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Income versus Wealth

Every year I delight in discussing this paper by World Bank economist Bruno Milankovic at our bootcamp, in part because I find that it invariably leads to new perspectives for the residents. It’s a well-written piece, so I encourage readers to read it in full rather than summarizing it here; the aspect that I’ll focus on is his discussion around how income (adjusted for purchasing power) compares across nations and how this distribution factors into our ongoing discussions around migration.

Milankovic

The fundamental point here is easily captured – from an absolute income perspective, moving from a low- or middle-income country (LMIC) to a high-income country (HIC) will often result in a income gain, such that a person at the 25th percentile of (in-country) income in Russia, the 50th percentile of income in Brazil, or around the 80th percentile of income in China would all be better off in terms of absolute income in the US at the 5th percentile of income.

To me, this quantifies the phenomenon many already know – the foreign doctor who is a nurse in Boston, the foreign professor who drives a cab in NYC – higher complexity workers who take a hit in social status and relative income level to increase absolute income and, for some, greatly improve the prospects of their progeny. Looking at the graph, though, there is an element that seems awry. We don’t see a huge push for the Chinese upper class to move to the United States (or Japan, or Europe), despite the income benefit this could provide them.

Part of this is external to economics, and speaks to the social loss that occurs when you immigrate. The loss of family support, of the social capital people have built up within their profession, and of the intangible value of social status within a society all unsurprisingly factor heavily into these decisions.

Another part was pointed out by Alyse during our discussions this week, and goes back to the difference between income and wealth.  Income as the amount of money/goods that people make over a period of time is in many ways a lesser economic indicator (though easier to capture) than wealth, the amount of money/goods/land that people own.  Too, comparing a society by income usually reduces the inequity seen within it – few have negative income, but many have negative wealth (aka debt).  This was the best image I could find pertaining to this on Google (speaking to the US):

Image result for wealth versus income usa

Source: http://currydemocrats.org/american-pie/

Pulling in this perspective, particularly when keeping in mind that some wealth (land, houses, livestock) does not transport between countries, the absence of a huge migraory pressure from the upper classes of LMIC begins to make more sense.

As ever, the residents on the trip provide me with new perspectives on these known papers, and this was a nice nuance of one of my favorite pieces on global economics.

This entry was posted in BMC.
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