Branko Milanovic: Income Inequality and Citizenship

Posted on by

Dave here. This is a readable discussion of inequality between nations, but the conclusions suffer from the conceit that people – particularly people in poor countries – have universal freedom, wherewithal and mindset to pick and choose what country to which they want to emigrate. But other than that nitpick, worth a read.

By Branko Milanovic, Visiting Presidential Professor, Graduate Center, University of New York, and Senior Scholar, Luxembourg Income Center. Cross-posted from VoxEU.

It is as obvious as it is well known that the world is unequal in terms of individuals’ incomes (e.g. Mohammed 2015). But it is unequal in a very particular way – when split into ‘inequality within countries’ and ‘inequality between countries’, the latter accounts for by far the biggest gap.

Inequality within countries measures, for instance, gaps between poor and rich Americans or between poor and rich Chinese. For simplicity, let’s call it ‘class’ inequality. But there is also another equally obvious inequality – that between rich and poor nations. More specifically, this inequality is measured as the gap between the ‘representative’ or ‘average’ individuals of any two countries, be they Morocco and Spain or Mexico and the US. For simplicity, let’s call this ‘locational’ inequality.

Inequality, as it is commonly understood in today’s world, is such that whatever measure we choose, the lion’s share of global inequality is ‘explained’ by the differences in mean incomes between countries.

This was not always the case. Although our data for the past are far more tentative than our data for today’s global income distribution, we can still state with little doubt that the dominant type of equality in the 19th century was that within countries (see Milanovic 2011).

Citizenship premiums and penalties

If income differences between countries are large then your income will significantly depend on where you live, or even on where you were born (97% of the world’s population remain in the countries where they were born). This is what I call a ‘citizenship premium’ (or a ‘citizenship penalty’) – a ‘rent’ that a person receives if he or she happens to be born in a rich country, or, if we use the terminology introduced by John Roemer, an ‘exogenous circumstance’ which is independent from any one individual’s effort and episodic luck (Roemer 2000).

How big is citizenship rent, how does it vary with one’s position in the income distribution, and what does it imply for global inequality of opportunity and migration?

Estimating citizenship rent

I estimate citizenship rent by using data collected from household surveys conducted in 118 countries in and around the year 2008 (Milanovic 2015). For each country, I have micro-level (household) data ordered into 100 percentiles, with individuals ranked by their household per capita income. This gives 11,800 country/percentiles with ‘representative’ per capita incomes expressed in dollars of equal purchasing parity, making incomes across countries comparable.

I ‘explain’ these incomes using only one variable – the country where individuals live. Of course, people living in the US will tend to have higher incomes at any given percentile of the distribution than people living in poor countries in, for instance, Africa. But how will it look for the world as a whole? In a least-square dummy variable regression, I use Congo (the poorest county in the world) as the ‘omitted country’ so that I can express the citizenship premium in every other country in terms of the income gain compared to Congo. The premium for the US is 355%, it is 329% for Sweden and 164% for Brazil. But for Yemen, another very poor country, it’s 32%.

According to this regression, we can explain more than two-thirds of the variability in incomes across country/percentiles by only one variable – the country where people live. This estimation shows that, as we thought, a lot of our income depends on where we live.

Citizenship rent across the distribution

But this is only an average premium that compares countries. Does citizenship rent vary along the entire income distribution? If I were to take into consideration only people belonging to the lowest part of the income distribution in each country, would the premium still be the same?

Intuition may help here. Suppose that I focus only on the incomes of the lowest decile (with rich countries more equal than poor countries). Then the gap between rich and poor countries should be greater for the very poor people than for the average individual. And this is indeed what we find – Sweden’s citizenship premium compared to Congo is now 367% versus 329% on average. But Brazil’s is 133% versus 164%. The situation at the top is exactly the opposite – Sweden’s advantaged position at the 90th percentile of the income distribution is ‘only’ 286%, but Brazil’s becomes 188%.

Implications for migration

The existence of the citizenship premium has obvious implications for migration: people from poor countries will have the opportunity to double or triple their real incomes by moving to a rich country.

But the fact that the premium varies as a function of one’s position in the income distribution carries additional implications. If I consider moving to one of two countries that have the same average income, my decision on where to migrate – based on economic criteria alone – will also be influenced by my expectations regarding where I may end up in the recipient county’s income distribution. My decision will thus be influenced by the extent to which the recipient country’s income distribution is unequal.

