GINI COEFFICIENT COMPARATIVE ANALYSIS Dragovan Milicević Valjevo Business School of Applied Studies Abstract Researching of economic inequity is very demanding and hard work. Economic inequity is inherent characteristic of neoliberal capitalism, namely, economic models and government reforms in countries that are in transition from socialism to the free market economies. Economic inequity is not the same as poverty. Poverty certainly implies the existence of economic inequity between those who are and those who are not poor, no matter how you define poverty. However, economic inequity imply inequity in income or other economic resources in the context of the entire population Keywords: GINI, Inequalities, Economics, Measuring. 1. Introductions Researching of economic inequities is very demanding and hard work. Economic inequity is inherent characteristic of neoliberal capitalism, namely, economic models and government reforms in countries that are in transition from socialism to market economies. In an earlier text at website www.makroekonomija.org (see 'Globalization, the standard/non-standard view') I was made an attempt to analyze the distribution of social wealth and added value to the work and capital. The largest number of the analyzed countries had a stagnant movement of earnings in real terms while profits grew at an exponential line in a fifteen-year period. This paper represents a continuation of the analysis of income distribution and economic inequality. 2. Measuring of economic inequality Economic inequity is not the same as poverty. Poverty certainly implies the existence of economic inequalities between those who are poor and those who are not, no matter how you define poverty (such as earnings below a certain line, the standard of living is below the minimum satisfactory, etc.). However, economic inequality imply inequality in income or other economic resources in the context of the entire population. Measuring inequity does not depend on where is the income limit set (median, average wages, consumer basket, the line of absolute poverty, etc.), neither of what are the percentage of poor. One country may have the same level of poverty and the different levels of inequity (for example, Slovenia has the same level of poverty as Austria, but less inequity). Similarly, the two countries can have the same level of inequity and different percentage of the poor (for example, Malta has the same level of inequity as Austria, but more poor). Page147
3. Measuring inequality is a complex statistical procedure. In public documents there are two most frequently mentioned rates the ratio S80/S20 and the Gini coefficient. The ratio S80/S20 is equivalent to the ratio of total revenue of 20% of a country s population with the highest income, equivalent to the total income of 20% of the population with the lowest income. The higher is this ratio the greater is inequity. Gini coefficient is another measure to monitor inequity in income distribution, but in this case the entire population, not just the 20% of the highest or lowest income. The Gini coefficient is in the range from 0 to 1. If the value is 0, it would mean that the country achieved the ideal equal distribution of income and that all citizens have the same income. On the other hand, when the Gini coefficient is 1, it means that one person receives all the disposable income, or there is a state of perfect inequity. 4. GINI coefficients of a selected group of countries with the highest level of inequity According to the World Bank and website of the Central Intelligence Agency, which has innovated information about the movement of GINI coefficient in the period between 2011-2014 year (Serbia and many countries in the analysis have pretty fresh information dated to the year 2014, which allows the adoption of relevant conclusions about crucial social problems whose starting point is not only in the distribution of income, but in other segments of economic life. These countries are taken because they have relatively fresh data on the flow of economic inequity. As can be seen, at the bottom of the scale is Slovenia where the level of inequity, according to data from year 2012, was 23,7 or 0.237 if the ratio is observed in the range form 0 1. The position of Serbia draws attention. From a relatively low Gini coefficient by year 2010, Serbia came to 21th position on the list. Of all European countries, only Macedonia with a coefficient of 43,6 and Russia with coefficient of 42,0 are above Serbia after the latest data. To be able to make relevant conclusions, there is a comparative presentation of movements of this coefficient in the fifteen-year time Page148
period for 21 countries with Serbia. The aim is to determine whether we look at the period of growing, stagnant or declining inequity. The highest growth of economic inequity in the period 1999-2014 year was in Macedonia and Serbia. Other countries in year 1999 was in zone of less or more inequity of income, but Serbia is again a specific example. In fact, from year 2004 2010, there has been a decline in economic inequity because the ratio was in the range of 30,0. The explosive growth of inequity in Serbia is recorded in the period between 2010 2014 (In Macedonia from 1999 2004). Some countries have reduced their inequity (Peru, Venezuela, Bolivia, Columbia, Brazil). Page149
Graph 1: Economic inequality in Serbia However, it should be emphasized that this analysis is not the same as poverty analysis. In these countries, due to the low level of GDP is identified the syndrome of poverty. However, in addition to this analysis, several important factors are needed to be analyzed in order to obtain the true image of society. First of all, the analysis of social exclusion, and the exclusion of certain social classes in our society. Forms of exclusion point from which spheres are individual s groups excluded. We can see economic, political, social and cultural exclusion, or some narrow form, such as exclusion from the labor market, financial market, etc. In case where individuals and groups are facing multiple forms of exclusion, we can talk about multidimensional exclusion. The level of exclusion indicates in which level individuals are excluded from certain areas of society. The absolute exclusion is the total absence of opportunities to access certain resources, institutions, or to get involved in social processes. Relative exclusion is a reduced chance to engage in quality services, resources and in development processes (for example, to provide sable and profitable employment). The duration is also an important feature of social exclusion. Sometimes people are being excluded from labor market in short term (due to bankruptcy of enterprises or unfavorable economic cycle), when it comes to short-term which does not have to make large impacts on the life chances of people or other aspects of their participation in society. However, the exclusion can be long term, for some individuals and groups even permanent state, from which the exit is not easy. Page150
5. What characteristics of poverty should be followed? As in the case of social exclusion, to be able to gain a picture of poverty in a community, it is necessary to know its features. This means that you need to look for answers of many questions: how many people are poor? who are poor? etc. But in order to be able to do that we must first clearly define what poverty is, or to determine definition of poverty. Due to the different definition of poverty there are absolute and relative poverty. The first implies that poverty is a condition characterized by the inability to meet certain minimum necessities of life, while the second is poverty in relation to an average minimum acceptable standards in a given society. Furthermore, poverty can be defined as financial (in terms of insufficiency or revenues to meet specific needs) or as material deprivation (in terms of various unmet basic needs). It can be objective or subjective, whereby in the first case the researcher determines the criteria of poverty and in the second case the criteria is subjective sense of individual. No matter how we define poverty, the most often characteristics are: Distribution the number of persons or households that can be considered as poor according to set of criteria, which is often defined as the poverty line. Distribution is usually expressed through poverty rates and participation of the poor in general population or within a group. Level of poverty when it comes to measuring quantitatively, it is usually monitored depth and severity of poverty that show how much poor people are away from the poverty line, or how much resources is necessary to climb above the poverty line or how poor people together are unequal in poverty. When poverty is measured qualitatively, more attention is paid to its ICIT dimensions in dissatisfaction of needs and difficulties of life. Map of poverty in fact an attempt to recognize the different social groups that are facing the problem of poverty, or to answer the question: who are poor? Poverty and social exclusion are not synonyms. Poverty and social exclusion are close terms, but there are differences between them. Now we are left to clarify the relationship between them. Exclusion is often understood as a process that prevents individuals to participate in all aspects of life of a society because they are poor, because they have no core competence or because they are discriminated. On the other hand, poverty is perceived as a state of insufficient funds, primarily income, to adequately participate on social life. Page151