Social experiment. If you have P500 pesos in your wallet, what would you do with it?

Transcription

1 Social experiment If you have P500 pesos in your wallet, what would you do with it? xxxxxxx xxxxxxx Anna from Infanta, Quezon, 10 years old and is the 3 rd among children of 7 Dropped out of school at the age of 8 (grade 2) to help the family by selling pasingaw in the market 1

2 POVERTY is not an accident. Like slavery and apartheid, it is man-made and can be removed by the actions of human beings. - Nelson Mandela Measuring Inequality Income inequality - the disproportionate distribution of total national income among households. Two principal measures of income distribution for analytical and quantitative purposes 1. personal or size distribution 2. functional or distributive factor share distribution of income Measuring Inequality 1. Size distribution deals with individual persons or households and total income received Quintiles: divides the population into successive fifthsaccording to ascending income levels and what proportion of total income they receive Deciles: divides the population into successive tenths 2

3 Typical size distribution of personal income in a developing country by income shares (quintiles and deciles) Individuals Personal Income (money units) Share of Total Income (%) Quintiles Deciles Total National Income Source: Todaro(2015) Kuznets ratio (after Nobel laureate Simon Kuznets) the ratio of the incomes received by the top 20% and bottom 40% of the population often used as a measure of the degree of inequality between high-and low-income groups in a country What is the Kuznets ratio based on the figures presented in the previous table? Answer: 51/14=3.64 Lorenz Curve A graph depicting the variance of the size distribution of income Shows the actual quantitative relationship between the percentage of income recipients and the percentage of the total income they received in a given year 3

4 Lorenz Curve The vertical axis represents the share of total income received by each percentage of population The horizontal axis represents the percentage of income recipients Diagonal Line line of perfect equality Usually, the Lorenz curve lies below the line of equality Source: Todaro, 2015 Gini coefficient Measure the relative degree of income inequality The ratio of the area between the diagonal line and the Lorenz curve divided by the total area of the half-square 0 = perfect equality 1 = perfect inequality Philippines 2015 = (PSA) 2012 = (PSA) Kuznets Inverted-U Hypothesis Income inequality increases during the early stages of growth, then decreases during the later stages of growth Gini coefficient 1 Increasing inequality (shown by Gini) Decreasing inequality (shown by Gini) Increasing GNI per capita 0 Gross national income (GNI) per capita 4

5 2. Functional distributionorfactor share distribution of income Attempts to explain the share of total national income that each factor of production (land, labor and capital) receives Does not look at individuals as separate entities Looks into the percentage that labor receives as a whole and compares this with the percentages of total incomedistributed in the form of rent, interest and profit The higher the ratio, the greater is income equality. Limitation: does not take into account nonmarket forces, i.e. CBA, trade unions, in setting wage rates Measuring Absolute Poverty Absolute poverty a situation where population is able to meet only its bare subsistence essentials of food, clothing and shelter to maintain minimum levels of living Global poverty line (in PPP terms) 1990: $1 per day per person 2005: $1.25 per day per person 2015: $1.90 per day per person using 2011 prices (900M people are below this poverty line based on available data in 2012) Measures of Poverty Income-based Measures 1. Head-count ratio (HCR) -measures incidence of poverty HCR= Where: q= number of people below poverty line n= total number of individuals in the population -fails to capture and differentiate the various states of poorness 5

6 Regional Poverty Headcount Rate (%), Estimates from the World Bank report (2015) Poverty headcount ratio at $1.90 a day (2011 PPP) (% of population), Country Indonesia Philippines Thailand Vietnam Source: World Bank What can you say about the patterns in poverty headcount ratio across countries? In Percent Poverty incidence among population by areas (at national poverty lines), Philippines All Areas Urban Rural Annual per capita poverty threshold: P21,753 Source: Philippine Statistics Authority (PSA) 6

7 In Percent Poverty incidence among population by region (at national poverty lines) in the Philippines, Also has the highest regional economic growth 27.6 rates in Source: Philippine Statistics Authority (PSA) Targeting the poor- need for more disaggregated data on poverty CBMS as one of the main local poverty monitoring tool in the Philippines Location of households who are income poor, Villa Angeles, Orion,Bataan, Subsistence incidence among population by areas (at national poverty lines), Philippines In Percent All Areas Urban Annual per capita food threshold: P15,189 Source: Philippine Statistics Authority (PSA) 7

8 Measures of Poverty 2. Poverty-gap ratio (PGR) measures depth of poverty PGR = y p i < nm where: p= poverty line y= poor person s income n = total population m= mean income ( p y) nm = total income in the economy -gives the ratio of total income transfer necessary to eliminate poverty to gross national income or GNI Poverty gap ratio (at $1.90 a day, 2011 PPP), Country Name Indonesia Philippines Thailand Vietnam Source: World Bank What can you say about the patterns in poverty gap ratio across countries? Measures of Poverty 3. Income-gap ratio (IGR) IGR = y p i < ( p y) pq = total income pq where: p= poverty line q= total number of people in poverty y= poor person s income of the poor if they were all to have incomes at the poverty line -tells us the total income needed to remove poverty relative to the total income of all poor if they are all raised to the point where they escape poverty 8

9 Income gap in the Philippines, 2012 and Income gap Source: Philippine Statistics Authority (PSA) Foster-Greer-Thorbecke(FGT) index a class of measures of the level of absolute poverty 1 where: = income of the ithpoor person = poverty line N= population depending on the value of α, the index takes on different forms. : If α= 0, the numerator is equal to H => hence, we get the headcount ratio (H/N) : If α= 1, we get the normalized (per capita) poverty gap 9

10 : If α= 2, we capture the severity of poverty; squared poverty index standard income poverty measure used by the World Bank and other agencies; used in empirical work on poverty because of its sensitivity to the depth and severity of poverty the impact on measured poverty of a gain in income by a poor person increasesin relation to the square of the distance of the person from the poverty line example: raising the income of a person from a household living at half the per capita poverty line by, say, P10 per day would have 5x the impact on poverty reduction as would raising by the same amount the income of a person living at 90% of the poverty line Source: Todaro (2015) 10