The global perspective on income inequality

Guerriero, Arthur Zito; Kapeller, Jakob Working Paper The global perspective on income inequality ifso working paper, No. 35 Provided in Cooperation with: University of Duisburg-Essen, Institute for Socioeconomics (ifso) Suggested Citation: Guerriero, Arthur Zito; Kapeller, Jakob (2024) : The global perspective on income inequality, ifso working paper, No. 35, University of Duisburg-Essen, Institute for Socio-Economics (ifso), Duisburg This Version is available at: https://hdl.handle.net/10419/300260 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ uni-due.de/soziooekonomie/wp ifso working paper Arthur Zito Guerriero Jakob Kapeller The Global Perspective on Income Inequality 2024 no.35 The Global Perspective on Income Inequality 1 Arthur Zito Guerriero University Duisburg-Essen, Institute for Socio-Economics RWI – Leibniz-Institut für Wirtschaftsforschung e.V. arthur.gue[email protected] Jakob Kapeller University Duisburg-Essen, Institute for Socio-Economics Johannes Kepler University Linz, Institute for Comprehensive Analysis of the Economy (ICAE) jakob.kapel[email protected] Abstract This paper provides a comprehensive overview of the ongoing debate on global income inequality. It shows that global income inequality is a valuable analytical concept that significantly enhances our understanding of global economic dynamics. By addressing key methodological issues in the measurement of global income inequality, the paper compares different datasets used in the literature and conducts an exploratory analysis of recent trends. This analysis re-evaluates the relative impact of inequality between and within countries and highlights how growth and distributional dynamics in specific countries influence global income inequality. Keywords: income inequality, globalization, measurement of inequality, convergence JEL Codes: D31, F01, F60 1 The present working paper is a draft of a chapter to be published in the book: Wimmer, Christopher / Rieder, Tobias (eds.), Global Inequality, Brill. 2 1. Introduction Economic inequality is a topic of growing interest not only among academics but also in popular debate. Inequality is a key property structuring our economic system which is directly linked to notions of justice and related concerns on how our society should be organized. It is therefore essential to understand inequality conceptually and to measure it empirically. Although this is usually done by taking countries as units of analysis, a growing stream in the current literature is interested in taking a global perspective and analyzing economic disparities between all individuals in the world, regardless of where they live. Inequality between the world's citizens is estimated to be very high. To illustrate, the top 0.1% (a group of around 790 thousand people) and the bottom 50% (around 3.8 billion people) enjoy a similar share of total global income, namely about 8%. Moreover, global inequality today is estimated to be at levels comparable to 1900 (Chancel et al., 2022), a period in world history characterized by colonization and imperial domination of a large part of the world, combined with a striking divide between a rising class of industrialists and the misery of a largely impoverished working class. This article aims to provide an overview of the state of the art in this field. First, we raise the question whether it is relevant to study inequality at the global level. We defend the importance of analyzing global economic inequality and present it as an essential object of study that is relevant from both a descriptive as well as a normative point of view. On this basis, we discuss methodological challenges relevant to the measurement of global inequality. The focus of this article is on income. We recognize that such a focus on income is not sufficient to understand the multidimensional properties of inequality (Therborn, 2014). However, income is nonetheless a key factor to consider for distributional analysis, and, in addition, one that reveals much about global history and the contemporary geo-economic constellations. This importance of measures of global income inequality for understanding world history and its geopolitical dynamics is illustrated in the third section of the article, which presents the main trends in global income inequality between 1820 and 2020 and makes explicit 3 how these dynamics relate to the overall historical developments within this period. Both inequalities between and within countries are discussed. Recent developments in global inequality are discussed in more detail in the final section. Of particular interest is the role of China in the recent decline in global income inequality, which began around 1980 and continued until at least 2020. Although there is a consensus in the literature that standard measures of inequality fell during this period, the interpretation of this trend is still debated. The high growth rates in China, which were the main driver of the decline in inequality, will soon have the opposite effect, as China have already or will soon surpass those thresholds, below which higher growth in the country can contribute to a decline in global inequality. 