Understanding Inequality and Poverty: Measurement, Causes, and Consequences, Apuntes de Educación Avanzada

¡Descarga Understanding Inequality and Poverty: Measurement, Causes, and Consequences y más Apuntes en PDF de Educación Avanzada solo en Docsity! Poverty and Inequality: Measurement, Causes and Consequences Andreas Kyriacou Department of Economics, UdG The Measurement of Inequality and Poverty * Gini coefficient: O<Gini< 1 — Where O reflects a situation of absolute equality of incomes across households — 1reflects a situation of absolute inequality of incomes across households (all the income in the hands of one household). — Recall that this indicator comes from the Lorenz curve which in turn comes from the frequency of distribution of incomes (the number of households in each income group). The Measurement of Inequality and Poverty » Acategorically based indicator looks as follows: 2 > P.=(UN ID" (Z-y)/Z) Where: - Zisathreshold level of income below which houselhold cannot cover their basic needs - y; ¡is the income of household ¡ whose income, is below the threshold, N is the total population (rich and poor) - Qs the number of poor households (incomes below Z) - Disa measure of societies aversion to poverty (it ranges from 0 to infinity; ifitis O society is unconcerned by poverty and if it tends to infinity, society rejects any inequality in incomes across households) - Pgisthe Poverty indicator for a given societal aversion to poverty). The equation tells us that we have to add for all poor households the difference between their incomes and the poverty threshold and then we must weight these differences by society's aversion to poverty. Inequality in the OECD Figure 1.1. Gini coefficients of income inequality in OECD countries, mid-2000s 0.50 045 040 0.35 0.30 0.25 0.20 EESSIESISIES IS ESPIGA Seatimk ana http dx doiorg/10.1787/420515624534 Note: Countries are ranked, from left to right, in increasing order in the Gini coefficient. The income concept used is that of disposable household income in cash, adjusted for household size with an elasticity of 0.5. Source: OECD income distribution questionnaire. Inequality in the OECD Figure 1.1 allows distinguishing among five groups of countries. e At the left end of the chart are Denmark and Sweden, with Gini coefficient values of around 0.23, ¡.e. below the OECD average by more than 0.07 point (25%). This group of countries is characterised by “very low” income disparities. e A second group includes countries with Gini coefficients that fall below the OECD average by a lesser extent. These are (in increasing order of the Gini coefficient) Luxembourg, Austria, the Czech and Slovak republics, Finland, Belgium, the Netherlands, Switzerland, Norway, Iceland, France, Hungary, Germany and Australia, all countries with Gini coefficients between 0.26 and around 0.30, ¡.e. falling below the OECD average by between 17% and 3%. e Athird group includes countries with Gini coefficients that are above the OECD average, although not much higher than those in the second group. These include Korea, Canada, Spain, Japan, Greece, Ireland, New Zealand and the United Kingdom — all countries with Gini coefficients between 0.31 and 0.34, ¡.e. exceeding the OECD average by up to 0.25 point (between 1% and 8%). e A forth group includes Italy, Poland, the United States and Portugal, with Gini coefficients exceeding the OECD average by between 0.04 and 0.07 points (from 13% to 24%). e At the upper end of the figure are Turkey and Mexico, which stand out for their very high level of income inequality (38% and 52% above the OECD average), although this is true today to a lesser extent than in the past. Inequality in the OECD e In the decade from the mid-1980s to the mid-1990s, the dominant pattern is that of a widening of the distribution. This is especially evident in Mexico, New Zealand and Turkey but also in Italy, Portugal, the United Kingdom and the United States, as well as in the Czech Republic and Hungary. Income inequality fell in this decade in only a few countries (Canada, Denmark, France, Ireland