Where in the World are you? Assessing the Importance of Circumstance and Effort in a World of Different Mean Country Incomes and (Almost) No Migration

Where in the World are you? Assessing the Importance of Circumstance and Effort in a World of Different Mean Country Incomes and (Almost) No Migration

Suppose that all people in the world are allocated only two characteristics: country where they live and income class within that country. Assume further that there is no migration. This paper shows that 90 percent of variability in people's g...

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Bibliographic Details
Main Author:	Milanovic, Branko
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ABSOLUTE VALUE AVERAGE INCOME AVERAGE SHARE BENCHMARK CONSUMER PRICE INDEX CORRELATION COEFFICIENT CORRELATION COEFFICIENTS COUNTRY CHARACTERISTICS COUNTRY OBSERVATIONS CUMULATIVE DISTRIBUTION DEPENDENT VARIABLE DEVELOPMENT ASSISTANCE DISTRIBUTION FUNCTIONS DISTRIBUTION OF INCOME ECONOMETRICS ECONOMIC ANALYSIS ECONOMIC GROWTH ECONOMIC INEQUALITY ECONOMIC PERFORMANCE ECONOMIC POLICY ECONOMIC REVIEW ELASTICITY EMPIRICAL ANALYSIS EQUAL COUNTRIES EXCHANGE RATES GINI COEFFICIENT GINI COEFFICIENTS GINI INDEX GROSS DOMESTIC INCOME HIGH INCOME HOUSEHOLD SURVEYS INCOME INCOME DIFFERENCES INCOME DISTRIBUTION INCOME DISTRIBUTION DATA INCOME DISTRIBUTIONS INCOME EFFECT INCOME GROUP INCOME GROUPS INCOME INEQUALITY INCOME LEVEL INCOME LEVELS INCOME SCALE INCOME SHARES INCOMES INEQUALITY INEQUALITY MEASURE INTERGENERATIONAL MOBILITY LABOR MARKET LORENZ CURVE LORENZ CURVES LOTTERY LOW INCOME MEAN INCOME MEAN INCOMES MEAN LOG DEVIATION MEASUREMENT ERROR MEDIAN POSITION MIDDLE CLASS MILLION PEOPLE NATIONAL INCOME NORMAL DISTRIBUTION ORDER DOMINANCE PER CAPITA INCOME POLICY RESEARCH POLITICAL ECONOMY POOR COUNTRY POOR PEOPLE POOR PERSON PUBLIC ECONOMICS PUBLIC GOOD RELATIVE IMPORTANCE RELATIVE INCOME RELATIVE POSITION SIMULATIONS SOCIAL MOBILITY TAXATION WAGES WEALTH WESTERN EUROPE
Online Access:	http://documents.worldbank.org/curated/en/2008/01/8969542/world-assessing-importance-circumstance-effort-world-different-mean-country-incomes-almost-no-migration-vol-1-1 http://hdl.handle.net/10986/6391

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Summary:	Suppose that all people in the world are allocated only two characteristics: country where they live and income class within that country. Assume further that there is no migration. This paper shows that 90 percent of variability in people's global income position (percentile in world income distribution) is explained by only these two pieces of information. Mean country income (circumstance) explains 60 percent, and income class (both circumstance and effort) 30 percent of global income position. The author finds that about two-thirds of the latter number is due to circumstance (approximated by the estimated parental income class under various social mobility assumptions), which makes the overall share of circumstance unlikely to be less than 75-80 percent. On average, "drawing" one-notch higher income class (on a twenty-class scale) is equivalent to living in a 12 percent richer country. Once people are allocated their income class, it becomes important, not only whether the country they are allocated to is rich or poor, but whether it is egalitarian or not. This is particularly important for the people who "draw" low or high classes; for the middle classes, the country's income distribution is much less important than mean country income.

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