In a world where income inequality is a pressing issue, determining who earns what can be difficult. From the very wealthy hiding their wealth from tax authorities to the very poor being hesitant to disclose their income, pinning down accurate income figures is a complex task. However, prior to the global pandemic, household surveys indicated a decrease in the number of individuals living in poverty. According to the World Bank, the number of people living on less than $2.15 a day dropped from around 2 billion in 1990 to 659 million in 2019.
Despite this progress, a new group known as the “precariat” has emerged, comprising individuals who are just above the poverty line and vulnerable to economic shocks, while the top 1% continues to accumulate wealth at a rapid pace. The World Inequality Database, associated with economists Thomas Piketty and Gabriel Zucman, suggests that while inequality between countries has decreased, inequality within countries may have actually increased. The elites in China and India have seen significant gains, as have American and European plutocrats who are hoarding wealth in offshore tax havens.
However, a recent study by economists from Columbia University and the Federal Reserve challenges this narrative. By examining income underreporting across different income brackets, the researchers found that poverty has actually decreased more than previously believed, and income inequality within countries has not necessarily grown. In fact, it may have even decreased slightly.
The study suggests that as individuals move up the income ladder, they are more likely to understate their income, leading to a discrepancy between reported income from household surveys and official GDP figures. This phenomenon is more prevalent in wealthier regions, as individuals with more complex income sources have a greater incentive to mislead tax authorities.
The researchers propose that rather than a fragil precariat, a true global middle class has emerged, offering more stability and resilience to economic downturns. However, the study is not definitive, as debates surrounding global income distribution and data quality have persisted for years. While the findings challenge common beliefs about income inequality, further research and analysis are needed to confirm the results.
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