and Spain). e There is more diversity in patterns in the decade from the mid-1990s to the mid- 2000s. Income distribution widened again in several countries — especially in Canada, Finland, Germany, Norway, Portugal, Sweden and the United States — but it narrowed in 10, with large declines in Mexico and Turkey and smaller ones in Australia, Greece, Ireland, the Netherlands and the United Kingdom. e Overall, over the entire period from the mid-1980s to the mid-2000s, the dominant pattern is one of a fairly widespread increase in inequality (in two-thirds of all countries), with declines in France, Greece, Ireland, Spain and Turkey The rises are stronger in Finland, Norway and Sweden (from a low base), as well as in Germany, Italy, New Zealand and the United States (from a higher base). Inequality in the OECD Figure 2. Inequality increased in most countries over the long term, but recently fell in some high-inequality countries Gini coefficients oí income inequality in 27 OECD countries, 1975-2008 Panel A. OECD 67 countries Panel B. Nordic and Oceanic countries Eo ==> ao ===> Aud A mm lMaly Japan Finland —-—- New Zealand —-—- United Kingdom United States 3 Norway Sweden Gin! costticient ot income Inequality Gini costticiant ot income inequality 0.54 0.54 0.50 0.50 0.46 0.46 os | os | 0.38 p 0.38 0.34 0.30 Pp - 0.26 A oz2 | nl 038 0.8 1975 1980 1985 199) 1995 2000 2005 20 1975 1980 1985 1990 1995 2000 2005 2010 Panel C. Southern Europe and other selected OECD countries Panel D. Other European countries —-—- Chile Greece. ——— Israel Austria 222-- Belgium Korea = Mexico Portugal — —— Czech Repul — —+ Hungary == Spain —===— Turkey - »nt ofincome inequality => Ireland Netherlands oso | oso | 0.46 0.46 o.s2 | 0.42 | os8 | os | 0.34 0.34 0.30 ¡e o.30 | 0.26 0.26 0.22 | o.22 | 048 0:18 1975 1980 1085 1990 1995 2000 2005 2010 1975 1980 1985 1990 1995 2000 2005 2010 Note: National sources have been used to complement the standardised OECD data for Australia, Chile, Finland, Norway, New Zealand and Sweden. "'heir methodology is as close as possible ta OECD definitions. Ereak in series between 2000 and 2004 for Austria, Belgium, Treland, Portugal and Spain. Break in series in 1997 [or Israel. L Information on data for Israel: hitp://dx.doi.org/10.1787/888932315602 Source: OTCD Income Distribution and Poverty Database. Inequality in the OECD Income inequality started to increase in the late 1970s and early 1980s in some English-speaking countries, notably the United Kingdom and the United States, but also in Israel. From the late 1980s, the increase in income inequality became more widespread. The latest trends in the 2000s showed a widening gap between rich and poor not only in some of the already high inequality countries like Israel and the United States, but also — for the first time — in traditionally low-inequality countries, such as Germany, Denmark, and Sweden (and other Nordic countries), where inequality grew more than anywhere else in the 2000s. At the same time, Chile, Mexico, Greece, Turkey, and Hungary reduced income inequality considerably — often from very high levels. There are thus tentative signs of a possible convergence of inequality levels towards a common and higher average level across OECD countries. 50 40 30 20 10 o E Inequality in the OECD Figure 5.7. Poverty rates by household type, mid-2000s EZ an MH Single Households without chi Households with children ELSE SIISE AAA Note: Se Seactónk epa http//dx.doLorg/10.1787/422178058748 Countries are ranked, from left to right, in increasing order of the poverty rate of households without children ín the top panel) and of these with children (in the bottorn one]. Data refer to all households, irrespectively of the age of the household head. Poverty thresholds are set at 50% of the median income of the entire population. Source: Computations from OECD income distribution questionnaire. Inequality in the OECD Figure 5.8. Poverty and employment rates, around mid-2000s People of working age Children and mothers Poverty rate, working-age population, % Poverty rate of children, % 