An expected shift in the skill composition of the global labor force will have important consequences for the future of global income inequality. Specifically, a more educated labor force from emerging market and developing economies will likely reduce inequality between countries. It would also diminish inequality within countries, especially in emerging market and developing economies.
In the next two decades, new cohorts of more educated workers from developing countries will enter the global workforce with better skills. is change in educational demographics will likely have important consequences for global income inequality. Such formation of human capital will also enhance potential output and growth in the long run, a welcome development in light of the anticipated risks in the medium term.
In the last two decades, global inequality was partly shaped by the rapid integration of rising working-age populations in emerging market and developing economies (EMDEs) into the world economy. The information and communications technology revolution, combined with cross-border increases in trade and financial flows, reduced the costs of communication and fragmented production by combining high-tech capital with best managerial practices and low-paid workers globally. Between 1990 and 2015, the share of trade in global GDP rose by about 50 percent and the stock of international financial assets relative to GDP tripled. Because of the convergence of income among countries, notably the rapid growth of large economies in Asia like China and India, global inequality fell from the late 1980s on. As average incomes across countries converged, the relative contribution of within-country inequality to global inequality rose.
Over the next two decades, the working-age population is expected to expand in EMDEs and shrink in advanced economies. This broad trend will be accompanied by a shifting skill composition, as the share of better-educated and more-skilled workers rises in EMDEs. These two factors will further change the income distribution between countries as well as within countries by 2030. Between-country distributional changes will continue to reflect an overall convergence in country-level per capita GDP whereas within-country distributional changes will be generated by improvements in household incomes led by younger, better-educated workers within each country.
In light of these changes and their likely impact, this Special Focus addresses the following questions:
• How has global inequality evolved during the past three decades of rapid globalization?
• How will the next wave of demographic and educational trends shape the global labor market?
• What are the implications of these changes for global inequality?
Chosen excerpts by Job Market Monitor. Read the whole story at Global Economic Prospects, January 2018: Broad-Based Upturn, but for How Long?