By Todd A. Knoop.

The study of economic inequality is not all doom and gloom—there are some rays of sunshine to be found. While inequality between individuals across the globe is still massive, growth in emerging market economies—particularly within China and India because of their particularly fast growth and enormous populations—has pulled millions of people out of poverty and into the global middle-class. As incomes have risen, the data shows that people live longer, children and mothers die less often, the availability of clean drinking water and electricity expands, leisure rises, access to education improves, children learn better, and people are more satisfied with their lives.¹

One way to see the extent to which global inequality has improved is that in 1990, Countries outside of the G7 countries (the seven large and rich western economies) accounted for only 37 percent of world GDP; today, they account for more than half (56 percent), and by 2040 could account for more than two-thirds of world GDP.²

Another way to observe the decline in global inequality is to look at the global Gini coefficient. The global Gini coefficient summarizes the entire distribution of income, from the very top income to the very lowest income across the entire global population (ignoring nationality), in a single number between zero (perfect equality) and one (perfect inequality). While the Gini coefficient reduces the entire distribution to a single number, which obscures a lot of information, a higher level of the Gini coefficient indicates higher inequality. Happily, the global Gini coefficient for market income has fallen from .72 in 2000 to .67 in 2020. However, while this indicates a significant reduction in global inequality, it is important to note that the global Gini coefficient is still higher than the domestic Gini coefficient within even the most unequal of individual countries.

But when it comes to understanding inequality across the globe today, good news is often offset by more bad news. The bad news is twofold. First, there are real reasons to think that the decline in global inequality that took place between 1990 and 2015 has stalled: in addition to the Covid-19 pandemic which hit the developing world particularly hard, a growing number of countries have become less open, less democratic, less inclusive, less peaceful, and may be becoming less productive. The world’s 58 poorest countries grew at roughly twice the rate as rich countries between 2000-15, but since then there has been little catch-up as growth in the developing world has failed to match that of the rich world. There have been matching slowdowns in measures of public health and educational improvement across middle-income and developing countries.

But maybe the even worse news is that the nature of global inequality is changing: it is becoming less global and more local. Global inequality compares all households from across the globe regardless of nationality. But one way to think about global inequality more deeply is to recognize that global inequality encompasses two separate components: between-country inequality, or the inequality between different countries, and within-country inequality, or the domestic inequality within each country. In other words, inequality across the world is comprised of international inequality across all the countries in the world, and domestic inequality among individuals inside of each country,

So how are these two components of global inequality changing over time? One way to measure this is to compare income shares where countries are the unit of measurement (between-country inequality) to income shares when people within a country are the unit of measurement (within-country inequality). Figure 1 presents the ratio of the income shares of the top 10 percent divided by the bottom 50 percent, first across countries—this is a measure of between-country inequality. Then, a top 10/bottom 50 ratio is computed within each country and averaged across countries—this is a measure of within-country inequality. (Remember that adding between-country and within-country would give you global inequality.)

Source: Chancel and Piketty (2021).

In Figure 1, we can see how the nature of global inequality has changed since 1820. From 1820 to 1900, both components of inequality—within and between—were rising. From 1900 to 1980, but picking up pace in 1940, within-country inequality fell significantly during the period often referred to as “the Great Compression”. It was during this period that larger welfare states and more progressive taxation across richer countries significantly reduced inequality within these countries in the immediate postwar era. However, note that while within-country inequality fell across the globe in the postwar era, between-country inequality continued to rise as global growth was confined to a small number of countries. 

The turning point for global inequality was 1980. Between-country inequality peaked in 1980—right when within-country inequality was at its lowest point. But since 1980, these trends have reversed: within-country inequality has been growing rapidly while between-country inequality has been dropping. In other words, reductions in inequality between countries is being offset by extraordinary increases in domestic inequality between individuals within specific countries.

Here is the big takeaway: In 1980, almost two-thirds of global inequality was driven by between-country inequality. Today, the world has flipped and roughly two-thirds of global inequality is driven by within-country inequality.³ The good news about this is that the accident of which country you were born into matters less than before in predicting your lifetime income. The bad news is that inequality is closer to where we live and much harder to escape—inequality increasingly exists not far away in other countries, but in our hometowns and neighborhoods. In countries such as China, a growing economy has not raised everyone’s incomes equally, and domestic inequality is increasing at roughly the rate that global inequality is declining. In other words, the “elites” that average citizens find themselves envious of are no longer foreigners—they are their fellow citizens.

While you might think that inequality is inequality, I would argue that it is growing within-country inequality that is particularly damaging to our societies and our politics. In regards to how people feel about their current state of life, it is always their relative income that matters to people, and people think about their relative incomes in comparison to their neighbors and their fellow citizens that they see on a daily basis, either in real life or in the media. The fact that many in the broad middle-class are feeling squeezed by those behind them who are catching-up, the rising poor while at the same time discouraged by the rich who are pulling away and receding into the distance, fuels the generalized sense of injustice and frustration that is increasingly felt across the globe, regardless of the country that you live in.

To put this another way: keeping up with the Joneses might be driving economic anxiety in the US, but it is not at the core of what is driving economic anxiety in China, which is keeping up with the Zhangs, or in India, where the success of some Kumars are driving the economic anxiety of the vast number of other Kumars.

A country is not just a collection of people. It is a network of social norms, shared history, ethical principles, traditions, and codified and uncodified laws that become the rules by which we can hope to live together peaceably and work cooperatively. The growing and generalized dissatisfaction that people across the globe feel regarding their economic prospects is at the heart of increasing domestic political polarization and populist political movements across the globe. More unequal societies become less cooperative societies, and are more likely to suffer from political dysfunction, lower public health, worse educational outcomes, less intergenerational mobility, more rent-seeking, fewer public goods, more discrimination, conflicts such as crime and war, and greater macroeconomic and financial instability.

What can be done to combat growing inequality within countries? In terms of within-country inequality, creating more equality means adopting domestic structural inequality reform policies that change the workings of markets (such as changes in labor laws, creating more market competition, and improving education) and adopting domestic policies that transfer resources from richer to the poorer citizens (such as increasing the progressiveness of taxation and providing universal guaranteed incomes). There is a lot more to be said here, but the question now is whether our politics have deteriorated to such a point that policies that have been shown to be effective at reducing inequality no longer overlap with policies that are politically feasible.

Ultimately, however, if nothing is done to mitigate growing economic inequality and save our democratic and capitalistic systems, it will not be due to a failure of economics or even of politics. It will be due to a failure of us.

---

This article was written by Todd A. Knoop, the David Joyce Professor of Economics at Cornell College, and the author of the book Understanding Economic Inequality: Bigger Pies and Just Deserts.

References:

[1] Roser, M. (2021), ‘Global economic inequality: what matters most for your living conditions is not who you are, but where you are born’, accessed on September 13, 2025 at https://ourworldindata.org/global-economic-inequality-introduction.

[1] Lu, M. (2024), ‘Charted: The G7’s declining share of global GDP’, Visual Capitalist, July 16, accessed on November 13, 2024 at https:// https://www.visualcapitalist.com/charted-the-g7s-declining-share-of-global-gdp/.