16 25 OnEx “bem Oro Ousa 20 b eL KOR_. IBL ggyPn mp 1 + GBA Bt OR sl HUN Sa no e 10 aL CZE wr Bo nk 5+ 2-P 0 | | | 0 | | | | 40 50 60 70 30 40 50 60 70 30 90 Employment rate, working-age population, % Employment rate of mothers, % Statiínk paar http //dx.doi.org/10.1787/422187281362 Note: Poverty thresholds are set at 50% of the median income of the entire population. Employment rates of persons of working age in 2003; employment rates of mothers in 2002. Source: Computations from OECD income distribution questionnaire. La desigualdad en la OCDE Market income inequality rose considerably Percentage point changes in the Gini coefficient of household market and disposable incomes between 2007 and 2011 10 10 1 Market income inequality (7) — Disposable income inequality 8 8 6 6 4 4 2 2 Tc MÍ 0H T-- 1 q ci o -2 2 ISE MORET JERIA $ PSOE SALA 9 ISS ASS AN ESOS ES SIS SIR RS SS IS E [e O LIS [SS e e e SS a Notes: Data for 2007 refer to 2006 for Chile and Japan; and 2008 for Australia, France, Germany, Israel, Mexico, Norway, New Zealand, Sweden, and the United States. Data for 2011 refer to 2009 for Japan; 2010 for Austria and Belgium; and 2012 for Australia, Finland, Hungary, Korea, Mexico, the Netherlands and the United States. For Hungary, Mexico and Turkey data on market income inequality are not available. There is a break in the series in 2011 for the United Kingdom, and results are not strictly comparable. 2011 data for Ireland and the United Kingdom are provisional. OECD-30 average excludes Hungary, Mexico, Switzerland and Turkey. Where does inequality come from? Conduct Survey Where does inequality come from? One reason is increasing wage dispersion in wealthier OECD countries in a context of globalization and technical progress: » Market liberalization — including the labor market which involves decentralized wage negotiation and lower minimum wages. This is seen as necessary to meet competitive pressures due to globalization. + The supply of non qualified workers has increased by more than that of qualified ones (partly due to immigration — also a feature of globalization). * The demand of qualified workers has increased by more than that of non-qualified ones in line with evolution of high income economies towards more higher valued goods and services and in the context of technological progress which means that production becomes less labor intensive. Where does inequality come from? The median voter theory states that under absolute majority rule, the decision that will be taken corresponds to the preferences of the median voter. Just think of 5 people aligned from some policy dimension, for example, left to right: Person 3 is the median voter. If 1 and 2 want to create a majority they will need his vote. So too will 4 and 5. In exchange for his vote the median voter imposes his preferences. Now think of redistribution. Now voters are aligned along preferences for redistribution: from more to less. The median voter again decides. Now, in countries with inequality, the median voter is poorer relative to the mean: Consider this distribution of wealth: 1:10 2:15 3:25 4:50 5: 100 Median income is 20. Mean income ¡is 40. So we would expect redistribution World Values Survey The World Values Survey is a worldwide investigation of sociocultural and political change. It builds on the European Values Surveys first carried out in 1981. Together these amount to representative national surveys of basic values and beliefs in 97 societies on all six continents, containing 88 percent of the world's population. The four-wave aggregate data file includes the first four waves. Wave Years Countries Population Respondents 1 1981-1984 20 4,700,000,000 25.000 2 1989-1993 42 5.300,000,000 61,000 3 1994-1998 52 5,700,000,000 75,000 4 1999-2004 67 6,100,000,000 96,000 5 2005-2008 5 6,700,000,000 77,000 Four-wave aggregate data file 30 257.000 Mo countries, covering 88% of the world's population have been surveyed as of 2007. Where does inequality come from? * Inrelation to chance: beliefs about chance versus effort for life's chances and their