Income distribution and quality of life

1. Income distribution and quality of life W8 &9

2. Di akhir topik ini, pelajar akan dapat menjelaskan

3. Growth Controversy 1970s – change in public perceptions about the ultimate nature of economic activity: • Disillusion with the idea of pursuit of growth was the principle economic objective of the society; • Shift in the concern for quality of life especially in developed nation; • Outcry against industrial growth that cause pollution and depletion of natural resources; • In poor country the main concern focused on growth versus income distribution; and • Rapid economic growth had failed to eliminate or even reduce widespread of absolute poverty

4. Trends in Income Inequality • Rising income inequality since the early 1990s. • More than two thirds of the 85 countries experienced an increase in income inequality • Reduced inequality: (1990 and 2000) Advanced economies:Germany, Switzerland, France and Denmark had reduced inequality Asia and Pacific: Philippines and Cambodia

5. Inequality Measures • Gini Index or Gini Coefficient is a widely accepted measure on inequality. • The Gini Index varies between 0 for complete equality and 1 ( or 100 on the percentile scale) for complete inequality. • It measures the extent to which the distribution of income or consumption expenditure among individuals or households deviates from a perfectly equal distribution.

6. Gini Index using Lorenz Curves Analysis of personal income statistic can be done through construction of Lorenz curve. The numbers of income recipients are plotted on the x- axis in cumulative percentages. Every point on the Lorenz curve represents a statement like "the bottom 20% of all households have 10% of the total income.” A perfectly equal income distribution would be one in which every person has the same income. In this case, the bottom "N"% of society would always have "N"% of the income. This can be depicted by the straight line "y" = "x"; called the "line of perfect equality."

7. D Line of equality A Lorenz curve D B

8. Lorenz Curves • By contrast, a perfectly unequal distribution would be one in which one person has all the income and everyone else has none. In that case, the curve would be at "y" = 0 for all "x" < 100%, and "y" = 100% when "x" = 100%. This curve is called the "line of perfect inequality.“ • The Gini coefficient is the area between the line of perfect equality and the observed Lorenz curve, as a percentage of the area between the line of perfect equality and the line of perfect inequality. The higher the coefficient, the more unequal the distribution is. • Gini coefficient = Shaded area A/Total area BCD

9. Malaysian Gini Index by Years

10. Definitions of Poverty World Bank Poverty is an income level below some minimum level necessary to meet basic needs. This minimum level is usually called the “poverty line”. What is necessary to satisfy basic needs varies across time and societies. Therefore, poverty lines vary in time and place, and each country uses lines which are appropriate to its level of development, societal norms and values.

11. UN Definition of Poverty Poverty is a denial of choices and opportunities, a violation of human dignity. It means lack of basic capacity to participate effectively in society. It means not having enough to feed and cloth a family, not having a school or clinic to go to, not having the land on which to grow one’s food or a job to earn one’s living, not having access to credit. It means insecurity, powerlessness and exclusion of individuals, households and communities. It means susceptibility to violence, and it often implies living on marginal or fragile environments, without access to clean water or sanitation.

12. What it means to be poor: The content of the needs is more or less the same everywhere • not having access to school and not knowing how to read • fear for the future, living one day at a time • powerlessness, lack of representation and freedom. • Poverty is hunger • lack of shelter • being sick and not being able to see a doctor • losing a child to illness brought about by unclean water • not having a job

13. Poverty Line Income -USA It varies across nations. Examples: In 2010, in the United States, the poverty threshold for one person under 65 was US$11,344 (annual income); the threshold for a family group of four, including two children, was US$22,133. According to the U.S. Census Bureau data released on September 13, 2011, the nation's poverty rate rose to 15.1 percent in 2010.

14. Poverty Line Income -India • India's official poverty level, on the other hand, is split according to rural vs. urban thresholds. • For urban dwellers, the poverty line is defined as living on less than 538.60 rupees (approximately USD $12) per month, whereas for rural dwellers, it is defined as living on less than 356.35 rupees per month (approximately USD $7.50).

15. Poverty Line Income -Malaysia • Poverty line income (PLI)for 2012: West Malaysia: RM763/month (USD 254) Sabah:RM1,048 per month Sarawak: RM912 per month Hardcore poor refers to households earning less than half the PLI.

16. Malaysian Workforce with basic wages below poverty line income • According to the National Employment Return Study conducted by the Human Resources Ministry, one third of Malaysia's workforce is still living on basic wages that are below the poverty line income. • It's found that about 30%, or 1.92 million workers, were earning below RM700 in 2010. • On 30th April 2012, minimum wage was set at RM900/month for WM and RM800/month for Sabah and Sarawak.

17. Per Capita Income • Per capita income for Malaysia: • 2000- RM 13,939 (USD3668) • 2010-RM26175 (USD8417) • For a country on the way to become a “high-income/developed status” economy - defined as one with a minimum per capita income of US$15,000, or RM48,000.