Suppose that Sweden and the US have the same mean income. If I expect to end up in the bottom part of a recipient country’s distribution, then I should migrate to Sweden. The poor people in Sweden are better off compared to the mean, and the citizenship premium, evaluated at lower parts of distribution, is greater. The opposite conclusion follows if I expect to end up in the upper part of the recipient country’s distribution – I should migrate to the US.

This last result has unpleasant implications for rich countries with greater ‘in-country’ equality. More equal rich countries will tend to attract lower-skilled migrants who generally expect to be placed in the bottom part of the recipient country’s distribution. Developing a national welfare state would have the perverse effect of attracting migrants who can contribute less.

Even in this rough sketch, we also have to consider the levels of social mobility in recipient countries because more unequal countries with strong social mobility will, everything else being the same, tend to appeal to more skilled migrants.

Global inequality of opportunity

The mere existence of a large citizenship premium implies that there is no such a thing as global equality of opportunity because a lot of our income depends on the accident of birth.

So should we strive for global equality of opportunity or not? It is a political philosophy question that philosophers have thought much more about than economists. Some, following John Rawls in The Law of Peoples, believe that this is not an issue and that every argument for global equality of opportunity would conflict with the right of national self-determination. But other political philosophers like Thomas Pogge believe that in an interdependent world, the dominant role of chance in people’s life is not to be accepted lightly (Pogge 2008). I am not proposing a solution to this issue, yet, I believe that economists should not shy away from addressing it.1

As gaps between nations diminish, mostly thanks to the high growth rates of Asian countries, the citizenship rent will tend to reduce. But there is such a huge gap today that even a century of much higher growth in poor countries (in comparison to rich countries) will not eradicate citizenship rent.

However, it will reduce. As it does, it will also reduce overall global inequality. This might then lead us to a world not dissimilar to the mid-19th century, in which class is again more important for one’s global income position than location.

Do I hear the distant sound of Marx?


1 Legal scientists such as Ayalet Shachar have written about addressing global inequality from a legal standpoint, proposing a much more flexible and open definition of citizenship (see Shachar 2009).

Print Friendly, PDF & Email
This entry was posted in Globalization, Guest Post, Income disparity, The dismal science on by .

About David Dayen

David is a contributing writer to He has been writing about politics since 2004. He spent three years writing for the FireDogLake News Desk; he’s also written for The New Republic, The American Prospect, The Guardian (UK), The Huffington Post, The Washington Monthly, Alternet, Democracy Journal and Pacific Standard, as well as multiple well-trafficked progressive blogs and websites. His has been a guest on MSNBC, CNN, Aljazeera, Russia Today, NPR, Pacifica Radio and Air America Radio. He has contributed to two anthology books, one about the Wisconsin labor uprising and another on the fight against the Stop Online Piracy Act in Congress. Prior to writing about politics he worked for two decades as a television producer and editor. You can follow him on Twitter at @ddayen.


  1. hunkerdown

    Always, the question is, “To whom?” Is being captured along with the entirety of the world’s population in the capitalist wage labor system something said captives would deem an improvement from their old lives? Shouldn’t their take matter a whole lot more than ours? Shouldn’t the burden of consent be on us? And, how are they proposing to open the “backward” cultures to entrance by those in developed economies who have had quite enough of metastatic civilization? (Aside from turning them into a goofy appetizer.)

  2. Robert Dudek

    As a general rule, I don’t think it is the poorer segments from poor countries that have the opportunity to emigrate. It is the skilled and educated who are much more likely to be accepted into richer countries. So the net effect of international migration is to increase inter-country inequality. This is even true within the European Union, where the migration barriers are in principle non-existent.

    1. MyLessThanPrimeBeef

      I see at Marketwatch, there is an article about Greece’s biggest brain drain since Socrates.

      The educated are fleeing (as happened in Eastern Europe the last 2 decades), following the well heeled.

      The poor will stay behind to work off money owed to the IMF and ECB.

      1. Rosario

        Very true. In line with Harvey’s concept of accumulation by dispossession. Those able to emigrate scatter about to escape the inundation of their native countries by lopsided debt obligations while the ever growing population of Capital shackled “free” labor drinks from an evaporating pool of the commons.