2. The importance of the global perspective Although the topic of income inequality has received additional attention in recent decades (Grisold & Theine, 2017), there is still no consensus that income inequality should be measured at the global level. Indeed, for many authors, global inequality is a spurious concept and its measurement a supposedly meaningless construct. Some important philosophers, such as Rawls (1993), argue that the international distribution is not subject to moral claims of redistribution. Similarly, some authors find it meaningless to compare individuals of different “societies” (Bhagwati, 2004). Therefore, it is important to justify that it constitutes a valid object of study. Indeed, most arguments denying the scientific or practical relevance of measuring global income inequality are based on some version of the assumption that different countries represent different societies that are fundamentally distinct and separate and, hence, to be treated in isolation. Under such a premise, it would make little sense to summarize the disparities of all individuals in a single measure of inequality. As isolated societies, it would be difficult to argue that there is any injustice in the distribution of resources across these societies. At best, a measure of inequality would reflect disparities in well-being that might arouse the curiosity of some. However, such a premise does not hold up to scrutiny: we do not live in a world of separate societies. At least since the colonization of the Americas, and then of 4 almost all regions of the world, the economic ties and dependencies that bind different parts of the globe together are so strong that it is difficult to defend the idea that each country is an isolated community, with perhaps only a few minor exceptions. There are still good reasons to analyze countries separately, as they nonetheless retain some key features, like territorial integrity or institutional homogeneity. However, there are many aspects of economic reality that would remain hidden when focusing only on individual countries. For one, the expansion of international trade in the past centuries has been accompanied by a path-dependent co-evolution of complementary specialization patterns that make individual developmental trajectories of countries depend on the overall development of the global economy (e.g. Gräbner et al., 2020; Hidalgo & Hausmann, 2009; Wallerstein, 2004) .For another, price shocks to internationally traded products, such as oil or other primary resources, affect all countries at the same time (though in different ways).Moreover, due to the globalization processes, production chains are dispersed across countries, and large firms have a great deal of freedom to globally relocate production sites, headquarters, distributional infrastructure and the like. Local wages (and incomes) are therefore embedded in global dynamics of a “race for the best location” (Rodrik, 2011), which is why we cannot fully understand a country's economy (and its income distribution) without taking into account the international context in which it is embedded. Finally, it could be argued that it is pointless to study global inequality because there is no global political entity that could redistribute income globally and provide the moral framework for claims of justice. In individual countries, it is possible to use measures of inequality as indicators of progress. The goal of reducing inequality can then lead to different policies. But at the global level, there is no global state that could introduce redistributive policies. Even if international organizations such as the World Bank claim to fight global inequality, their scope for action is very limited and certainly does not have the distributive power that a national state could have. Although there is no global state, there are numerous institutional arrangements in the global economy, including trade agreements, patent laws, global health initiatives and financial routines regarding the treatment of accumulated debt (Anand & Segal, 2015) and so on. For some philosophers (Pogge, 1994), the existence of these international organizations justifies distributional claims in much the same way 5 that nation-states justify redistribution within the country. Moreover, Pogge (2010) argues that the rights of the poor are violated by the international order. For him, global poverty is the result of global institutions in which rich countries are directly involved. In this case, where rich countries are perceived as being responsible for the misery of others, it seems clear that some moral obligations are implied, at least to stop the unjust relations that still exist. The economic interaction between people living in different countries is important from a normative perspective, because exploitation and economic domination can exist internationally. The clearest example of this is colonialism, a condition in which the entire economy of a colony is subordinated to the interests of the metropole (Bhambra, 2020). At least in this case, there is a strong argument for considering the inequalities between the people living in these countries. It would be difficult to justify that an industrialist in England and a peasant in colonized