to just short of one percent, but to increase their share to 10
percent at the same rate would take more than eight centuries. 140 We have
reproduced UNICEF’s analysis in Figure 1 – dubbed the ‘Champagne Glass’ –
showing how much global income is concentrated at the very top, while the
vast majority of people take a comparatively meagre share of global income
that forms the ‘stem’ of the glass. 141
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