NBER Working Paper No. 8228
Issued in April 2001
NBER Program(s): DAE ITI
---- Abstract -----
The world economy has become more unequal over the last two centuries. Since within- country inequality exhibits no ubiquitous trend, it follows that virtually all of the observed rise in world income inequality has been driven by widening gaps between nations, while almost none of it has driven by widening gaps within nations. Meanwhile, the world economy has become much more globally integrated over the past two centuries. If correlation meant causation, these facts would imply that globalization has raised inequality between nations, but that it has had no clear effect on inequality within nations. This paper argues that the likely impact of globalization on world inequality has been very different from what these simple correlations suggest. Globalization probably mitigated rising inequality between participating nations. The nations that gained the most from globalization are those poor ones that changed their policies to exploit it, while the ones that gained the least did not, or were too isolated to do so. The effect of globalization on inequality within nations has gone both ways, but here too those who have lost the most from globalization typically have been the excluded non-participants. In any case far too small to explain the observed long run rise in world inequality.
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TABLE 1
The Shape of the Family Income Distribution
A. Percent of Total Family Income Going to Each Fifth of Families
1st (poorest)
2nd
3rd
4th
5th (richest)
Total
Median Family Income ($1990)
1949
4.5%
11.9
17.3
23.5
42.7
100%
$16,712
1959
4.9%
12.3
17.9
23.8
41.1
100%
$23,057
1969
5.6%
12.4
17.7
23.7
40.6
100%
$31,912
1979
5.2%
11.6
17.5
24.1
41.7
100%
$33,454
1989
4.6%
10.6
16.5
23.7
44.6
100%
$34,213
B. Income Cutoffs in the 1989 Family Income Distribution ($1989)
1st fifth (poorest) ends at
2nd fifth ends at
3rd fifth ends at
4th fifth ends at*
5th fifth (richest) begins at*
$16,003
$28,000
$40,800
$59,550
$59,551
*$59,500 is the dividing line between the fourth and top fifths of families. The highest-income 5% of families had incomes beginning at $98,963.
SOURCE: U.S. Bureau of the Census, Current Population Reports, various issues.
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