India in the 19th century belonged to completely isolated societies and that it is meaningless to consider a measure that takes this dimension into account. The fact that these two individuals lived far apart geographically does not necessarily imply that the inequality between them is negligible. In this case, there are even good arguments for rejecting the idea of measuring inequality only among English citizens, because this would hide a large part of the inequality in this colonial society as a whole. Today, most former colonies have already gained their independence, and patterns of international domination/exploitation do not appear as clear-cut as in colonial times. However, many authors argue that the negative consequences of colonialism not only continue to influence current developments but are compounded by other unjust aspects of international political and economic relations. For example, Hickel et al. (2021) estimate that countries in the Global North appropriate $2.2 trillion (constant 2011 dollars) in goods and services from the Global South each year due to unequal exchange. Furthermore, it is possible to argue that rich countries (or, alternatively, those countries responsible for colonial oppression) should make some reparations to former colonies to undo the historical injustices associated with their current economic advantages. Since colonial history has an important impact on the current global 6 distribution of income and wealth, there may even be a case for international redistribution, where a similar argument can be made with regard to the consequences of climate change and the distribution of cumulative emissions over time (Fanning & Hickel, 2023). The purpose of this article is not to evaluate the soundness of claims about the alleged injustice of the global economic system, but to illustrate that responding to related ethical questions of international justice cannot be resolved by philosophical inquiry alone, but requires historical contextualization and empirical analysis. Thus, the measurement of global inequality plays an important role in this discussion by providing empirical data that can be used to illustrate or support different positions on the matter. Therefore, measuring global inequality is indeed meaningful because it represents an important aspect of the economic system that can be related to other variables of interest. It opens up a new perspective to understanding the world's economic history and reveals some fundamental aspects of how the globe has changed over time. It relates to distributional struggles, political and economic shifts within countries, and the rise and fall of different countries and empires. 3. Measuring Global Income Inequality As we argued in the last section, global income inequality is worth studying. However, it is a broad concept that can be analyzed from many different angles. Quantifying global inequality is an important step towards a better understanding of the phenomenon. But to measure inequality, it is essential to specify how this concept is defined and operationalized. Regardless of how we measure global income inequality, it appears to be very high – as high or higher than in the most unequal regions of the world. Estimates of the global Gini-coefficient, a standard measure of inequality ranging from zero (perfect equality) to one (absolute inequality), in 2020 range from 0.6 (Gradín, 2021a; Milanovic, 2024) to 0.67 (Chancel & Piketty, 2021) and 0.71 (Milanovic, 2024). In this section, some important aspects of the measurement of inequality are addressed, not only to explain this large variability, but also to clarify how these different estimates 7 should be interpreted. Much of the reason is that “global income inequality” is still a very broad concept that needs to be further specified in order to be measured, and the different figures refer to different concepts. The present article focuses on income, although this approach certainly does not exhaust all dimensions of inequality that may be of interest. In addition to income, we are usually interested in a range of factors that influence the well-being (Therborn, 2014), capabilities (Nussbaum, 2005) and opportunities of individuals which are not effectively captured by income alone. In addition to the components of the broader concept of social inequality (such as health, educational attainment, personal networks, status, etc.), also other dimensions of economic inequality (such as inequality in wealth or freely disposable time) cannot be captured by only looking at income. Nevertheless, income distribution contains much information about the economic structure of the world and is an important dimension of global history. Although incomplete, it is a valuable source of knowledge that should not be neglected. For the sake of a concise analysis, we have chosen to focus on this dimension alone. 