Weekly Economic Briefing

Mind the income gap

02 February 2016

Global Overview

  • The popular perception that global income and wealth disparities are growing ever wider has become more acute since the financial crisis, and is becoming an increasingly important driver of government policies.
  • The reality is more complicated. Income inequality has increased in most of the advanced economies over the past three decades, though the extent has varied significantly across countries and time.
  • Inequality trends in emerging markets are more mixed; countries like Russia and China that have been transitioning from state-led to market-led growth have seen large increases, while inequality has been falling in South America and Africa, albeit from high levels.
  • Increases in within-country inequality may be widespread but global inequality has declined since the 1990s. This is due to the rapid growth in large emerging markets like China and India, which has lifted greater numbers of out of poverty.
  • Globalisation is partly responsible for both phenomena, which explains rising protectionist sentiment in some economies. Policymakers are right to tackle inequality, but must choose measures that boost rather than lower growth.
>

US

Income inequality has risen substantially over the past three decades, though the extent and drivers have varied over time. The latest research suggests globalisation and technological changes favouring highly skilled workers are mostly to blame.

>

UK

UK inequality is high from an international standpoint, following large increases through the 1980s. The government should look to address this directly, rather than burdening the private sector.

>

Europe

Income inequality varies considerably across Europe, partly due to different redistributive policies. The crisis has worsened inequality in most peripheral countries.

>

Japan & Developed Asia

Japan has been held up as an example of a society with low income inequality. Although this characterisation has become less true over time, the instinct to preserve
equality remains.

>

Emerging Markets

China’s growing inequality is becoming an impediment to sustainable growth. Policies to address the growing divide will be required if China is to successfully rebalance towards consumer-led
growth.

>
 

Standard Life Investments’ Global Strategy team provide regular analysis of the key economic data that has been influencing financial markets.

Available on a weekly basis, the Weekly Economic Briefing takes a detailed look at the global economic issues that have been impacting our investment strategy. The regional approach aims to provide an easy-to-navigate guide to the most recent developments in the global economy.

The views and conclusions expressed in this communication are for general interest only and should not be taken as investment advice or as an invitation to purchase or sell any specific security.

Any data contained herein which is attributed to a third party ("Third Party Data") is the property of (a) third party supplier(s) (the "Owner") and is licensed for use by Standard Life**. Third Party Data may not be copied or distributed. Third Party Data is provided "as is" and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Standard Life** or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Past performance is no guarantee of future results. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates.

**Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time.