Special report: Inequality in perspective

A new special report from Standard Chartered Global Research argues that although inequality is rising in many countries, the picture is mixed. We find that income inequality likely has increased within most countries though changes in household composition and tax rules probably exaggerate the extent in developed markets (DMs) and redistribution via taxes and benefits has lessened the impact. Inequality has fallen between countries and absolute poverty has been reduced significantly due to rapid emerging market (EM) growth.

Inequality and developed markets

Skills-biased technological change is likely the main reason for rising inequality in DMs. Occupations such as typists, car assembly workers, sorters, crop pickers, telephone operators, toll-booth operators and bank tellers have already been thinned in recent decades putting downward pressure on low- and middle-level wages. Developments in autonomous mobile robots, as already foreshadowed by the Google car and robot collection and delivery systems in factories and warehouses, will likely continue this trend.

Meanwhile people with the right skills to leverage the power of computers are enjoying higher earnings. A recent study of the potential future impact of computerisation on US labour market outcomes emphasises that computers are good at logic, arithmetic and finding patterns in data; to command high earnings people will need ability in complementary skills such as situational adaptability, in-person interactions and abstract thinking (Frey 2013).

Inequality and emerging markets

The underlying forces of inequality in emerging countries although directly linked to globalisation and technology are different from those in developed economies. Spatial inequality (the rural-urban divide), large informal sectors, gender inequality and differential access to education and health services have a significant impact on inequality in the early and middle stages of economic development. In EMs a rise in inequality may be inevitable at first as different parts of the country catch up with developed living standards at different paces while education, skills and capital are built.

Some inequality supports economic growth by stimulating hard work and enterprise. But too much inequality may hamper growth by limiting people’s ability to improve their education and skills or by blocking needed reforms. Multilateral organisations such as the IMF and OECD, are also increasingly questioning the view that some inequality is essential as the cost of having a functioning global economy.

Developed countries have long been pursuing a range of policies which significantly reduce market inequality. Most EMs are doing less so far in terms of taxes and transfers but have increased spending on education and healthcare and made good progress in reducing absolute poverty; as countries develop and tax revenues grow they are expected to move towards further redistribution. But what works best in a developed market does not always work so well in an emerging market and developed countries now face challenges, from ageing populations and already-high government debt.

John Calverley, Head of Economic Research, commented: “There are significant differences in what is practical and feasible in emerging countries compared with developed markets. A fascinating theme in the discussion is the extent to which emerging countries are adopting similar approaches to the long-developed countries in Europe or North America.

“Meanwhile developed countries are facing serious challenges in maintaining their welfare states in the face of ageing populations and fiscal deficits, at the same time that the rise in market inequality and slow pace of income gains for the median earner is raising tensions. Most agree that it is important to limit or offset any potential rise in inequality from economic reform measures designed to promote growth, or otherwise they may be very difficult to implement.”

Read the full report: Taming the Gini: Inequality in perspective > PDF

For further information, please contact:

Shaun Gamble
Senior Manager, External Communications
+44 20 7885 5934
shaun.gamble@sc.com

John Calverley
Head of Economic Research
+1 905 534 0763
John.Calverley@sc.com