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Poverty: The News Brightens


Critics of globalization say free trade and cross-border investment have benefited the rich at the expense of the poor. They argue that the ranks of the poor are growing, and that the disparity between rich and poor has grown.

The truth is more cheerful, says Xavier Sala-i-Martin, an economist at Columbia University. He calculates that the fraction of the world's population below the poverty line (defined as an income of $2 a day in constant 1985 dollars) fell to 19% in 1998 from 41% in 1970 (chart).

Overall inequality has decreased as well. One way economists measure inequality is by the Gini coefficient, a zero-to-one scale on which zero means each person in the world has the same income and one means that a single individual collects the world's entire income. Sala-i-Martin estimates the world's Gini coefficient fell to 0.63 in 1998 from 0.66 in 1970.

Rising incomes since 1980 in China and India, the world's most populous nations, account for most of the improvement. In contrast, poverty worsened in Africa. In 1970, 11% of the world's poor were in Africa and 76% were in Asia. By 1998, Africa's share of the poor had risen to 66% and Asia's had fallen to 15%. Latin America was neither as good as Asia nor as bad as Africa: Poverty in Latin America decreased in the 1970s but has changed little since then, Sala-i-Martin calculates.

Most previous studies of global income inequality compared national average incomes. But such an approach neglects that countries have different degrees of income inequality within their borders. Sala-i-Martin says his study, published as a working paper by the National Bureau of Economic Research, uses the most detailed estimates yet of the income distributions within countries. It covers about 90% of the world's population, excluding countries for which 30 years of data don't exist, such as Russia.

While Sala-i-Martin focuses on the good news, he writes that "the number of poor is still embarrassingly large." In 1998, he estimates, 350 million people scraped by on less than $1 a day (in 1985 dollars) and nearly a billion people lived on less than $2 a day. Michigan State University labor economist David Neumark used to scoff at the notion that jobs have become shorter-lasting and more contingent. But he's beginning to believe that New Economy jobs may be different from Old Economy jobs in important ways. In a new paper, Neumark and co-author Deborah Reed of the Public Policy Institute of California in San Francisco say the New Economy "may entail a possibly significant and long-lasting increase in contingent and alternative employment relationships."

Neumark and Reed looked at employment relationships in 10 metro areas described as New Economy cities in a Brookings Institution study, topped by San Jose, Calif., Austin, and North Carolina's Research Triangle. The 10 areas exceeded the national average in their percentage of contingent and alternative jobs, defined as jobs in which people work on contract, generally for short periods. This New Economy effect was concentrated among workers with a college education. New Economy cities "feel different," says Neumark. "It seems like there's a different set of norms about employment relationships."

Looking at employment patterns in New Economy cities was only one of three ways Neumark and Reed explored the question of contingent jobs. They also looked at jobs in high-tech industries and research and development operations. Surprisingly, they found these businesses were slightly less likely than average to employ contingent and alternative workers. That reflects the fact that many high-tech manufacturers, such as Intel Corp. (INTC), have stable, salaried workforces. The authors speculate that there may be lots of contingent employment at "innovative and knowledge-based companies" that grow up around companies such as Intel yet aren't themselves classified as high tech.

In a third cut at the question, Neumark and Reed also examined employment in fast-growing industries, whether they were high-tech or not. They did find that such industries, from computer services to investment companies, had a much higher level of contingent and alternative jobs. But they said that doesn't prove a New Economy connection because much of the effect came from the construction business. What's more, the authors noted that the industries might quickly cut back on contingent jobs if their growth rates slow. While President Bush has been campaigning to reduce U.S. dependence on oil imported from the volatile Middle East, imports from the Persian Gulf have been rising steadily. The share of U.S. imports from Persian Gulf countries--Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates--rose to 23.6% in the first quarter of this year, from 20.5% in the first quarter of 2000 and 21% in 2001, according to Energy Dept. data (chart). This year's level is the highest of any first quarter since 1992.

Iraq is the biggest factor. The U.S. imported 2.5 million barrels of Iraqi crude a day in the first quarter of 2002, up from 1.5 million in 2000's first quarter and 1.1 million in the 2001 period. Since then, Iraq's share of U.S. imports has fallen because of its self-imposed embargo in April and U.N. pricing rules that have discouraged purchases of Iraqi oil.

One reason the U.S. is importing more Gulf oil may be that Europe is taking less--because it's getting more of its oil from Russia, says John Kingston, global director for oil at Platts, a unit of The McGraw-Hill Companies.


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