Downward trend stalled
Very few personal or household characteristics vary across individuals as much as income and wealth. In almost all countries, the mean wealth of the top decile (i.e. the wealthiest 10% of adults) is more than ten times median wealth. For the top percentile (i.e. the wealthiest 1% of adults), mean wealth exceeds 100 times the median wealth in many countries and can approach 1000 times the median in the most unequal nations. This has been the case throughout most of human history, with wealth ownership often equating with land holdings, and wealth more often acquired via inheritance or conquest rather than talent or hard work. However, a combination of factors caused wealth inequality to trend downwards in high income countries during much of the 20th century, suggesting that a new era had emerged. That downward trend now appears to have stalled, and possibly gone into reverse.
Wealth inequality around the world
Although direct data on household wealth distribution are available for countries which collectively cover two thirds of the world’s population and about 90% of household wealth, in most cases the data are not of the same quality achieved by the SCF in the United States. Many countries have no direct wealth distribution data at all. The procedures that we have developed – including making use of rich list information on the top tails of wealth distribution – provide an alternative way of estimating wealth distribution and wealth inequality, and may be the only means of constructing plausible estimates for most countries in the foreseeable future. However, it should be borne in mind that the estimates are subject to a higher margin of error than usual.
Figure 1 provides a convenient benchmark for judging the levels of wealth inequality seen around the world. We use the term “medium inequality” to refer to a top decile share of 50-60%, a level reminiscent of Western Europe around 1980. Most developed countries fall in this category (see Table 1), so little change in inequality over time is evident here. The remaining developed economies typically have a top decile share of between 60% and 70% and are classed as “high inequality” – the level prevailing in the United States in the mid-20th century. The top decile share in Switzerland and the United States is above 70%: we label this as “very high inequality”, similar to that experienced in the United States a century ago. Nowadays, a share below 50% for the top wealth decile is uncommon. Belgium and Japan just squeeze below this “low inequality” threshold.
For emerging market economies, the classification system appears to shift upwards by a grade or more. The majority of countries, including many big players on the international scene – Brazil, India, Indonesia, Russia, South Africa and Turkey – qualify as “very high inequality”. According to our estimates, inequality in Russia is so far above the others that it deserves to be placed in a separate category. The remaining emerging market nations – including Chile, China, Korea and Taiwan – are classed as “high inequality”, except for Singapore and the United Arab Emirates, which rate as “medium inequality”. Interestingly, Singapore has the highest wealth per adult among emerging markets, and the United Arab Emirates is not far behind. This hints at the possibility that wealth inequality may tend to decrease as economies mature and average wealth increases, echoing the famous Kuznets’ hypothesis that income inequality typically increases during the early stages of development and later declines.
Other measures of wealth inequality
The arrangement in Table 1 changes slightly if countries are grouped instead according to the share held by the top percentile of wealth holders, with cut-off points of 40%, 30% and 20%. Switzerland and the United States now rate as “high inequality”, since the top percentile share is less than 40%. Similarly, Austria, Denmark, Germany and Norway register top percentile values below 30%, and hence qualify as “medium inequality”. However, five of these six countries are very close to the borderline – the exception being Switzerland for which the top percentile share is just 30.9%. Chile is another borderline case. The top decile share of 69.4% is just within the “high inequality” band, but the top percentile share of 41.8% suggests that Chile may be better viewed as “very high inequality”.
On balance, we favor using the top decile share as the primary indicator of inequality, because it is more broadly based and correlates well with the value of the Gini coefficient. In the context of wealth inequality, however, we recommend against using measures based on the share of the bottom half of the distribution, or the share of the lowest decile, since these values are highly sensitive to the large negative wealth holdings which are now increasingly common in countries with easy access to credit and high levels of student loans. In Denmark, for example, average wealth is negative for each of the three lowest deciles, although Denmark is not normally regarded as a particularly unequal nation.
Summary and conclusions
We are reporting for the first time estimates of the wealth share of the top decile constructed on a consistent basis for each year since 2000. The procedures we employ use rich list information to adjust for missing wealth holders at the very top of the wealth distribution. Our results show that wealth inequality varies considerably among developed countries: the share of the top decile ranges from less than 50% for Belgium and Japan, to over 70% for Switzerland and the United States. Among emerging market economies, however, unequal wealth is much more evident: out of the 24 countries we consider, 13 are classed as “very high inequality” with top decile shares above 70%.