impact on support for redistribution. L —_— Belgium 0% > L 20% SwederNelheriands a | 3 2 o > 15%] Fr E 5 Y 2 E 10%]? F 3 se E 3 S Iceland Argentina 3 5%] F E Dominican Ro 07 Fefiippines T Tr — TA 7 20% 40% 60% 80% Percentage who believe that luck determines income FIGURE 1 Note: Reproduced from Alesina et al. (2001). This scatterplot illustrates the positive cross- country correlation between the percentage of GDP allocated to social spending and the fraction of respondents to the World Value Survey who believe that luck determines income. Where does inequality come from In societies with broad equality of opportunity, the parents” position should have little impact on that of their children. The Human Opportunity Index (World Bank), shows how important personal circumstances over which one has no control (race, gender, birthplace, parents education and occupation) are for gaining access to those services needed for a productive life, such as running water, sanitation, electricity or basic education among children in the region. In its simplest interpretation, the HOl measures the availability of services that are necessary to progress in life (say, running water), discounted or “penalized” by how unfairly the services are distributed among the population. So, two countries that have identical coverage may have a different HOI if the citizens that lack the service are all female, or black, or poor, or have many siblings or, more generally, share a personal circumstance beyond their control. In other words, the HO! is coverage corrected for equity. The HOI runs from zero to 100; a society that has achieved universal coverage of all services would score at 100. The Consequences of Inequality Insights from, Richard Wilkinson and Kate Pickett. (2009). The Spirit Level. Why More Equal Societies Almost Always Do Better. Penguin Books. A ES Me ES In America Mr e, A, O o Y FA e) DO NE NATION E= Health and Social Problems are not Related to Average Index of: = Life expectancy » Math £: Literacy = Infant mortality » Homicides = Imprisonment « Teenage births « Trust * Obesity - Mental illness — incl. drug é: alcohol addiction « Social mobility Source: Wilkinson € Pickett, The Spirit Level (2009) Index of health and social problems Income in Rich Countries National income per person ($) vwww.equalitytrust.org.uk Worse y Lo s Portugal Uk» «Greece * New Zealand elreland France MA a . * Germany *Canada Hale a a Denmark +Spain Belgium Finland + . Swizefande Netherlands Norway e Sweden * Japan * Better 7 T T T T T 20000 25000 30000 35000 40000 »Equality Trust O Health €. Social Problems are Only Weakly Related to Average Income in US States Worse + . MS LA E 4 2 8 - a ARA so T GA = eva . a . e NV o TN $ Nite S vs “oK NC A A E mor amo FE Yi ca y AZA “ll MD ES Aka aDE = pantoH mu . . o VA c Na w ORa HL, Ny > De OS co o E YI NE va pS * cr É£ O NT» lAs MA Better - uy evT mua NH 7 7 7 7 15000 20000 25000 30000 Income per person ($) Source: Wilkinson €. Pickett, The Spirit Level (2009) vewaw.equalitytrust.org.uk e] »Equality Trust O Health and Social Problems are Worse in More Unequal US States Worse+ Index of health and social problems Low . High Income Inequality Source: Wilkinson € Pickett, The Spirit Level (2009) e] vwwww.equalitytrust.org.uk pd Child-Wellbeing is Unrelated to Average Incomes in Rich Better + Spain «Greece * Portugal a Israel e New Zealand UNICEF index of child well-being Worse - 20000 Source: Wilkinson € Pickett, The Spirit Level (2009) Countries a Sweden * Netherlands “Finland + Switzerland * Norway Denmark Italy» Belgium * Germany a Iretard "austria «Canada France= s Australia Japan* «USA “UK 25000 30000 35000 40000 National income per person ($) vwwww.equalitytrust.org.uk pd Levels of Trust are Higher in More Equal US States 707 ND+* . NH. * MN MT o o | a oO 1 E o 1 [5] o ] Most people can be trusted (% agreeing) Nm [=] 1 “MS T T Low High Income Inequality rre! Source: Wilkinson €. Pickett, The Spirit Level (2009) vrvaw.equalitytrustorg.uk EEQuality Trust The Prevalence of Mental lllness is Higher in More Unequal Rich Countries