18. World Trends in Income Inequality • Between the early 1990s and the mid-2000s, in about two thirds of the countries, the total income of high-income households expanded faster than was the case for their low-income counterparts. • During the past decade, the income gap between the top and bottom 10 per cent of wage earners increased in 70 per cent of the countries for which data are available. • Between 1990 -2005, More than two thirds of the countries experienced an increase in income inequality. Source: World of work report 2008

19. Evidence : Inequality and Absolute Poverty • It gives an approximation of the magnitude on income inequality in Third World Countries. • On average the poorest 20% of the population receives only 5.3% of the income while the highest 10% and 20% receives 35% and 50.4% respectively. • A more developed country like Japan, the poorest 20% gets a much higher 8.7% of the income while the richest 10% and 20% get only 22.4% and 37% ,respectively.

20. Per Capita Income and Inequality • Sri Lanka has only one-sixth the income of Brazil, but its 3 inequality measures are much less pronounced than Brazil’s. Its Gini coefficient is 0.45 as compared to Brazil’s 0.57. • Ivory Coast with income almost 60% higher than Indonesia’s but shows a much greater inequality. • Malaysia has 5 times the income of Sri Lanka and more than 3 times that of Philippines, shows inequality measures that are not much different from these 2 lower-income nations. • Thus there is no apparent relationship between levels of per capita income and income inequality.

21. Trends in Income Distribution Source: Irma Adelman, 1986.

22. Trends in Income Distribution • Inequality has continued to grow during the 1980s and early 1990s for majority of developing countries. • Within these countries, income distribution improved in middle-income, non-oil-producing nations but worsened in both low-income and oil-exporting countries. • In the 1980s, there is a widening inequality many industrialised countries.

23. Absolute Poverty: Extent and Magnitude • Absolute poverty is defined as the number of people living below a specified minimum level of income. • World bank (1985) established 2 global poverty lines: Any household with an income of below $275 as ‘extremely poor’ and below $370 as ‘poor’.

24. Absolute Poverty: Extent and Magnitude • In 1985, some 1.051 billion people lived below the poverty line, with an overall poverty rate of 30.5%. • Extremely poor were 633 million people or 18% of the developing world’s people. • Poverty rate increases to 1.133 billion in 1990. • The highest poverty rate is found in sub-saharan Africa (49.7%), followed by South Asia (49.0%) and the Middle east and North Africa (33%) and with the greatest number in South Asia with 562 million.

25. Economic Characteristics of Poverty Groups • Problems of poverty and highly unequal distributions of income are not just the result of natural economic growth processes. • They depend on the type of economic growth and the political and institutional arrangements according to which rising national incomes are distributed among the broad segments of a population. • Poverty cannot be tackled directly without detailed knowledge of its location, extent and characteristics.

26. Economic Characteristics of Poverty Groups • The poor are disproportionately located in rural areas. • They are primarily engaged in agricultural and associated activities. • Two thirds of the very poor have their livelihood from subsistence agriculture either as small farmers or as low-paid farm workers. • Remaining one third are located on the fringes and in marginal areas of urban centers engaging in various self-employment such as street-hawking, trading petty services and small-scale commerce.

27. Women and Poverty • Poverty affects a disproportionate number of women. • The poorest segment of Third World population live in household headed by women (20% in India, 17% in Costa Rica and 40% in Kenya) • In Third world countries, women and children experience the harshest deprivation. • They are more likely to be malnourished and less likely to receive medical services, clean water, sanitation etc. • The prevalence of female-headed household, lower earning capacity and limited control over spouses’ income contribute to the phenomenon.

28. Poverty Reduction and Intervention • Firms and farms to switch to more labor intensive production methods as against the use of capital goods such as automated equipment. • Focus directly on reducing the concentrated control of assets, unequal distribution of power and unequal access to education and income earning opportunities ( eg. Land reform). • Reducing the size distribution at the upper levels through progressive income and wealth taxes. • Direct provision of tax-financed consumption goods and services to the poor eg. School lunches, subsidized food programs.

29. Case Study: Malaysian Poverty Eradication Programs • Poverty eradication is high on Malaysia’s development programs. • New Economic Policy (1970-1990) –to reduce poverty rate from 49.3% to 16.7% • National development Policy ( 1991-2000)- to reduce poverty rate to 7.2 % and hardcore poverty by 0.5% by 2000. • National Vision Policy ( 2001-2010) – to reduce poverty rate to below 0.5%

30. Policies and Programs • Resettling the landless with new land development schemes • Establishing farmers’ market in urban centers • Provide training and education in farming • Improve access to education • Increase access to infrastructures and social amenities- water, electricity, roads, medicals and schools • Promote village industries • Replanting high yield crops Please refer to MQOL report 2002

31. Poverty rate in Malaysia