Understanding how inequality shapes economic development has long been a central question for economists, policymakers, and citizens alike. Does greater equality foster inclusiveness and productivity, or does it weaken incentives and slow growth?
In this paper, World Inequality Lab researchers revisit this debate using an extensive dataset combining income and wealth inequality series from the World Inequality Database (WID), covering all world regions from 1800 to 2025, alongside new global series on hourly productivity and human capital expenditure. This unique two-century perspective allows them to revisit the relationship between equality and development across time and space.
KEY FINDINGS:
- There exists a strong positive association between equality and development over the long run.
- All rich countries—especially in Western and Nordic Europe—have undergone an enormous compression of income scales during the 20th century, while becoming significantly more productive. In Nordic Europe, the ratio between the top and bottom of the income distribution (P99/P10) fell from about 50 in 1910 to less than 5 today, and the ratio between the very top and the bottom (P99.9/P10) from about 150 to under 10.
- This compression was accompanied by rising productivity, not decline: Nordic countries today exhibit higher hourly output than the United States, even though total human capital expenditure (public + private) is substantially larger in the US.
- There is a residual positive impact of equality on productivity, even after controlling for other factors such as human capital investment.
- The post-1980 rebound of inequality in the US (and to a lesser extent in Europe) was not followed by faster, but rather by lower productivity growth.
- World regions that experienced little or no inequality compression—such as Latin America, South and Southeast Asia, and Sub-Saharan Africa—showed low and uneven productivity growth, controlling for other factors.
- Overall, the results suggest that the rise of inclusive, social-democratic institutions—expanding access to education, public services, labor rights, progressive taxation, and democratic participation—has been central to achieving both greater equality and higher prosperity.
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This paper is the fifth in a series of research papers and technical notes that will form the backbone of the Global Justice Report, due to be released in June 2026.
AUTHORS:
- Marie Andreescu, WIL (World Inequality Lab), PSE (Paris School of Economics)
- Manuel Arias-Osorio, WIL, PSE
- Luis Bauluz, WIL, CUNEF (Madrid)
- Nitin Bharti, WIL, UWA (Perth)
- Philipp Bothe, WIL, PSE
- Pierre Brassac, WIL, UC3M (Madrid)
- Lucas Chancel, WIL, Sciences Po
- Mauricio De Rosa, WIL, IECON (Montevideo)
- Jonas Dietrich, WIL, PSE
- Dima El Hariri, WIL, Sciences Po
- Matthew Fisher-Post, WIL, PSE
- Ignacio Flores, WIL, PSE
- Valentina Gabrielli, WIL, PSE
- Amory Gethin, WIL & World Bank
- Ricardo Gómez-Carrera, WIL, PSE
- Sehyun Hong, WIL, PSE
- Thanasak Jenmana, WIL, PSE
- Romaine Loubes, WIL, PSE
- Clara Martínez-Toledano, WIL & Imperial College (London)
- Zhexun Mo, WIL & CUNY (NYC)
- Cornelia Mohren, WIL, Sciences Po
- Marc Morgan, WIL & CUNIGE (Geneva)
- Rowaida Moshrif, WIL, PSE
- Stella Muti, WIL, PSE
- Theresa Neef, WIL, PSE
- Gastón Nievas, WIL, PSE
- Moritz Odersky, WIL, PSE
- Thomas Piketty, WIL, PSE
- Anne-Sophie Robilliard, WIL, IRD
- Emmanuel Saez, WIL & UC Berkeley
- Alice Sodano, WIL, PSE
- Anmol Somanchi, WIL, PSE
- Li Yang, WIL & ZEW (Mannheim)
- Gabriel Zucman, WIL & UC Berkeley
- Álvaro Zuñiga-Cordero, WIL, PSE
