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Demography and inequality

In 2008, I was presenting the results of Teleuse@BOP2 at the University of Salzburg, when a member of the audience wanted my response to his assertion that the Sri Lanka’s telecom reforms had contributed to rising income inequality. I said I did not see a relation, but he went on to publish a paper on the topic. Internally, we had a few conversations about responding to this piece, but competing demands on our time put that task on the backburner and finally took it off the agenda.

Income inequality is a serious problem, no doubt. Many people have studied this problem, looking at education levels, welfare polices and so on as possible explanations but without reaching a conclusive finding. Now, here is an interesting new factor: demography. A new piece by David Bloom and colleagues reported by the Economist.

The authors then show that, when poor economies start to grow, these disparities widen. The fertility rate of the whole country starts to fall but the families of the richest quintile get smaller faster than the families of the poorest quintile. In other words, the rich lead the process of demographic change, not the poor who have the most to gain and who, you might have thought, would find it easiest to reduce family size (because it seems a smaller step to have six, rather than seven children, than it is to have one, rather than two). The rich presumably find it easiest to control family size because they have the best access to family planning and their daughters are the most likely to be educated. This process goes on while economies have an income per head of between about $2000 and $5000. Between about $5000 and $10,000 a head, the three income quintiles in the middle start to reduce their family size faster. In other words, the middle class starts to catch up with the rich, presumably because they are getting access to family planning and wider female education, too. Then, by $10,000 a head, family size is falling by roughly equal amounts in every quintile: the poor have caught up with the rich and middle class, and fertility is falling across the board.

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