3.1. Data sources There is no survey or comparable data source that collects income data directly at the global level. Therefore, computing global inequality requires the combination of data from different surveys. Unfortunately, the concepts used by different surveys are not always directly comparable. Moreover, each of these surveys contains sources of bias. Therefore, the estimates present in the literature must be interpreted with care and small variations in the indices should not be overinterpreted. An important compilation of data is provided by the World Income Inequality Database (WIID), which integrates household surveys from different countries with national accounts through a detailed harmonization process described by Gradín (2021b, 2021c). The WIID data represent disposable income in 2017 international dollars, using purchasing power parity (PPP) exchange rates to account for price level differences across countries. Moreover, it includes estimations of the mean income of each percentile for nearly all countries from 1950 to 2021, facilitating a comprehensive 14 3.4. Decomposing Global Inequality: Between and Within Countries In line with recent literature, we understand global inequality as inequality among world citizens regardless of where they live. This cosmopolitan conception of inequality, called “concept 3” by Milanovic (2016), stands in contrast to more traditional approaches, which assess international inequality by inspecting disparities between the average incomes of different countries (“concept 1”), which can also be weighted by population size (“concept 2”). An alternative to this somewhat dichotomic approach is to consider the relevance of national entities by decomposing global inequality into inequality between countries and inequality within countries. There are several ways to technically define these concepts, but perhaps the most revealing is to measure inequality using the Theil-L index (also called mean log deviation). This measure is additively decomposable, meaning that total inequality can be expressed as the sum of between-country inequality, i.e the inequality between average national incomes weighted by population, and within-country inequality, i.e. the weighted average of within-countries inequality (Shorrocks, 1980). Similarly, it is possible to project the same intuition to other inequality measures, such as the Gini index or the T10/B50 ratio, although in such cases a clean decomposition in the sense that between-country and within-country components add up to total inequality can often not be achieved. In these cases, the between-country component can be constructed by assigning each individual the average income of her country, while the within-country component is calculated by rescaling the incomes of different countries to make all average national incomes equal, without changing the relative distribution within countries. 15 Figure 2: Decomposition of global inequality. The series from Milanovic (2024) refers to the Theil index. The between-country component from Chancel and Piketty (2021) is the ratio T10/B50 between the average incomes of the top 10% and the bottom 50% (assuming that every individual within a country has the same income). The within-country component from Chancel and Piketty (2021) is the ratio T10/B50 between the average incomes of the top 10% and the bottom 50% (assuming all countries have the same average income) Figure 2 shows the decomposition of global inequality using different data sources. The trajectories of the between-country component appear to be very clear, rising continuously from 1820 to 1980/1990 and then falling until 2020. There also seems to be a consensus that the within-country component rose until the beginning of the 20th century and then fell. However, the trajectory after 1980 depends on the data used. While Chancel and Piketty (2021) show an increase from 1980 and a stabilization in the mid-2000s, Milanovic (2024) shows a rather constant inequality within countries after 1980. This difference is a consequence of the adjustments made by WID using tax and administrative data, which tend to show a sharper increase in inequality within countries over this period than survey data alone. Moreover, the authors do not agree on the exact importance of each component. As shown in Figure 3, Chancel and Piketty (2021) estimate the share of the between-country component in the overall global inequality to be only 32% in 2020 while Milanovic (2024) estimates it to be 55%, although the overall trend of the shares 16 is similar. These differences follow from the fact that the data employed by Chancel and Piketty (2021) lead to larger estimates for inequality observed within countries. Figure 3: Share of between-country component in overall global inequality as measured by a percentage of Theil-L The estimation of different shares for each component may nonetheless motivate different approaches to how to better mitigate global inequality. Milanovic (2024) stress the importance of the between-country component, dedicating a great part of his analysis to discussing growth trends of different countries. On the other hand, Chancel and Piketty (2021) give more importance to within-country inequalities, stressing that the reduction of global inequality requires also the reduction of inequality within countries. 