The World Bank’s Fuzzy Math on Inequality and the Future of Work

The World Bank has just launched its annual World Development Report, which this year is devoted to the “changing nature of work.” Unfortunately, the 150-page flagship publication of the world’s pre-eminent development finance institution is not a serious contribution to the debate over this hot topic.

The overall message of the report is one of technological determinism. Governments should just accept and adjust to the impact of new technologies on workers and the public rather than attempting to control or regulate them. In other words, let private corporations do anything they consider to be in their best interest.

As for those raising concerns about rising economic inequality and how new technologies might accelerate this trend, well, according to the Bank, those people are just deluded.

To back up their case, they claim that in 37 of 41 developing and emerging economies Gini coefficients, a common metric of inequality, either decreased or remained “unchanged” (defined as increasing by no more than one percentage point) between 2007 and 2015. Besides the limited number of countries in their sample, the researchers cherry-picked the years of data, starting with the beginning of the global financial crisis. Such crises frequently begin with some very wealthy groups declaring huge losses.

Objective analyses by the International Monetary Fund, the OECD, and others have shown a long-term increase of income inequality in most countries, both developing and advanced-economy, starting in the 1980s. This is the case in studies using the Gini coefficient and is even more dramatic in those looking at the share of national income going to the top ten percent.

Even more absurd is the World Bank report’s touting of data from Russia showing that the top 10 percent of income earners’ share of national income fell from 52 to 46 percent between 2008 and 2015. There’s an easy explanation for this decline which has nothing to do with progress on the inequality front. The price of oil fell by 58 percent in inflation-adjusted dollars between 2008 (a 28-year peak for real oil prices) and 2015, shrinking the fossil fuel-dependent fortunes of Russian oligarchs. But the World Bank researchers felt no need to mention this important context.

Nor did the World Development Report team have any qualms about directly contradicting IMF managing director Christine Lagarde, who noted in an October 1, 2018 speech that “since 1980, the top one percent globally has captured twice as much of the gains from growth as the bottom 50 percent.” An IMF working paper on the impact of new technologies also concluded that without vigorous policy responses, “the labor share [of national income] declines substantially and overall inequality rises.”

The statistical acrobatics on inequality are aimed at bolstering the report team’s pro-deregulation ideology. The report repeatedly asserts that business deregulation will lead to decreased informality, even when data presented in the report contradict this claim.

Figure 0.5, for example, shows a sharp fall in business start-up costs since 2005, and the accompanying text acknowledges that “despite improvements in the business regulatory environment” over the past two decades, the size of the untaxed, unregulated “informal” economy has not declined. Yet the report, proving that ideology trumps factual evidence, repeatedly puts forward the need to reduce regulations in order to cure informality and several other economic ills.

The report fleetingly acknowledges that technology can displace workforces in entire sectors and that good job creation will only come about “if the rules of the game are fair.” But it never mentions the fact that gig work for platform companies is a result of aggressive corporate strategies to ignore, subvert, and eliminate regulations such as employment relationship rules. It also ignores the harmful strategy of many platform companies such as Uber to misclassify employees or transnationals such as Walmart to pay poverty wages, knowing that social assistance will fill the gap and subsidize their operations.

And when it comes to policy recommendations, the World Bank team fails to provide policymakers with tools to create fair rules of the game, such as just transition plans for displaced workforces, policies to ensure that platform workers are fairly compensated, or an approach to trade in services which allows governments to regulate in the public interest. Instead, the report makes technology the protagonist, rather than the choices of companies and governments.

The report pays lip service to the need for progressive income taxes, but devotes far more space to what it defines as “a first line of reform for developing countries [and] a major source of revenue”: the value added tax. There’s no mention, of course, of how the expansion of regressive VATs has contributed to income inequality since this would conflict with their false claim that inequality is decreasing.

The launch of the World Development Report 2019 comes on the heels of the announcement that the report’s initial director, World Bank chief economist Paul Romer, has won a Nobel Prize in economics. Romer was ousted in January of this year after severely criticizing another major annual World Bank report for ideologically driven data manipulation. Now it’s not hard to see why the World Bank wanted someone else at the helm of this project — someone who would push the deregulation line, no matter what the data say.