part 3

• Personal distribution of income (size distribution of income)


  The distribution of income according to size class of persons—for example, the share of total income accruing to the poorest specific percentage or the richest specific percentage of a population—without regard to the sources of that income
• Quintile


  A 20% proportion of any numerical quantity. A population divided into quintiles would be divided into five groups of equal size
• Decile


  A 10% portion of any numerical quantity; a population divided into deciles would be divided into ten equal numerical groups
• Table 5.1 Typical Size Distribution of Personal Income in a Developing Country by Income Shares--Quintiles and Deciles

  • Share of Total Income(%)
  • Personal income Individuals (Money units)
  • Quintiles
  • Deciles
• Lorenz Curve


  A graph depicting the variance of the size distribution of income from perfect equality
• Gini Coefficient


  An aggregate numerical measure of income inequality ranging from 0 (perfect equality) to 1 (perfect inequality). It is measured graphically by dividing the area between the perfect equality line and the Lorenz curve by the total area lying to the right of the equality line in a Lorenz diagram. The higher the value of the coefficient is, the higher the inequality of income distribution; the lower it is, the more equal the distribution of income
• 4 highly desirable properties of measuring inequality

  • The anonymity principle
  • The scale independence principle
  • The population independence
  • Transfer principle
• The anonymity principle


  Simply means that our measure of inequality should not depend on who has the higher income
• The scale independence principle

  Means that our measure of inequality should not depend on the size of the economy or the way we measure its income
• The population independence principle

  States that the measure of inequality should not be based on the number of income recipients
• The transfer principle


  States that, holding all other incomes constant, if we transfer some income from a richer person to a poorer person (but not so much that the poorer person is now richer than the originally rich person), the resulting new income distribution is more equal
• Functional distribution of income (factor share distribution of income)


  The distribution of income to factors of production without regard to the ownership of the factors
• Poverty in the Third World
• Characteristics of Poverty groups


  • Rural poverty
  • Women and poverty
  • Ethnic Minorities, Indigenous Populations, and Poverty
  • Poor countries
• Rural poverty


  Mostly poor are residing in rural areas. Their livelihood is farming. The laborers are women, children and the husbands. Some may even belong to ethnic groups and indigenous people. Aside from farming, others may be engaged in self-employment services like trading, petty services, and small scale commerce. The government of developing worlds should not be biased in the development of the urban area, but rather focus also on countryside development
• Women and poverty


  Women are always together with their children. They are believed to be poor and malnourished. They receive less health services, sanitation, education, employment, social security, and other benefits. Women are paid less than men even when performing same tasks. If a household is headed by a female, it is assumed that she has less income than a male-headed household. In addition, women are not allowed to be employed on high-paying jobs. Jobs available to women are limited to illegal and low productivity. Therefore, they are exempted from minimum wage laws and social security benefits
• Ethnic Minorities, Indigenous Populations, and Poverty


  One of the mostly affected individuals in developing worlds are the minority ethnic groups and indigenous people. They are being discriminated economically, socially and politically. In a study of this group, the results showed that they were experiencing extreme poverty, illiteracy, poor health, and unemployment
• Poor countries


  Poor countries are countries with poor people. Poverty is negatively related with per capita income. This means that if people gets higher income, poverty decreases. This happens when the countries' resources are used to tackle the problems of poverty. High absolute poverty incidences can halt the progress of a country
• Keynes Hypothesis


  Keynes' definition of economic problem is that it was a struggle for subsistence. The only solution for this problem is to satisfy the minimum absolute needs of the population by providing enough income. Keynes' definition of economics dwells on poverty
• John Maynard Keynes
• Megatrends


  Driving forces that define the world today and that of tomorrow, far-reaching, global patterns related to behaviour, mobility and environment, examples: health, population growth, urbanisation and digitalisation
• Global megatrends


  Macroeconomic and geostrategic forces to shape our world, and our collective futures in profound ways, implications are broad and varied, they will present us with both tremendous opportunities to seize as well as extremely dangerous risks to mitigate
• 5 key megatrends


  • Shift in Global Economic Power
  • Demographic Change
  • Rapid Urbanization
  • Rise of Technology
  • Climate Change/Resource Scarcity
• Absolute poverty


  The situation of being unable or only barely able to meet the subsistence essentials of food, clothing, and shelter
• Headcount index


  The proportion of a country's population living below the poverty line
• Foster-Greer-Thorbecke (FGT) index


  A class of measures of the level of absolute poverty
• Total poverty gap (TPG)


  The sum of the difference between the poverty line and actual income levels of all people living below that line
• Criteria for a desirable poverty measure

  • Anonymity
  • Population independence
  • Monotonicity
  • Distributional sensitivity principles
• Monotonicity principle


  If you add income to someone below the poverty line, all other incomes held constant, poverty can be no greater than it was
• Distributional sensitivity principle


  If you transfer income from a poor person to a richer person, the resulting economy should be deemed strictly poorer
• Headcount ratio measure satisfies anonymity, population independence, and monotonicity, but it fails on distributional sensitivity</b>
• The simple headcount fails even to satisfy the population independence principle</b>
• Foster-Greer-Thorbecke (FGT) index


  A class of measures of the level of absolute poverty that satisfies all 4 criteria
• Reasons for concern for inequality: extreme income inequality leads to economic inefficiency, extreme income disparities undermine social stability and solidarity, extreme inequality is generally viewed as unfair</b>
• Poverty in Third world countries
• Characteristics of Poverty groups


  • Rural poverty
  • Women and poverty
  • Ethnic Minorities, Indigenous Populations, and Poverty
  • Poor countries
• The government of developing worlds should not be biased in the development of the urban area, but rather focus also on countryside development
• If a household is headed by a female, it is assumed that she has less income than a male-headed household
• Ethnic Minorities, Indigenous Populations are discriminated economically, socially and politically, experiencing extreme poverty, illiteracy, poor health, and unemployment
• Poverty is negatively related with per capita income, if people gets higher income, poverty decreases, when the countries' resources are used to tackle the problems of poverty, high absolute poverty incidences can halt the progress of a country