Revisiting the “elephant chart”

The elephant chart is the tool, developed by Branko Milanovic, often used to show that globalization has hurt the interests of much of the middle class, presumably due to competition with lower wage countries, most notably China.  Now from the Resolution Foundation there is a new study of the matter, based in part on updated data from Milanovic, here are excerpts from Chris Giles and Shawn Donnan at the FT:

The Resolution Foundation found that faster population growth in emerging markets made it difficult to compare the incomes of the lower middle classes over time because their position in global income rankings changed. The larger number of Chinese families made it appear that the US poor were further up the global income scale in 2008 than they were in 1988.

If incomes were unchanged in every country, this population effect alone would lead to apparent drops of 25 per cent in parts of the global income scale associated with poorer people in rich countries. That generated the characteristic “elephant” shape, according to the Resolution Foundation.

These results were exacerbated by outlying factors, such as the former Soviet states of eastern Europe, which had incomes in the same zone and saw them collapse after the fall of communism.

Adjusting the chart for constant populations and removing China, ex-Soviet states and Japan shows a relatively even spread of income growth across the world. China is a clear outlier in performing very strongly.

“Globalisation is not to blame for all the ills of the world,” Torsten Bell, director of the Resolution Foundation, said.

Is it “elephant chart,” “elephant curve,” or “elephant graph”?  I would stress two points.  First, I am not sure the highly aggregated elephant “thing” was so useful to begin with, and indeed you will not see much of it in the MR archives.  Second, there still may be significant cases where globalization has depressed or held down middle class wages.  This is an important revision to how we organize the data, but maybe not a big revision to how we should think about the world.

Here is the actual report, go to Figure 10 on p.23 (this pdf), or try this link, the Resolution Foundation is on a roll these days.


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