4. What has happened with global inequality since 1820? Interpreting levels of inequality is difficult, whether at the global or national level. Even if we use more intuitive measures of inequality than the Gini, such as top shares, it is difficult to define what level of inequality should be considered “high” or “low” without comparing it to other distributions. There is more scope for analysis if we focus 17 not on levels but on trends. Provided we have comparable definitions over time, time dynamics can be identified even if there is uncertainty about the exact interpretation of levels. Although the quality of the data at the global level does not allow interpretation of small changes, some long-term trends can be identified that are robust to many different assumptions and definitions. Although there is some consensus in the literature about the evolution of inequality in the nineteenth century, there is some important disagreement about the twentieth century. Although the current literature agrees that within-country inequality fell between 1910 and 1980/1990, while between-country inequality continued to rise until 1980/1990 and then fell, there is no consensus on the overall effect of these contradictory forces. This section presents the different positions and explains how their differences are rooted in the methodological choices made by different authors. 4.1. Main trends in within and between country inequality The dynamics of global inequality in the 19th century seem very clear. At a time when some countries in Europe and North America were industrializing at a high rate, the gap between these rapidly developing countries and the rest of the world was widening markedly. At the same time, inequalities within these countries increased as the gap between a wealthy bourgeoisie and an impoverished working class widened. The 19th century was also characterized by the colonial empires of European countries. In a context in which some countries exercised direct power over others and managed foreign economies for their own benefit, it is also natural that inequality between countries increased. This period is often called the “Great Divergence” and is well documented historically (Pomeranz, 2000). Although the income data for this period are of very poor quality, there are several authors who provide estimates of global inequality from 1820 onwards (Bourguignon & Morrisson, 2002; Chancel & Piketty, 2021; Milanovic, 2024). The direction of the trend is clear and in line with the historical intuition – for instance, data presented by Milanovic (2024) shows a sharp increase in the Gini coefficient from 0.5 in 1820 to 0.69 in the 1990s, as shown in Figure 1. The trajectory of global inequality in the twentieth century requires a more detailed discussion, as both equalizing and disequalizing forces were at work 18 simultaneously, and different authors arrive at different interpretations of the period. The first half of the twentieth century was marked by a series of intense changes that reshaped the balance of power between capital and labor. The two World Wars destroyed and devalued much of the capital stock in European countries, while forcing many countries to introduce higher and more progressive taxation to finance the costs of war. In addition, revolutionary events occurred that led to a process of redistribution unprecedented in history. The 1917 revolution in Russia and the continued expansion of socialism in other countries in the following decades were a powerful force in reducing inequality within countries. Not only because socialist countries carried out a radical redistribution of income within their borders, but also because it increased the pressure for redistribution within capitalist countries. Against the threat of socialist revolution, more progressive policies gained strength along with the bargaining power of the working class. This was particularly true in the decades after the Second World War, when welfare policies were introduced in many countries around the world, though more intensively in Europe (Scheidel, 2017). While inequality within countries declined, inequality between countries is estimated to have continued to rise during and after the wars (Milanovic, 2024; Chancel & Piketty, 2021), as shown in Figure 2. Although many countries in the global South gained their independence during this period and colonial empires began to fall, it took several decades for the newly liberated nations to recover from their struggles for independence and internal conflicts and to formulate effective development plans (Chancel & Piketty, 2021). Meanwhile, it was a period of rapid growth in the North. After 1980, both the between-country and within-country components moved in opposite directions: inequalities between countries began to decline, mainly because of high growth rates in Asia, while inequalities within countries increased, at least when using WID data, which are considered to be of better quality than pure survey data because they take into account the misreporting of national top incomes. The trajectory of both components has often been explained by globalization, which intensified rapidly during this period. This idea was at the center of two important books published by prominent authors, Milanovic (2016) and Bourguignon (2015). Trade liberalization opened up the possibility for Asian countries to develop export-led 19 growth, while economic openness has been linked to the rise