Lecture 12.2

Globalization

Emmanuel Teitelbaum

Inequality

Illustrative statistics from Stiglitz

  • 20% of wage earners earn as much as bottom 80%
  • Top 1% earn in a week what bottom 20% earns in a year
  • Top .1% earn in a day what bottom 90% earns in a year
  • Walton family controls as much wealth as is owned by bottom 30% of society (~$238 billion)

Common Inequality Measures

  • Income/wealth shares -What share a given subpopulation accounts for
  • Ratios
    • 20/20 ratio (highest 20/lowest 20)
    • Palma ratio (highest 10/lowest 40)
    • 90/10 ratio (lowest 90/highest 10)
  • Gini coefficient
    • Based on the “Lorenz” curve
    • Varies from 0 to 1
  • Others
    • e.g. Thiel, Hoover

Lorenze Curve and Gini Coefficient

  • Gini coefficient is A/(A+B)
  • Varies from 0 (perfect equality) and 1 (perfect inequality)

Income vs. Wealth Inequality

  • Income: what people earn from work and returns from investments like stocks, bonds and investment properties
  • Wealth: value of everything a person or family owns minus any debts
    • Net worth: marketable assets minus debts
    • Financial wealth: non-home wealth

Wealth Inequality

Bottom 90% vs. Top 10% Wealth Shares (U.S.)

The Problem of the 1%

Decomposing the 1%

Wealth Shares in France

Income Inequality

United States Gini Coefficient

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United States Median Household Income

Bottom 90% vs. Top 10% Income Shares (U.S.)

United States Average Incomes

Exercise

  • Go to wid.world
  • Country graphs section
  • Select a country
    • Canada
    • United Kingdom
    • Germany
    • France
    • Sweden
    • China
    • India
  • How have pre-tax income shares changed over time?
  • How does your country compare to the world and the U.S. in terms of shares of top 10%

Explanations

Pickety vs. Stiglitz

  • Pickety: r > g
    • There is some truth to “r > g” in the U.S.
      • Most people do not have a lot of non-home wealth
    • But upward slope of inequality sharper in U.S.
  • Stiglitz: “rent seeking”
    • CEOs pay themselves rather than paying workers
    • Rent is drawing income by capturing something
      • As opposed to producing something of value
      • Grabbing wealth vs. creating wealth

Other Explanations

  • Economic globalization
    • Trade
    • Internationalization of finance
  • Conservative economic policy (Regan revolution)
    • Removal of capital controls
    • Deregulation
    • Shifts in tax policy
  • Technology and skill development
    • Reduced demand for low-skilled workers
  • Immigration
  • Social norms and reward system
  • Decline of left parties and unions
  • Lack of redistribution

Debate: Should Big Tech be Broken Up

  • Pick one of the FAANG companies
    • Facebook (Meta)
    • Amazon
    • Apple
    • Netflix
    • Google (Alphabet)
  • Should it be broken up into smaller companies?
    • Winners and losers
    • Relate your argument to inequality/Stiglitz

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