What is economic inclusion?

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Three stacks of coins of different heights. Small daisy seedlings of varying maturity are placed on top of each stack.
Three stacks of coins of different heights. Small daisy seedlings of varying maturity are placed on top of each stack.

The world has made great strides in ameliorating extreme poverty. In the past three decades, more than 1.3 billion people around the world who had previously been living below the extreme-poverty line (defined as $2.15 per day for bare subsistence living) have started living above it.

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André Dua is a senior partner in McKinsey’s Miami office; Kweilin Ellingrud is a director of the McKinsey Global Institute (MGI) and a senior partner in the Minneapolis office; Tracy Francis is McKinsey’s chief marketing officer and a senior partner in the São Paolo office; Mike Kerlin is a senior partner in the Philadelphia office; Jonathan Law is a senior partner in the Southern California office; Anu Madgavkar is a partner at MGI and is based in the New Jersey office; Asutosh Padhi is McKinsey’s managing partner in North America and a senior partner in the Chicago office; Liz Hilton Segel is McKinsey’s chief client officer and managing partner of global industry practices and a senior partner in the New York office, where Shelley Stewart III is a senior partner; Sven Smit is the chair of MGI and a senior partner in the Amsterdam office; and Bob Sternfels is McKinsey’s global managing partner and is based in the Bay Area office, where Olivia White is a director of MGI and a senior partner.

But there’s still a long way to go. According to the United Nations, 730 million people were living in extreme poverty as of 2020. People living in extreme poverty are deprived of basic human needs including food, safe drinking water, sanitation facilities, healthcare, and shelter. Access to these resources—which isn’t necessarily guaranteed by earning more than $2.15 per day—fulfills just the most basic physiological human needs, or the bottom of Maslow’s famous pyramid.

True economic inclusion goes beyond what people need for basic subsistence. An inclusive economy, according to McKinsey’s chief client officer, Liz Hilton Segel, means one that provides opportunities to underserved people and communities. It also creates higher-wage, more fulfilling jobs and ensures people’s mental health needs are met. Raising the standard to which we aspire—from a minimum of $2.15 to $12 per day in purchasing-power-parity (PPP) terms, a metric that compares standards of living in different countries—could help guarantee a set of human needs that go beyond basic subsistence, including good nutrition, decent housing, adequate healthcare, quality education, energy, transportation, and more. And critically, once this basic sufficiency is reached, people can begin to save money, which minimizes the risk of slipping back into poverty. This starts to look like not just economic inclusion—but economic empowerment.

How else is economic inclusion defined—and how can governments, organizations, and other stakeholders help pursue global economic empowerment? Read on to learn more.

How do we measure economic inclusion?

Economic inclusion is a concept that will always be tied to the reduction of poverty. Generally, economic inclusion happens when someone moves out of poverty, but it’s not just that. Economic inclusion also means moving toward adequate health and well-being, education, affordable essentials, and sustainable communities.

Poverty, on the other hand, is usually expressed in monetary terms, as in whether people have enough money to meet their basic needs. It’s frequently calculated by looking at income, consumption, or both. The World Bank, for example, set the global extreme-poverty line at $2.15 in 2017 PPP terms. That’s the median of national poverty lines in more than two dozen of the world’s poorest countries. The World Bank has also developed specific poverty lines for lower- and upper-middle-income countries.

Other economists take a different approach. Development economist Lant Pritchett, for example, proposes using the high-income poverty threshold universally. He argues there is a basic unfairness in setting lower living standards in some countries and higher standards in others.

A related concept is economic empowerment, which goes a step further than inclusion. The McKinsey Global Institute’s (MGI’s) definition of economic empowerment is having the means to afford nutrition, education, healthcare, housing, water and sanitation, and energy. The absolute floor of empowerment is past the point at which people are at risk of falling back into poverty.

Who is economically excluded?

Using the $12 per day PPP benchmark, about 4.7 billion people worldwide are not economically empowered—that’s about 60 percent of the global population. About 4.4 billion of them live in low- and middle-income countries; nearly half are in sub-Saharan Africa and India. But more than 300 million people in high-income countries also fall into this category, including just over a quarter of the population in the United States, the European Union, and the United Kingdom. While people in these regions don’t typically experience the same deprivation as people below the empowerment line in low-income countries, some of their essential needs remain unmet. Even living paycheck to paycheck, in a basic apartment with access to transportation and a mobile phone, leaves little left over to save for emergencies or retirement.

Those without access to affordable, reliable healthcare also experience economic exclusion. Frequently, these people are women. A recent report from the McKinsey Health Institute finds a persistent health equity gap between men and women around the world. Women spend more of their lives in poor health and with degrees of disability compared with men—25 percent more. This has a negative impact on women’s ability to be present and productive at home, in the workforce, and in their communities. It also reduces their earning potential. Added up, better health equity around the world could add $1 trillion to the global economy annually by 2040.

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The telehealth gap is also an example of economic exclusion. About 24 million American households don’t have access to high-speed internet, making it difficult or impossible to access virtual-health services.

Can we boost global economic inclusion and get to net zero?

Achieving both of these goals simultaneously would be a big lift. MGI estimates that the additional resources needed to lift the global population above the empowerment line and reach a 2050 net-zero pathway by 2030 amount to about 8 percent of the global GDP each year on average over the remainder of this decade. Half of this would be a major increase in spending on low-emissions alternatives, equal to about $41 trillion from 2023 to 2030. On the empowerment side, the 4.7 billion people living below the empowerment line would need a collective boost in spending power to the tune of $37 trillion before 2030 to meet their essential needs.

