FAQ on Growth Incidence

I have received quite a number of questions, especially on Twitter, regarding Branko Milanovic’s “elephant graph”— discussed here. Examples from the data would be nice, right? Well, I will probably get to that.

• Did the 75th-80th percentiles really have no growth for 30 years? If we exclude China, can we say those at the 70th-75th percentiles in 1988 lost 20 percent of their incomes?
  
  One thing to keep in mind is that the growth curve is “anonymous.” That is, the folks at the 50th percentile in 1988 have no specific relation to the folks a the 50th percentile in 2008. The change there is not the growth in income for people who were in the middle of the distribution in 1988. Rather, this shows how— over time— the income associated with the 50th percentile has changed.



• How does population growth change things?
  
  It may matter quite a lot. Imagine for a moment that Bill Gates sits alone in a room. The median wealth of those in the room is extremely high. Now, you and I both enter the room. Though nobody’s wealth has changed, the median wealth has fallen. A lot. Unless you are a billionaire, the median wealth in the room fell at least 98.7 percent. It is not that the original median (Gates) lost all his wealth, but rather that a relatively large population of less-wealthy people came into the picture. So if population growth skewed poor between 1988 and 2008, this dragged down the curve— even if incomes grew.