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Inequality Comes to Asia

As income inequality becomes increasingly entrenched, it can undermine social cohesion and spur political instability. To avoid such an outcome, Asian countries need to change the rules of the game, providing opportunities for youth, regardless of their background, to ascend the income ladder.

SEOUL – From China to India, Asian countries’ rapid economic expansion has lifted hundreds of millions of people out of poverty in recent decades. Yet the income distribution has lately worsened, with inequality now potentially even more severe in Asia than in the developed economies of the West.

From 1990 to 2012, the net Gini coefficient – a common measure of (post-tax and post-transfer) income inequality – increased dramatically in China, from 0.37 to 0.51 (zero signifies perfect equality and one represents perfect inequality). It rose in India as well, from 0.43 to 0.48. Even the four “Asian Tigers” – Hong Kong, Singapore, South Korea, and Taiwan – which had previously grown “with equity,” have lately faced rising inequality. In South Korea, for example, the share of income held by the top 10% rose from 29% in 1995 to 45% in 2013.

This trend is being driven largely by the same forces that have fueled Asia’s economic growth in recent decades: unbridled globalization and technological progress. Increasingly open borders have made it easier for businesses to find the cheapest locations for their operations. In particular, China’s entry into global markets has put downward pressure on the wages of low-skill production workers elsewhere.

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