in inequality within countries (Bergh & Nilsson, 2010). Probably one of the most famous graphs in this literature is the one published by Lakner and Milanovic (2016), commonly called the “elephant curve”. It shows the relative income growth of each global percentile between 1988 and 2008, the period after the fall of the Soviet Union and before the financial crisis. Four messages are clear from this graph: (i) the very bottom of the distribution had almost no growth; (ii) the middle of the distribution had significant gains; (iii) the gains of the 75th-90th percentiles were also very reduced; (iv) the very top of the distribution enjoyed comparably high growth rates. According to Milanovic's argument, the winners were both an emerging “middle class” in the developing world (especially China), located in the middle of the global income distribution, and the very rich, which were concentrated in the Global North. The traditional (lower) middle class of the rich countries, on the other hand, was seen as the loser of the process, a group corresponding to the 75th-90th percentiles of the global distribution. The working class of the rich countries gained new competitors with greater economic openness, which depressed their real-wage growth and increased unemployment. This process can be seen as the counterpart of the reduction of inequality between countries, as the jobs lost in the rich countries were gained in less developed regions, especially in China. Ravallion (2018a) criticizes the interpretation of the “Elephant Curve” because both the effect of the collapse of the Soviet Union and the stagnation of Japan in the period are not commented by Milanovic, while Corlett (2016) shows that one of the main features of the graph, the low growth in the 75th-90th percentiles, disappears when these two factors are removed from the calculations. The very complexity of the dynamics involved and the vagueness of the concept of “globalization” make it difficult to confirm the relationship between this concept and global inequality. Ravallion (2018a), for example, claims that globalization can be associated with rising inequality in some countries (Bergh & Nilsson, 2010), but not all – in some other countries, economic openness has been associated with falling inequality. 20 As Alvaredo et al. (2018) argue, we cannot understand the distributional dynamics of the period as a mechanical consequence of globalization and technological change. Policies and institutions play an important role in shaping observed trajectories. Some factors that are often related to the rising inequality within countries during this period should be mentioned separately. The first is the rise of neoliberal policies leading to massive deregulation of labor and financial markets, the reduction of the progressivity of taxes and the welfare state. This was very clear not only in the rich world with the so-called “Reagan-Thatcher revolution” but also in many other regions, including the shift to a deregulated economy in India and the introduction of a market economy in China. Figure 4 shows the growth incidence curve for different periods using WIID data. The Elephant shape can be identified between 1980 and 2000. After 2000, a main characteristic of the graph from Lakner and Milanovic (2016) – the elephant’s trunk – is not visible anymore, as the higher rates in top percentiles do not appear. Figure 4: Global growth incidence curve for the respective periods. Own calculations using WIID data. To the same extent that the socialist revolutions reduced inequality within countries, both through direct redistribution and through the rise of working-class 21 power in other countries, the fall of the Soviet Union led to a significant increase in inequality within countries, not only but also because “shock therapy” liberalization in Russia took the country from one of the most egalitarian to one of the most unequal in the world. The transition to a market economy in China also led to a sharp increase in inequality in that country (Clark, 2023; Hung & Kucinskas, 2011). Although there was a general trend of rising inequality within countries, there were exceptions. In particular, income inequality in the Middle East, Brazil, and subSaharan Africa was relatively stable, albeit at very high levels (Alvaredo et al., 2018). Even within Europe, some countries, such as Belgium, France, Greece, Hungary and Spain, experienced a decline in inequality during some periods (Atkinson & Morelli, 2014). After 1980/1990, the between-country component of global inequality declined. The importance of Chinese growth for this trend to materialize has been emphasized repeatedly in the related literature (Alderson & Pandian, 2018; Anand & Segal, 2008; Hickel, 2017; Sala-i-Martin, 2006). Since it is a very populous country, home to a big share of the world's population, any changes in (average) income in China have a direct impact on the shape of the global distribution. Given that China's growth rates have been consistently higher than the world average since the 1980s, with exceptionally high rates of 8.8% p.a. between 2000 and 2020 2 , and taking into account that China was a relatively poor country in the 1980s, its impact on the development