Inequality and Shared Prosperity

Promoting shared prosperity is one of the goals of the World Bank Group, along with ending extreme poverty. It means increasing the incomes and welfare of the bottom 40 percent of society wherever they are, be it in the poorest of nations or thriving middle-income countries.

The shared prosperity goal reflects the fact that as developing countries grow their economies and lift millions out of poverty, they may also experience growing inequality. We now know that nations with a widening gap between those who can and cannot access opportunities in life have difficulty sustaining economic growth and social stability over time. To date, no country has managed to transition beyond middle-income status while maintaining high levels of inequality. Inequality reduction today matters for opportunity and mobility tomorrow.

Without a significant reduction in inequality, especially in countries with high rates of poverty and inequality, the world will not meet the goal of ending extreme poverty. While living standards of the bottom 40 percent in countries all over the world have improved, the latest data show the picture is mixed at best. Out of 91 economies for which data was available for 2012-2017, 74 had positive shared prosperity, meaning that growth was inclusive and the incomes of the poorest 40 percent of the population increased. 53 had a positive shared prosperity premium, meaning that growth benefited the poorest more than the entire population. Average global shared prosperity (growth in the incomes of the bottom 40 percent) was 2.3 percent for 2012-2017. But the gains are uneven: Shared prosperity and shared prosperity premiums — the difference in growth rates between the bottom 40 and the overall average — are lower on average in fragile and low-income economies than in middle-income economies.

The COVID-19 pandemic, which hit the world’s poorest hardest, has contributed to widening inequality between countries and within countries. In 2021, the average incomes of people in the bottom 40 percent of the global income distribution were 6.7 percent lower than pre-pandemic projections, while those of people in the top 40 percent were down 2.8 percent. The reason for this large difference: The poorest 40 percent had not started to recover their income losses, while the top 40 percent had recovered more than 45 percent of their initial income losses. Between 2019 and 2021, the average income of the bottom 40 percent fell by 2.2 percent, while the average income of the top 40 percent fell by 0.5 percent.

The diverging economic recovery caused between-country inequality to increase for the first time in a generation. And emerging evidence indicates that inequality within countries may also have worsened. Surveys in 2021 showed that poorer households lost incomes and jobs at slightly higher rates than richer households, a trend that contributes to the worsening of global poverty and inequality.

Last Updated: Apr 26, 2022

To reduce inequality and promote shared prosperity, progress must be sustained over time and across generations. Progress over the past few decades shows us that countries can make deliberate policy decisions to combat inequality and improve the lives and opportunities of their poorest citizens. In many cases, this will require fiscal, social, and labor market reforms.

There is not just one way to reduce inequality and promote shared prosperity, yet some common lessons from successful countries and several interventions are proven to help. Countries under widely different circumstances have shown that a combination of good policy choices – sound macroeconomic foundations, sustaining growth, and strong labor markets – and favorable external factors have contributed to progress in reducing inequality.

Six policy areas have shown to be effective in reducing inequality. They offer very few trade-offs between equity and efficiency and have worked repeatedly in different settings around the world:

• Early childhood development and nutrition interventions 
• Universal health coverage 
• Universal access to quality education 
• Cash transfers to poor families 
• Rural infrastructure – especially roads and electrification 
• Progressive taxation

Inequality of opportunity, which reflects differences in circumstances outside an individual’s control, is of special concern. Inequality of opportunity is both unfair and inefficient, and a key contributor to low social mobility and persistent income inequality. It prevents people from reaching their aspirations and can threaten social cohesion, while also having real consequences for growth and poverty reduction in countries at all levels of development. Too often, inequality is passed down from generation to generation, reducing social mobility.

That is why the World Bank’s work to support governments in fostering more equitable and inclusive societies cuts across all our program areas. It touches on the policy areas listed above, along with others including gender, governance, and improved access to basic services and jobs.

The RAPID Framework, an initiative developed by the World Bank and partners, aims to help tackle a challenge that has profound ramifications for poverty and inequality: the learning crisis, which was already deep before COVID-19 and made even more severe by the pandemic. One of the most intuitive indicators of the learning crisis is the learning poverty rate, which measures the share of children who cannot read a simple text with comprehension by age 10. In 2019, the learning poverty rate was already estimated at 57 percent in low- and middle-income countries, and at 86 percent in Sub-Saharan Africa.

We anchor all of our country engagements in the latest available evidence, laying out clearly the opportunities for and barriers to poverty reduction and shared prosperity in each of our partner countries through the Systematic Country Diagnostic (SCD). We use empirical data and conduct poverty and social impact analyses (PSIA) to assess how projects affect vulnerable groups in society. The Bank’s Human Opportunity Index, initially developed for the Latin American and Caribbean region, is now used to measure gaps in access to basic services in Africa and beyond.

Last Updated: Nov 30, 2022

Here are a few examples of our projects and analyses to help nations become more inclusive:

• Colombia’s Equitable and Green Recovery project, supported by World Bank analysis, is expected to improve the targeting of social transfers, remove barriers faced by women to access economic opportunities, provide a stronger response to the effects of climate change and natural disasters, and help the country protect biodiversity and reduce deforestation.

• Since 2015, a $1.2 billion World Bank program has worked to ensure that Ethiopia’s entire population benefits from basic social services. It uses block grants to regions and woredas (districts) for delivering basic social services in health, education, agriculture, and rural roads, water, and sanitation. The support has achieved notable results in ensuring better access to services and contributed to the country’s impressive gains in basic services.

• The World Bank is supporting Egypt’s reform program, which focuses on creating opportunities for Egyptians and raising living standards by promoting the private sector and improving government performance. The program will help finance the government’s own economic development program, “Egypt Takes Off,” with a focus on promoting small businesses while improving the capacities of local governments to deliver services to their citizens and guide local development.

• In Kosovo, access to services and economic opportunities for Roma communities is quite low, according to a recent World Bank report. By providing Roma with the same opportunities available to the general population, Kosovo can attain important fiscal gains.

• One in four Latin Americans identify themselves as people of African descent. Even though there have been significant gains over the past decade, Afro-descendants still are overrepresented among the poor. A new World Bank report aimed to deepen the understanding of the drivers behind the persistent exclusion of the Afro-descendants and improve opportunities and access to services and markets for excluded groups in ways that respect their views and aspirations.

• South Africa is facing the triple challenge of high poverty, inequality, and unemployment, despite much progress made by the government in tackling this challenge. For South Africa to grow sustainably and reduce inequality of opportunity, a new World Bank report suggests that the country needs to address its skills gap and enroll more students in the Post School Education and Training sector, raising graduation rates and improving the relevance of skills specific to the needs of the labor market.

• Chile faced the challenge of unequal access to quality education. Students of lower socioeconomic status were occasionally denied admission to primary education in better-quality schools and poor students weren’t able to afford tertiary education. Working with the government, the World Bank designed a project that promoted equal opportunities in education and strengthened institutions for poverty measurement. As a result, nearly 49,000 students received full scholarships for their tertiary education. And the lowest grade in each school receiving public funding rolled out a centralized, regulated admission system that saw 75 percent of applicants receiving their first preference for school admission.

Last Updated: Apr 26, 2022