Four myths about inequality stats debunked
From student debt to tax and the gender pay gap, we look at some of the claims made by our critics.
Detractors have some well-versed lines for why people should dismiss inequality stats. A headline comparing the world’s richest and poorest, a politician suggesting a tax rise for the rich, new numbers on the gender pay gap or a billionaire’s jump in wealth, elicits a fairly standard response from some quarters.
In this week’s bulletin, we respond to four myths about inequality stats.
Inequality myths in numbers
1. Wealth inequality stats treat students as the world’s poorest
This is by far the most common criticism we’ve seen of wealth stats: because people in debt are assigned to the bottom deciles, a law student with hundreds of thousands of dollars debt is considered poorer than someone living in poverty with a wealth of zero dollars. People with a high living standard, critics argue, are categorized as the world’s poorest.
While there is truth to this criticism, and it is one of the many challenges researchers face when analysing wealth data, its impacts are hugely exaggerated.
The latest UBS (formerly Credit Suisse) wealth report shows there are 214 million people who live in high-income countries and have a negative net wealth —equivalent to 5.3% of the world’s poorest 50%.
Take the wealth stat that “the 89 richest billionaires have the same wealth as half the world” — if we remove everyone with negative net wealth living in a high-income country, then the stat barely changes to “179 billionaires have the same wealth as half the world”. This is also a very conservative estimate because it leaves out anyone living in a high-income country with a negative net wealth —many of these people will not be living the high life. If you want us to get into the nitty gritty of these calculations then comment below.
2. Tax rates on the richest are already at record levels
The rates of tax that mainly apply to the richest have been falling since the early 1980s. This coincides with the share of wealth going to the top 1% growing sharply, as the graph below shows.
Marginal tax rates on the richest have plummeted —and not just in rich countries, but across much of the world. In Africa, the average marginal tax rate on the highest incomes has fallen from 38% to 31% over the last 25 years. In Latin America, it had fallen from 51% in the early 1980s to less than 27% by 2015. In the US, the capital gains tax paid by the richest 400 people is under 15%, less than what the middle class pays on income. Effective tax rates paid by the richest are likely even lower because of exemptions that benefit them.
But if you feel like taxes are rising, that’s because some have. Governments have compensated tax cuts for the rich and corporations by increasing regressive taxes on everyday goods and services, like value-added taxes (VAT). These taxes fall disproportionately on people living in poverty, who spend a higher share of their income on consumption. For every 1% in tax cuts for corporations, governments increased consumption taxes by 0.35%.
Learn more about this in Oxfam’s report “Survival of the Richest” (starting on page 22).
3. The gender pay gap isn’t real
The ILO stat that globally, ‘women only make 77 cents for every dollar earned by men’ is amongst the most famous wage figure.
The gender pay gap intersects with other identities and social markers —in the US, for example, half of women of colour earn less than $15 an hour compared to 26% of white workers.
The main criticism of these stats is that they’re not comparing people doing the same job. The pay gap exists, critics argue, because women are more likely to work in lower-paid industries and take on more unpaid care responsibilities. Sometimes it can feel like we fiercely agree with each other!
While gender pay gap critics might accept this as a fact of life, it should be a call to action to challenge how we value work differently based on gender, race and class.
The numbers should force us to rethink how we value care work —the hidden engine that keeps the wheels of our economies and societies turning. It’s carried out mostly by women and goes un- or under-rewarded. The barriers that prevent women and marginalized groups from working in male-dominated, higher-paid industries (like engineering and technology) must be challenged.
Mandatory gender pay gap reporting is helping to close the gap. In the UK, the wage gap between women and men has closed by 19% on average since legislation was introduced in 2019. However, it was driven by falling wages for men, which goes to show that you can’t genuinely close the gap without addressing the root causes of gender inequality.
4. Billionaires deserve their wealth
All these calls to abolish billionaires are unfair, critics cry. They’ve worked so hard to make those billions and deserve every penny.
Contrary to popular belief, many of the super-rich are not “self-made”. Oxfam analysis shows over half the world’s billionaires either inherited their wealth or accumulated it through industries that are prone to corruption and cronyism. The Economist’s latest crony-capitalism index estimates that rent-seeking or crony capitalists’ wealth totals $3 trillion.
Exacerbating this, half of the world’s billionaires live in countries with no inheritance tax for direct descendants. They will pass on a $5 trillion tax-free treasure chest to their heirs, which will drive a future generation of aristocratic elites.
The huge inequalities we see today are the result of an unfair system where the quality of education you receive and the job you end up in is dictated by your parents’ bank balance and your gender and race —not your hard work or talent.
Scope for hope
dropped Oxfam’s stat that “the 10 richest billionaires have more wealth than the poorest 40% of humanity”. This delighted colleagues, as he set out the need to reform multilateral institutions such as the UN Security Council, IMF, World Bank and WTO to reduce —not perpetuate— inequality. You can read Oxfam Brazil’s write-up here.
Something to read
What happened to the wealth tax? A brilliant FT long read on the resurgence of wealth tax proposals.
Read ‘Combating Inequality Rethinking Government's Role’ where leading economists and policymakers consider which economic tools are most effective in reversing the rise in inequality.