Imagine the global population was made up of just 100 people, and this pie represents global income.
The richest 1% of people - or just one person - gets one-fifth of this pie.
But for the poorest half of the population - or 50 people - they have to share just half of that.
That’s what global inequality looks like today.
And the difference between those slices of pie is only getting bigger.
Global income has grown over the past four decades,
but so has income inequality in nearly every region of the world.
Huge growth in Asia, particularly China and India,
has meant that the bottom 50 percent's income gained 12% of that overall growth.
But that’s nothing compared to the top 1%, which captured 27% of income growth.
Those moves at the very top and bottom have left the global middle class squeezed.
The poorest 90% of the U.S. and EU’s population falls within this bracket.
It’s this rising inequality that exploded into the global Occupy Wall Street movement.
And if you think the financial crisis would have helped level the playing field, think again.
The one percent's share has steadily increased since 2008.
And the source of wealth growth?
It’s heavily tilted towards the United States and the rise of financial assets.
That’s partly because banks started taking less risks after the financial crisis,
meaning they’ve become less willing to lend to the poor and middle class.
But the gap between the rich and poor differs depending on where you’re looking.
In Europe, for example, the top 10% captures less than 40% of income.
In the Middle East, they capture more than 60%. So what’s causing inequality?
An obvious contributor is China and Russia’s move away from communism,
but that’s just a tiny portion of the explanation.
Fast technological changes have led to a greater demand for skilled labor,
while automation has eliminated many jobs.
That has led to a growing earnings gap between high and low-skilled workers.
Until recently, trade was seen as a largely positive global force.
But now it’s become the bogeyman for rising inequality.
Some people in wealthier countries say they’re losing out
because good jobs are being outsourced to workers in developing countries.
80% of Americans think sending jobs overseas harms America’s workers.
But it’s not that simple.
There’s evidence that free trade has increased and decreased wages at the same time.
Take Apple for example.
It's created two million jobs in the U.S. but it’s also created more than twice that in China.
In 2014, inequality came to the forefront of global discussion.
That’s because of French economist Thomas Piketty,
who published a book called Capital in the Twenty-First Century.
Despite being 700 pages long, it became an international bestseller.
Piketty drew a distinction between wealth and income.
His argument was that wealth, essentially a person’s net worth, grows faster than income.
That means the rich get richer, because their wealth grows faster from capital they own,
like stocks and houses.
This type of capital appreciates in value faster than wage growth, which salaried workers depend on.
So what can we do about it?
The IMF, Thomas Piketty and 100 other researchers have come up with some suggestions.
But you’re not going to like the first one.
Taxes.
The United States pays much less tax when compared to Western European countries,
and it has an impact on inequality.
The top one percent's share of income in the U.S. has risen dramatically,
while that inequality is much more moderate in Western Europe.
Economists say this is largely because of taxes.
While it’s commonly believed that taxes discourage people from working and investing more,
good tax policies help governments to redistribute wealth for a more equal society.
On top of that, the IMF also found that higher income taxes for the rich do not hurt growth.
But that’s if people actually pay them.
At least 10% of global GDP is being held in tax havens.
In six European countries alone, €350 billion is estimated to be hidden away.
Shareholders benefit most from tax havens.
But governments and societies suffer from the huge loss of revenue,
which could be invested in public services and infrastructure.
That’s bad news for another potential solution - better access to quality education and job opportunities.
Finally, the IMF found that rich countries with less unionisation are associated with
an increase in the share of income of the top 10%.
In Denmark, domestic policies led to fast food workers making $20 an hour,
that’s twice of what they make in the United States.
Despite having no minimum wage, unions dominate in the small country.
That’s guaranteed them a living wage and benefits their American counterparts could only dream of.
Some say that inequality incentivises innovation and productivity.
But inequality causes political and economic instability, and the IMF says it hurts economic growth.
If we want to make this pie bigger overall, its slices are going to have to get more equal first.
Hey everyone it’s Xin En. Thanks for watching.
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