      2. JTMcPhee

        “money owed to the IMF and ECB:” So it’s taken that what sure looks like an intentional debasement of a sovereign nation by what looks like a combination of extortion and complex fraud (who holds all those bonds, again, and where did that created “money” end up at?) is to be accepted by one and all as a “valid debt that must be repaid or the Universe will crack in twain?” What ever happened to the “risk premium” that goes along with what should be part of the text of every prospectus, at least, for these ‘things,’ reminding the purchaser that this is a “security” that may damn well not ever be paid. Big corps default on bonds, so do municipalities bled by big corps and Banksters. There is no freakin’ absolute God-has-spoken “right to repayment” on this or any other “investment.”

        1. Yves Smith

          Look, as much as I ma generally sympathetic to the Greek case, you need to be sure of your facts before you go out guns a blazing.

          The fact is that Greek debt has already been written down substantially. Private debt was written down IIRC to something like 30 cents on the dollar and the “official” debt has had its maturities pushed out, interest rates lowered, and initial interest rate payment dates deferred. Those all amount to a writedown in economic terms.

          Moreover, if you buy the “risk premium” argument, the lenders should have charged much higher interest rates in the first place.

          The big problem with Greece is not so much the amount of debt it is carrying, believe it or not. It is that it is being forced to engage in austerity, which makes its economic condition worse, inflicting misery on its citizens and making its debt to GDP ratio worse.

          1. skippy

            Funny I was having a similar conversation elsewhere –

            “Austerity is more about the destruction of production or the facility to conduct it, because of the tyranny of numbers, in a short time frame, irrespective of long term societal effects.

            Skippy…. Big scary numbers aside… and funnily enough… the mob that is a broken record about investment proceeding production is the most pro austerity… all because of some notion about investments well spring… hilarious – [!!!!!!].”

            Skippy…. waves from the flooded, bunt, spastic weather, RE boondoggle w/ huge terrorism reflex paranoia place called Oz.

          2. Jack King

            Interesting…so in your opinion should the Greeks just suck it up and power through the austerity, or just hang it up, default, and leave the Eurozone?

            1. bob

              You are supposed to be in the corner for your quiet time. Keep it up and you’ll not have dessert.

              Question pending- name a free market.

          3. JTMcPhee

            Please do not read this as any kind of challenge to your incontestable expertise, Yves. I know my place. But one thing I think I have learned is that it is impossible to be sure of one’s facts, about pretty much anything. A few probabilities, maybe, and some useful outlines and conventional forms, but as to facts? The Gulf of Tonkin bit is one painfully personal example, one of the “facts” that got me to enlist in the US Imperial Army in 1966. Maybe that is in the nature of a quantum universe, maybe something else having to do with the prevalence of lying, of dissimulation, of manufactured or accidental or linguistically dysmodulated confusion. A lot of “facts” creation and immanence is just about choice of forum, power of agenda, who shouts loudest, ultimately who has the power. There’s no agreement that I can see on, for example, what is “truth,” or what constitutes the elements of a “good life,” but various facts are out there that assert absolute explanations.

            I have no depth of knowledge about the almost biological complexity that constitutes “finance,” or “trade,” or the opacity known as “derivatives.” My little point was attempting to recall that one apparent element in the situation of all the people that make up Greece, slackers and “useless eaters” along with oligarchs and kleptocrats and technocrats and the rest, and the continuity or maybe discontinuity that is Europe, is a claim of a “right to repayment” for what, in my small understanding, is by definition a “risk investment,” with a greater-than-zero risk of default, of loss of principal (which I think I understand to be “created money” in the first instance anyway). And the hypocrisy of Big Banks and corporations and government elements that routinely default on and run away from other “obligations” while shouting that “Ruleoflaw!Ruleoflaw!” must be observed and “Just Debts Must Be Fully Repaid!” and breaking the piggy banks of ordinary people who have all kinds of wolves howling at their ordinary insecure doors, and pursuing them through the increasingly dark woods of daily life. A lot of the content in this site, it seems to me, is peeling away the noise and smoke that obscure at least a couple of the levels of the onion that is our political economy.

            And do I have it right that the “lenders” actually built in “austerity” as part of the risk premium (to be paid by the citizenry of the debtor state) that is so very like so many other “privatize profit, socialize loss” rackets, where the drink servers and housekeepers and maintenance staff are made to pay the markers of the Blessed People and Institutions that have the fun and profit of all that Casino action?

            Among the reasons that terminal cancers “succeed” is that tumor cells are able to conceal their deadly expansive consumptive nature by selling a chemical myth to our immune systems, that otherwise would gather them up, reduce them to their elements and return them to homeostatic usefulness, that they are just another somatic cell. Another is that they trick the healthy tissues into building large new arteries to feed the tumors ever more of the nutrients and resources, weakening the healthy tissues so invasion and displacement and destruction of normal functions are even easier. That looks kind of familiar, to my limited learning about the nature of the neoliberal monstrosity and the course of what for convenience gets called “capitalism,” from my reading here and elsewhere.