of global inequality during this period does not come as a surprise. Other Asian countries also closed the gap with the rich world. India plays a very important role because it is also a very populous country and its growth rates have been higher than the global average. While this means that India contributed to the reduction in inequality, its impact was much smaller than that of China. India's growth was much lower than China's and more in line with the global trajectory, meaning that incomes in the country grew at similar rates to the parts of the global distribution to which it belonged. Calculating global inequality without India does not change the overall trend of global inequality, only the level. In contrast, removing China from the calculations has a major impact on the observed trajectory (Guerriero, 2024). 2 Calculations using WIID data. 22 The downward trend in between-country inequality got another push with the 2008 financial crisis. While rich countries were hit hard by this shock, developing countries experienced smaller losses. China and India continued to grow at high rates, and Milanovic (2021) estimates that two-thirds of the decline in global income inequality between 2008 and 2013 can be attributed to these two countries. While there is broad agreement in the literature on the direction of trends in inequality, both within and between countries, the overall effect of these two opposing forces is still debated. Milanovic (2024) identifies three eras of global inequality: in the first era global inequality increased from 1820 to 1950 as both withinand betweencountry inequality rose, while in the second era from 1950 to 1990 global inequality stagnated at a very high level. Finally, from 1990 to 2020, inequality declined due to the rise of Asia. In contrast, Chancel and Piketty (2021) identify only two periods. These authors agree on the period of divergence in the 19th century but argue that global inequality stabilized in 1910 and has continued at a very high level until the present. Although these authors also find a decline in some measures of inequality (but not all) in the period 2000 to 2020, they do not consider this to be significant enough to label it a specific era. According to the authors, it is too early to say whether this reduction will continue in the future. One reason for this disagreement is that the WID data point to a higher contribution of within-country inequality to global inequality (due to corrections of national top incomes using tax data and national accounts), while this component is of less importance in Milanovich's data. Therefore, the trajectory of increasing total inequality until 1950 and a decline after 1990, which is mainly driven by the betweencountry component, as found by Milanovic, does not appear in the WID data (as can be seen in Figure 1), because the force of the within-country component, which acts in the opposite direction, gains more weight when measured with the WID data, where the increase in within-country inequality since 1980 is very pronounced, while it is almost invisible in Milanovic's data. 23 4.2. Inequality reduction from 2000 to 2020 The decline in standard measures of global inequality from 1990 (or at least since 2000) to 2020 is well documented and robust to different measures and different choices among available data sources (Alderson & Pandian, 2018). However, the interpretation of this period is still an open debate. Although they do not describe it as an era of falling inequality, Chancel and Piketty (2021) also present data showing a decline in global inequality over this period. However, the authors claim that global inequality has been stable since 1910. This interpretation is based on two things. First, the decline found in their data seems to be less pronounced than in the data presented by other authors, such as Milanovic (2024). While these authors find a decrease of 0.05 Gini points (from 0.72 to 0.67), Milanovic (2024) estimates a decrease of 0.1 Gini points (from 0.7 to 0.6), as shown in Figure 1. Moreover, Piketty and Chancel understand this period as part of a longer historical process. Compared to the rise in inequality between 1820 and 1910, this decline seems small. It only covers a period of 20 years, and it is not clear whether this process will continue in the future. Moreover, while this decline in global inequality can be observed using standard measures of inequality such as the Gini, Theil-L or top10/bottom50 income shares, this is not the case for all measures. For example, the top 1% share of global income remained fairly constant over the period, dropping only from 21.7% in 2000 to 20.7% in 2020 (Chancel & Piketty, 2021). This means that the redistribution did not affect the very rich and was limited to the middle of the global distribution. Moreover, the bottom of the global distribution did not experience high growth rates. Thus, the interpretation of the period depends on how much weight we give to the two extremes of the distribution. A very different trajectory of global inequality is found when absolute measures of inequality are used, with global inequality rising since the beginning of the data series. 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