Lec 10 Inequality

measuring inequality

1 size distribution : share of total income received by different groups, ranked by their level of income

2 scalar measure of inequality : ratio of the share of income earned by the top 20% to share earned by bottom 20%

3 gini coeff

Gini coefficient

a measure of statistical dispersion : intended to represent the income or wealth distribution of a nation’s residents, is the most commonly used measure of inequality

Gini low, medium and high inequality

low : < 0.4 → south and central asia, eastern europe and oecd economies

medium : 0.4<gini<0.5 → east asia,

high >0.5 → sount and central america, the caribbean, southern africa

Kuznets hypothesis 1955

as a country develops, inequality will first rise and then fall

why

• agriculture → industry

• technological progress

• income inequality first rises when new, higher productivity sectors emerge

• but then decreases as more and more workers join the high-paying sectors

-mixed empirical evidence (inequality decline in us and other cuntries stopped almost immediatly after WW2)

poverty before reforms

there was considerable poverty in rural areas → ¼ rural population living below government-defined poverty line

→ majority of the poor located in the provinces situated in china’s western region

poverty post reforms

declined in rural and urban households

→ income growth reduces povertu, reduction in povertu is one of the greatest successes of china’s economic reform

international poverty line

the world bank internationally comparable poverty line

• provide a common standard to evaluate povertu, “dollar a day” poverty line, → now 1.9 per day

the official chinese poverty line has evolved from one much lower than the world bank dollar a day line to an intermediate povertyy line to a more generous

why rural poverty declined considerably in the recent decades

rising agricultural incomes, → HRPS and technology

off-farm jobs and migration

agricultural policies → abolition of agricultural taxes + subsidies

welfare policies → basic minimum income support + medical assistance, elementary education

inequality patterns since the reforms

inequality has increased in rural and urban areas

→ income increases were more rapid for richer segments of the population

urban inequality pre reform era

people work in the traditional SOEs

• compressed wage distributions, and a host of subsidies were publicly financed and allocated by work units

inequality urban area : what has changed

labor market changed :

• more dispersed wage ladder,

• the development of a vibrant private industrial and service sector → wage and labor determined by the market

food and housing subsidies were slashed in early 90s

restructuring of SOE’s → layoffs, unemployment ..

rural inequality pre reform

rural income distribution is determined by the people’s commune → income allocated by the production team on the basis of both household needs and accumulated work points

rural inequality what has changed

return to individual effort, talent and management skills

diversified sourced of incomes

• development of off-farm opportunities TVE

• migration

• other business activitiues

policies in poverty reduction and reducing inequality

• raising rural income → lower taxes, subsidizing

• place-based poverty reduction programs

• increasing transfers through the social welfare system