            Thank you and Lambert particularly, and all the other people who post here, for trying to figure it all out, to diagnose the many problems and offer insights into how maybe the species we were born into, that includes the children and grandchildren and friends and family I personally love and care about and want to see safe and wise enough to continue into what I would think of as a better future.

            1. Jack King

              Bondholders in Greece took a 50% haircut in 2012. It was restructured into the current debt which, as Yves pointed out, has been significantly paired back again. Surely that should be sufficient to ameliorate your angst.

              People sometimes think that imposing a haircut is a way of penalizing those investors who have taken the largest risks. Nothing could be further from the truth. Financial assets are constantly being traded, and there is no guarantee that the people who would be penalized in the end are the ones who ought to be.

          4. John Jones

            From the on set of the crisis the debt was 105% to GDP or there about. Then I think with the loans slapped on with the help of the Euro elites the debt went to 175% GDP. Did they get a haircut on the 105%? Or the 175% caused by the forced loans by Euro elites?

            I don’t think Greek debt was written down substantially if it was a write off of debt added on to them beyond the 105% debt. That never should have had been slapped on them to save German and French banks and the collapse of the euro or to avert a euro crisis. A debt they still hold beyond the 105%.

            As always correct me if I am wrong.

  3. Arto Artinian

    Thanks so much for cross-posting this article! As always, is the first thing I read in the morning!

    One small correction: Milanovic’s university association should read: “The Graduate Center of the City University of New York”.

    A minor point, but there is no University of New York. Thanks!

  4. MyLessThanPrimeBeef

    If the global reserve currency issuer can create as much money as it desires, global inequality will just get worse.

    I mean, how will the rest of humanity ever catch up with high-frequency keystrokes?

    Is this a hidden wormhole to sustainable hegemony? You decide.

  5. TG

    When people are bred like rodents (oh please pardon my french – and yes, I say “are bred” and not “breed” because it is the result of deliberate policy) they will live and die like rodents.

    When people are mostly careful to not have more children than they can afford to support, they have a more than decent chance of creating a better life for themselves and their children. But this creates a ‘shortage’ of dirt-cheap labor, and that will never do.

    When the barriers between these two different types of societies are eliminated, the prosperous will be dragged into poverty – but the poor will not be raised up, because they will consume any new resources with ever more people.

    A moral person would concentrate on lifting up the overpopulated third world. Oh, but so much more profitable for the 1% to drag the first world down, and have cheap labor uber alles.

    I think that those disgusting whores for cheap labor should practice what they preach – they and their families should be forced into the ‘equality’ of living at the standard of Bangladesh. But somehow I don’t think so. Because ‘equality’ is so only for little people.

  6. Russell Scott Day

    Labor has an eternal interest in international equality of treatment by employers. There are many people who work at whatever job that is set before them, becoming working class before they know it. The near universal view of labor, be it skilled or unskilled, is that they are not to be trusted with their hands on the levers of power. Nationalism is often used to divide them. Soldiers are the extreme examples. In general the soldiers of the world have much more in common with each other than they do with those who send them to kill each other for reasons related to the power the political leadership expects to expand or keep hold of. Many of the US accept the fine training and go on to greater paychecks as mercenaries. It is the same as if they were trained as scientists in the Netherlands becoming desirable to research departments of US universities. What ought be done is that all have world citizenship same as the rich and powerful have de facto world citizenship whereby they can pick and choose what nation to pledge allegiance to in consideration of what nation gives them the best deal far as their fortunes, and what they can expect to be able to hold onto. Currently those who claim world citizenship seem to have reticence when it comes to seeing that status extended to the working classes. Currently the Transcendian and Transcendia Passports are simply available a nearly the cost of printing. Currently because nations do offer better or worse deals and reputations and all of us are forced to learn spy craft, it is a good idea to have a second affiliation that has little history one way or another. So there you have it. Go for it. The more of you, especially pilots that buy a Transcendian or Transcendia Passport, the greater my ability to create a nation that acknowledges the wisdom of Labor, and is worth defending. I could go on, but you can find me. I am labor.

  7. Hannah

    Interesting article that provokes questions and pending answers! Unfortunately, our politicians are not here to answer them. Greetings, Man With Van Barking Ltd.

Comments are closed.