Perspective is great – income

Via Tim Harford on Twitter, I see the “global rich list” site has been updated.  Take a look!

It is this sort of recognition that makes economists get so wound up about global income inequality rather than income inequality within a country.  This is why it came up in the second part of my “careful with occupy” plea in NZ back in 2011 – because I guess that is the sort of way we’ve been trained to view these equity issues.  When economists talk about equality of opportunity (which is a value judgment – so we are wandering out of our strict specialty here) we are viewing all people as equal, irrespective of the country – and this is why development economics is such a massively popular field, and I can fully understand and appreciate that.

Let us take someone working every week of the year, 40 hours a week, on the current minimum wage ($13.75 per hour).  Assume they have no kids and the such, so we are just talking about an individual.  That gives us gross income of $28,600pa.  Now go here, and we get tax of $3,710pa.  Take off the ACC levies, that is $486.20.  Add on the independent earner tax credit, so $520pa.  Ignore any other payments.  This gives us net income of $24,923.80pa.

This result would put you in the top 6.53% of the income distribution over the world.  You would be among the 6.53% of worlds richest people, if you work in NZ on the minimum wage full time.

This in term does ignore two things:

  1. The fact that goods prices tend to be higher in wealthier countries – so this factor will be exaggerating how wealthy the NZer is (as we actually care about goods and services)!
  2. It also ignores that the tax that is paid is used to fund health care, education, etc etc.  These are “goods and services” that are provided which people is much poorer countries do not have access to.  As a result, this factor will be making you look less relatively wealthy than you actually are!

Perspective, it’s interesting.

  • Jason B

    I think it’s quite clear that development economics is the most important area in social science. There’s so much potential for improving the lives of billions of poor people.

    What I don’t understand is your statement: “It is this sort of recognition that makes economists get so wound up
    about global income inequality rather than income inequality within a
    country.”

    Why the comparison with inequality within a nation? Aren’t many labour economists concerned about the causes of inequality, and why it has risen so much in the last few decades in developed countries? Development economics is certainly more important than general macro (getting a better long-term trend is a bigger deal than minimizing the fluctuations around a given trend), but I haven’t seen anyone saying we should focus less on macro.

    Why the implication that we should get perspective and worry less about within-country inequality? Why not simply say we should be much more concerned about global inequality, in addition?

    Perhaps you’re arguing that we need fewer labour economists and more development economists. Or that people have a certain amount of mental capacity for “concern” about inequality, and the current balance is wrong. I’m not sure how plausible this is….

    • http://tvhe.co.nz/ Matt Nolan

      Fair point, I’ll try to clarify what I meant.

      I certainly don’t think we should ignore within-country income inequality. I was more stating the following:

      1) Cross-country income inequality is vastly greater than within-country income inequality.

      2) The economic method tends to presuppose treating individuals equally

      3) Within countries, non-economists appear to focus more on within-country income inequality

      4) As a result, economists tend to get relatively more “would up” (in a relative sense) about cross-country income inequality than non-economists.

      Now I’m trying to avoid normative claims about how much we should be concerned about inequality or any such – but instead trying to defend the fact that economists often seem to argue more passionately for transfers to the third world than they do for transfers to citizens within their own country. By putting down the income figures, I hoping to give that some sort of perspective.

      We could go further, and state that the real distinction also include a separate look into the costs of “inequality” as compared to “poverty”. And this would be a fair point. But taking things to their logical conclusion, I need to learn to write posts more clearly in the future so I don’t have to write so many comments trying to tease out what I actually meant :)

      • Jason B

        Ha, this is a good follow-up. I was just concerned you were falling into the fallacy/trap I sometimes hear, along the lines of “You can’t complain about **given unpleasant event thrust upon you that isn’t life-threatening**. Think about **given life-destroying events occurring overseas**.

        But your clarification makes it clear this is not the case. Cheers.

        • http://tvhe.co.nz/ Matt Nolan

          Ahhh good point, and I can see where that is coming from for sure. I’ll try to be more mindful of that in the future – but I can’t promise I’ll manage it.