The requirements vary by region and country. Low- and middle-income countries account for 80 percent of the world’s empowerment gap. Advanced economies have smaller empowerment gaps to close but higher emissions, which makes getting to net zero more challenging. Many large middle-income countries face gaps on both fronts.

Done right, the three goals of sustainability, inclusion, and growth can be a self-reinforcing combination. Here’s how:

  • Growth supports inclusion by creating meaningful jobs, lifting incomes, and potentially generating greater support for labor-friendly policies.
  • Growth enables sustainability by increasing investment capacity and advancing technology that lowers the cost of the transition.
  • Greater inclusion and sustainability promote growth through new demand and investment opportunities and long-term productivity gains.
  • Sustainability reinforces both inclusion and growth through two cross-cutting benefits of the energy transition: lower long-term costs that make energy more accessible (relative to a scenario with higher physical risk incurred with higher emissions) and more resilient and productive lives.

Is economic inclusion linked to productivity?

Yes. Productivity measures the amount of value created for each hour worked in a society. The more productive an economy is, the more it grows—which means more wealth to go around. More productivity and economic growth mean new products, industries, and business models supported by new technology, as well as better-paying jobs. Globally, a productivity boost of roughly one percentage point annually, as well as the upskilling of 10 percent of the workforce to move into more productive sectors, could address as much as two-thirds of the empowerment gap within the coming decade. This upskilling depends on businesses creating more productive jobs and equipping workers with the skills to do them effectively.

Economic inclusion, expressed as gender and ethnic diversity within organizations, is also linked to better organizational performance. Our research shows that in 2019, fourth-quartile companies for gender diversity on executive teams were 19 percent more likely than other companies to underperform on profitability—up from 15 percent in 2017 and 9 percent in 2015. Companies in the fourth quartile for both gender and ethnic diversity were 27 percent more likely to underperform on profitability than all other companies in our data set.

How can increased economic inclusion accelerate productivity in the United States?

Labor productivity growth has been the engine of US economic power and prosperity since World War II, adding 2.2 percent annually to economic growth and contributing significantly to a 1.7 percent annual gain in real incomes. But productivity growth has slowed in recent years, and the link between productivity and real incomes has weakened. MGI analysis indicates that resurgent productivity could add $10 trillion in cumulative GDP over the next ten years. This would help the United States confront looming challenges, including workforce shortages, debt, inflation, and the cost of the energy transition.

Labor shortages place significant strain on productivity growth. Since the pandemic, three groups in particular have opted out of the US labor force: aging baby boomers, women with children, and men without college degrees. There are also fewer immigrants now. While immigrant numbers grew by 4.6 percent in the 1990s, they grew by just 1.1 percent from 2010 to 2021. Making up for these labor shortfalls will be a major undertaking, involving lobbying for improved access to education as well as a reformed visa process for skilled foreign workers. But these efforts stand to unlock the kind of productivity growth that could help boost economic inclusion in the United States.

Here are a few more ways to achieve better productivity growth in the United States:

  • Bend the curve of technology adoption. Companies leading in technology adoption do a number of things well. They commit to their digital strategy and devote organizational resources to it. They also mobilize the entire organization around digital transformation, are flexible and agile, and invest in the right technology-ready talent to execute bold bets to reinvent themselves.
  • Encourage investment in intangibles. Policy makers can support the intangibles economy—including intellectual property, software, and patents—by setting the right environment for intangibles to flourish. Reforms to competition policy, for example, can help ensure that innovation remains strong—and even grows. Governments can also support innovation by coordinating across value chains, clarifying regulatory standards, and streamlining policy to encourage new investments.
  • Balance energy affordability and productivity. To achieve net zero, business leaders and policy makers need to manage the trade-offs between affordability and the speed of transition. Three categories of action stand out: first, leaders could reallocate capital to scale climate tech; second, they could support innovation with R&D investment; and finally, they could reskill affected workers and implement economic-diversification programs for affected areas.
  • Address people and places left behind. There are specific geographies in the United States—in both urban and rural areas—that suffer from both low productivity growth and low labor force participation. These economic conditions are often associated with outcomes such as lower life expectancy and higher rates of substance use. Place-based policies have a checkered history of success, but they should be explored further to identify specific interventions that work and where such interventions can be targeted.

How will the rise of generative AI affect economic inclusion?

The meteoric growth of generative AI (gen AI) tools since late 2022 has created more than just new ways of working. It has also introduced anxieties about the future of work and humans’ place in it. “The impact of gen AI alone could automate almost 10 percent of tasks in the US economy,” says McKinsey senior partner Kweilin Ellingrud. “It is much more concentrated on the lower-wage jobs, which are those earning less than $38,000. In fact, if you’re in one of those jobs, you are 14 times more likely to lose your job or need to transition to another occupation than those with wages in the higher range, above $58,000, for example.”

Black Americans are more vulnerable than other groups to economic exclusion as a result of gen AI. Black Americans are overrepresented in four of the top five occupations at risk of automation: office support, production work, food services, and mechanical installation and repair. Twenty-four percent of Black workers are in occupations with greater than 75 percent automation potential, compared with just 20 percent of White workers.

Given the inevitability of increasingly better AI tools, economic inclusion in the future depends on upskilling, reskilling, and training to empower the global workforce. “Twelve million occupational transitions are likely going to need to happen between now and 2030,” says Ellingrud. “I think public–private partnerships between the federal government and educational institutions could help to train and build the skills of our workforce.”

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Three stacks of coins of different heights. Small daisy seedlings of varying maturity are placed on top of each stack.

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