HP Innovation Journal Issue 12: Summer 2019 | Page 18
is projected to climb to $71,000 annually on the basis of
what economists call Purchasing Power Parity, or PPP
(we’ll come back to this shortly). Globally, the number of
large cities is expected to rise to 131 and have an average
annual household disposable income of $66,000. Mean-
while, medium cities will grow to 434, with an average
household income of $64,000 . 4 It’s also projected there
will be 100,000 small cities with an average household
income of $41,000 annually. This data suggests that the
bigger the city, the greater the income growth and average
household spending, making it increasingly important to
have market knowledge at a city level, as individual city
markets may vary widely, even within the same country.
PAYCHECKS POWER GROSS
DOMESTIC PRODUCT (GDP)
To accurately track where the money is now and where
it is trending in the future, both geographically and
demographically, we focused on the metric of household
disposable income, which we refer to as personal income.
This is the money people bring home after taxes and use
as their basis of spending. This economic measurement
is valuable for several reasons. First, the vast majority
of personal income for most people around the world, in
both developed and emerging markets, comes entirely
from the salaries and wages they bring in as compensa-
tion for their jobs and labor. 5
In other words, most of the global
population relies solely on their
paychecks and does not own
assets such as stocks, bonds, or
other investments.
Second, spending for most people in the world comes out
of personal income. The overall spending that comes out
of personal income is the single-largest economic driver
in the world, accounting for almost two-thirds of global
GDP. 6 Since personal income drives consumer spending,
and nearly all personal income comes from salary and
wages, there is a direct connection between consumer
income and spending, and the health of the commercial
and business sector that pays the salaries and wages that
keep this flywheel spinning.
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HP Innovation Journal Issue 12
INCOME GAINS IN DEVELOPED
VS. EMERGING MARKETS
By 2030, personal income will rise $40 trillion globally
across all income earners, from the top to the bottom. 7 But
while incomes across the world are on the rise, the effects
vary between developed and emerging markets. While
markets in China, Indonesia and India are forecast to see
dramatic increases in lower and middle-class household
incomes, growth in developed countries across most of
Europe will trend to small gains for income earners, top to
bottom. In Japan, the gains will remain static, while in the
U.S., the trend is toward comparative gains at the top and
bottom, but not much growth for those in the middle. The
higher you go on the income ladder, the steeper those com-
parative income rises will be. 8 Across developed markets,
this economic segmentation will even differ between cities
in the same country. For example, Chicago (a megacity) is
trending to a 9% increase in middle-class households by
2035, while Kansas City (a large city) is trending to a 17%
increase in households with middle-class incomes. 9 This
also points to economic gains increasing and diffusing out
from megacities to cities of other sizes.
MIND THE GAP: THE ISSUE
OF INCOME INEQUALITY
Over the last 50 years, incomes have been on the rise for
the vast majority of people around the world, and that
trend is expected to continue. Over the last few decades,
millions have moved out of poverty. In China alone, 800
million cities have risen from poverty in just the last four
decades. However, since the 1980s, the rise in incomes
across much of the world, both developed and emerging,
has been much greater for the top and bottom than for
the middle-income earners. The result is what has been
driving the rising inequality discussion globally, as the
share of growth captured by the top, middle, and bottom
income earners has become increasingly less equal.
The overall pie may be getting
bigger, but the middle earners
are capturing a smaller share of
the gains, creating a feeling, and
in some cases a reality, of being
economically squeezed. 10