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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

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  • Milanovic, Branko

Abstract

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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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4493.

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Date of creation: 01 Jan 2008
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Handle: RePEc:wbk:wbrwps:4493

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Keywords: Inequality; Poverty Impact Evaluation; Economic Theory&Research; Income; Poverty Diagnostics;

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  1. Jo Blanden & Paul Gregg & Lindsey Macmillan, 2007. "Accounting for Intergenerational Income Persistence: Noncognitive Skills, Ability and Education," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(519), pages C43-C60, 03.
  2. Lam. D. & Schoeni, R.F., 1996. "Effects on Family Background on Earnings and Returns to Schooling: Evidence from Brazil," Papers, RAND - Reprint Series 96-13, RAND - Reprint Series.
  3. James B. Davies & Jie Zhang & Jinli Zeng, 2003. "Intergenerational Mobility under Private vs. Public Education," Departmental Working Papers, National University of Singapore, Department of Economics wp0313, National University of Singapore, Department of Economics.
  4. Borjas, George J, 1987. "Self-Selection and the Earnings of Immigrants," American Economic Review, American Economic Association, American Economic Association, vol. 77(4), pages 531-53, September.
  5. Borjas, George J., 1999. "The economic analysis of immigration," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 28, pages 1697-1760 Elsevier.
  6. Li, Hongyi & Squire, Lyn & Zou, Heng-fu, 1998. "Explaining International and Intertemporal Variations in Income Inequality," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(446), pages 26-43, January.
  7. Solon, Gary, 1999. "Intergenerational mobility in the labor market," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 29, pages 1761-1800 Elsevier.
  8. Bjorklund, Anders & Jantti, Markus, 1997. "Intergenerational Income Mobility in Sweden Compared to the United States," American Economic Review, American Economic Association, American Economic Association, vol. 87(5), pages 1009-18, December.
  9. Bob Sutcliffe, 2004. "World Inequality and Globalization," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 20(1), pages 15-37, Spring.
  10. Checchi, Daniele & Ichino, Andrea & Rustichini, Aldo, 1999. "More equal but less mobile?: Education financing and intergenerational mobility in Italy and in the US," Journal of Public Economics, Elsevier, Elsevier, vol. 74(3), pages 351-393, December.
  11. Kopczuk, Wojciech & Slemrod, Joel & Yitzhaki, Shlomo, 2005. "The limitations of decentralized world redistribution: An optimal taxation approach," European Economic Review, Elsevier, Elsevier, vol. 49(4), pages 1051-1079, May.
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Cited by:
  1. Milanovic, Branko & Ersado, Lire, 2008. "Reform and Inequality during the Transition: An Analysis Using Panel Household Survey Data, 1990-2005," Policy Research Working Paper Series, The World Bank 4780, The World Bank.
  2. Milanovic, Branko, 2007. "An even higher global inequality than previously thought," MPRA Paper 6676, University Library of Munich, Germany.
  3. Barbara Liberda & Marek Pęczkowski, 2011. "Does a change of occupation lead to higher earnings?," Working Papers, Faculty of Economic Sciences, University of Warsaw 2011-09, Faculty of Economic Sciences, University of Warsaw.
  4. Clemens, Michael A. & Montenegro, Claudio E. & Pritchett, Lant, 2008. "The place premium : wage differences for identical workers across the US border," Policy Research Working Paper Series, The World Bank 4671, The World Bank.

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