Field Notes: A Look at the Bottom 40 Percent

As 2015 marks the transition from the Millennium Development Goals to the Sustainable Development Goals, the World Bank published a progress report on global poverty titled, “Ending Extreme Poverty and Sharing Prosperity: Progress and Policies”. It showed that while globally the number of poor people has gone down, progress has been uneven and extreme poverty – 700 million projected to be living on less than $1.90 a day in 2015 – remains unacceptably high.

“Addressing moderate poverty and mitigating the vulnerability of falling back into poverty have become more pressing issues in many countries, especially in those where the bottom 40 percent saw their incomes decline. Even in a world of single-digit extreme poverty, non-income disparities, like limited access to quality education and health services, pose a bottleneck to poverty reduction and shared prosperity.”

Income inequality is certainly a problem for the United States.

The U.S. witnessed negative income growth for the “B40” (bottom 40 percent of the population) during the 2000s, “perpetuating a trend of rising inequality.” The figure below shows B40 income growth, population growth and share of income from 1990-2010:

Compared with other OECD countries (Organization for Economic Co-operation and Development), the U.S. demonstrated a significantly smaller improvement in living standards at 1.5% as compared with the top performer Finland, that registered an improvement of 4.3% over the last two decades. Overall, 14 of the 18 countries reduced B40 inequality, 11 countries had supportive employment conditions and, importantly, all countries witnessed rising life expectancy.

So what does the World Bank recommend?

Among other recommendations, the World Bank places an emphasis on investment in human development.

“The focus on inequality of opportunities rather than inequality of outcomes is motivated by the need to provide incentives to accumulate human and physical capital. However, the same inequality of outcomes may prevent poorer households from borrowing to accumulate human and physical capital, which perpetuates poverty and inequality. Policies that enable poorer households to accumulate assets by reducing inequalities of opportunity are therefore crucial”

The report also advocates for higher quality of education in a high-income country like the U.S where access to education is not a constraint. It notes that students from poor households often receive inferior-quality education, which hampers their future success. In all, the report recommends an inclusive approach to eradicating poverty and income equality:

“Countries would do well to pursue a comprehensive strategy focused on generating broad-based growth, investing in human development, and providing robust social protection mechanisms. Throughout, such strategy needs to be mindful of sustainability—economic, social and environmental.”

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