Living Standards, Inequality, and Human Development since 1870 : a Review of Evidence

Abstract

During the last one‐and‐a‐half centuries, average world income grew 10‐fold, the composition of output and relative factor returns shifted, and globalization occurred. How have the fruits of growth been distributed among different income groups and countries? How did the West compare to the Rest of the world in terms of improving well‐being? In this survey, we conclude that consumption per person has grown over time, but more slowly than GDP per capita, as the share of private consumption declined, although was partly offset by the rising share of public consumption. Income inequality within countries fell from the early to late twentieth century and has risen in the recent decades. Living standards improved across the world, but the gap between the West and the Rest increased, and between‐country inequality widened over time until the 1990s, when the trend reversed. Among world inhabitants, income distribution has followed a similar trend, with inequality increasing up to 1990 and declining in the 21st century. Impressive long‐run gains in human development have taken place in the world without being interrupted by the economic slowdown and globalization backlash during 1914‐50.