USA» 25.07 Australia*+ *UK Y Y 2 New Zealand * = 20.07 * Canada Ez * France v E > £ a 15.07 Netherlands « p= 53 s E Belgium » 6 e e 10.07 Spain * Japan Germany * . Italy" 5.07 T T Low High Income Inequality rre! Source: Wilkinson €. Pickett, The Spirit Level (2009) vrvaw.equalitytrustorg.uk EEQuality Trust Drug Use is More Common in More Unequal Countries High 7 Australla New Zealand “UK USA 6 *Canada 3 « Spain o 3 Switzerland » Denmark. . “ a ia Israel el : Netherlands . . . Ú Norway Germany * France Portugal l=] E * Finland Greece + Sweden z «Japan Low + y T Low High Income Inequality Index of use of: opiates, cocaine, cannabis, ecstasy, amphetamines rre! Source: Wilkinson €. Pickett, The Spirit Level (2009) vrvaw.equalitytrustorg.uk EEQuality Trust More Adults are Obese in More Unequal Rich Countries 30= USA Greece o 207 : . * Germany 2 Finland beland» = Australia Portugal o * New Zealand E ik, Bust e Denmark, Austria France o Belgium + o Canada+ a * Spain Netherlands * 10- de Switzerland Japan 0 Z= T T Low High Income Inequality Source: Wilkinson € Pickett, The Spirit Level (2009) e] vwwww.equalitytrust.org.uk pd Educational Scores are Higher in More Equal Rich Countries Hig h4 Finland eN Canada * 3 s * Austral 8 Netherlands Nevv Zealand = istralia o » 7 Belgiurn * 2 Japan Switzerland = a « Ireland o DU * Denmark * France = ¿Austria E * Norma * Germany c£ o E USA» L a = Spain E 5 Itahy Portugal o . y 2 Greece z . XL] Israel Low + ow T - High Income Inequality Source: Wilkinson € Pickett, The Spirit Level (2009) e] vwwww.equalitytrust.org.uk pd More Children Drop Out of High School in More Unequal US States 307 257 207 157 Percent dropping out of high school 107 Low High Income Inequality Source: Wilkinson € Pickett, The Spirit Level (2009) e] vwwww.equalitytrust.org.uk pd Homicide Rates are Higher in More Unequal Rich Countries USA E 2 E 40] = v . == Portugal Y (0) a Ends 'G inland re o * France 7] + tal T 20 : Canada 'y Sweden Australia * Singapore , * Netherlands ¿Sreece UK. . + Germany *Svitzerland « New Zealand Austria Spain Ireland or: . Japan ud DJ r T Low High Income Inequality Source: Wilkinson € Pickett, The Spirit Level (2009) e] vwwww.equalitytrust.org.uk pd Homicide Rates are Higher in More Unequal US States 1007 MD a la NM Homicides per million Low High Income Inequality Source: Wilkinson € Pickett, The Spirit Level (2009) e] vwwww.equalitytrust.org.uk pd Children Experience More Conflict in More Unequal Societies High =| S UK q = £ o o *= o Dm 5 * France 3 deb USA + 3 Austria Greece" Israel o Belgium AS : ro Portugal + 5 streland o + Denmark 2 + Norway 2 * Netherlands 5 Switzerland + O Germany» Low- Sweden Finland + ) T : High Income Inequality 11,132.15 yr olds fighting, bullying, and finding peers not kind €: helpful Source: Wilkinson € Pickett, The Spirit Level (2009) vwwww.equalitytrust.org.uk pd Social Mobility is Higher in More Equal Rich Countries High Norway"? Sweden * = Denmark Finland z a o E 5 o o N Low= Canada Germany USA Low Source: Wilkinson € Pickett, The Spirit Level (2009) Income Inequality High vwww.equalitytrust.org.uk »Equality Trust O More equal societies are more innovative 407 Mm q o o 1 l Patents per million population 3 1] Finland Sweden" * Ireland Switzerland + Morea Japan * Austria + Denmark Netherlands * Belgium France Germany * : Spain * + Canada News Zealand » Italy * Australia "UK Portugal USA» Singapore * Low Income Inequality High vwww.equalitytrust.org.uk e] »Equality Trust O Trends in UK income inequality 1979-2005/6 16 Thatcher : Major : Blair Rising gap between rich and poor, relative to 1975 08 EPCEPLEPEPIOIAALIC OC EP REEEEEAEEENS Ñ Source: Wilkinson € Pickett, The Spirit Level (2009) vwwww.equalitytrust.org.uk pd PO the Equality Trust http:/Awww .equalitytrust.org.uk View interview on Stiglitz, J. (2012). The Price of Inequality. W.W. Norton €: Company. Read Stiglitz — The Price of Inequality https://www.youtube.com/watch?v=GYHT4z) sCdo http://blogs worldbank.org/developmenttalk/ stiglitz-on-inequality-rent-seeking-and-new- measures-of-progress http://www.opensecrets.org/