Measuring Inequality

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Measuring Inequality

• A practical workshop
• On theory and technique

San Jose, Costa Rica August 4 -5, 2004
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• Panel Session on
• Introduction
• and
• Overview

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by James K. Galbraith and Enrique Garcilazo
The University of Texas Inequality Project
http//utip.gov.utexas.edu
Session 1
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The Classical Kuznets Hypothesis
Kuznets hypothesis of a relationship between
income levels and inequality. If this hypothesis
holds, either case in the previous figure may be
observed from time to time, but neither will hold
generally. Conceiçaos idea of an augmented
Kuznets hypothesis is sketched with a dashed
curve.
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Modern theories relating inequality and growth
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Basic Question Has Inequality been Rising or
Falling? Three ways to measure it, per
Milanovic, 2002

• Un-weighted Between-Country
• (has been rising in all studies)
• Weighted Between-Country
• (has fallen because of China)
• Within-country True(disputed territory)

?
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The Economist compares inequality types 1 and
2, 1980-2000. (from Stanley Fischer, 2003 Ely
Lecture)
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Existing studies of true world income
inequality give conflicting results, recently
surveyed by B. Milanovic
Including Sala-i-Martins claim that inequality
has been steadily decliningbased on Deininger
and Squire.
Figure borrowed from Milanovic
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Comparing Coverage Deininger and Squire
Version of DS used by Dollar and Kraay, Growth
is good for the poor.
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The DS data are heterogeneous for North America
and Europe, but homogeneous for Asia
Note the low inequality registered for Indonesia
and India, comparable to Europe and Canada. The
fact that South Asia uses expenditure surveys
while Europe uses income surveys is clearly
relevant, but how to make an adjustment?
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Elementary economics suggests these differences
in inequality are implausible. Europe has an
integrated economy with free trade, free capital
flow, nearly equal average incomes (between, say,
France and Germany) and factor mobility.
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Indonesia and India have highly unequal
manufacturing pay. So how do they arrive at
highly equal DS measures more equal than
Australia or Japan? Through strong redistributive
welfare states? Probably not. Or, if low Ginis
in those countries reflect egalitarian but
impoverished agriculture as many who use these
data believe -- then why are the DS Ginis so
high in agrarian Africa?
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Inequality in Spain, as reported by DS
HGI Household Gross Income HNE Household Net
Expenditure
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Inequality in Selected Latin American Countries,
DS Data
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Rank and Distribution of DS Gini for 20 OECD
countries
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The U.T. Inequality Project

• Measures Global Pay Inequality
• Uses Simple Techniques that Permit Up-to-Date
  Measurement at Low Cost
• Uses International Data Sets for Global
  Comparisons, especially UNIDOs Industrial
  Statistics
• Has Many Regional and National Data Sets as well,
  including for Europe, Russia, China, India, and
  the U.S.

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General Technique
We use Theils T statistic, measured across
sectors within each country, to show the
evolution of economic inequality. You can do
this with many different data sets, including at
the regional or provincial level. International
comparisons are facilitated by standardized
categories, for which sources include UNIDO and
Eurostat. Our global pay inequality data set is
calculated from UNIDOs Industrial Statistics,
and gives us 3,200 country-year Observations.
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The UTIP-UNIDO Data Set for Pay Inequality has
fewer gaps .
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Comparing Coverage II
UTIP coverage count for this table is based on
UNIDO ISIC 2001 edition only, where matching data
for GDP per capita also available total UTIP
coverage is about 3200 observations. All UTIP
calculations presented here are by Hyunsub Kum.
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These maps rank countries by comparative measures
of inequality over a long historical period, with
red and orange indicating relatively low
inequality, yellow and green in the middle, and
light and dark blue indicating the highest values.
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Note that the UTIP-UNIDO measures are homogeneous
for Europe, North America, and South America, but
highly heterogeneous for Asia.
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Inequality and Economic Growth.
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6. Manufacturing Wage Inequality in Mexico Jan.
1968-Oct.1999
Using the between group Theil Index of dispersion
for 9 manufacturing sectors in Mexico, we can
compute the evolution of inequality for over 30
years for this country.
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7. Inequality and the Presidents in Mexico
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8. Wage Inequality and Five External Events
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9. Wage Inequality and Peso Devaluations
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