Income inequality
Income inequality indicates how material resources are distributed across society. Some consider high levels of income inequality to be morally undesirable. Others believe that income inequality is bad because it causes conflict, limits co-operation or creates psychological and ultimately physical stresses. Often the policy concern is more for the direction of changes in inequality, rather than for its level.
Keeping measurement-related differences in mind, income inequality is high in the Asia/Pacific region compared to the OECD (Figure 4.4). In 2019, income inequalities were widest in Malaysia and the Philippines with Gini coefficients on income inequality at above 0.40, compared to the lowest at 0.28 in Kazakhstan. Over the past decade, income inequality across the Asia/Pacific economies remained around 0.35, above the OECD average (0.31). Some Asia/Pacific countries like Fiji, Georgia, the Maldives and Thailand experienced a reduction in income inequality over the past ten years, while significant increases in income inequality were recorded in Indonesia, Lao PDR and Sri Lanka.
The gap in the income distribution between the richest and the poorest 10% of the population in the Asia/Pacific economies is twice as large as in OECD countries (Figure 4.5). The gap appears widest in Malaysia and the Philippines and smallest in Kazakhstan and Timor-Leste. Over the past decade, the gap narrowed in China, Fiji, Georgia, Malaysia, the Maldives, the Philippines, and Thailand while it increased in Lao PDR, Sri Lanka and Tajikistan.
The relationship between income inequality and economic growth has stimulated much theoretical and empirical research over the past decades. However, no consensus on the strength or even the sign of the inequality-growth nexus has yet been reached. There does not appear to be a very clear country-correlation between economic growth and changes in inequalities among Asia/Pacific countries (Figure 4.6).
The main indicator of income distribution used is the Gini coefficient. Values of the Gini coefficient range from 0 in the case of “perfect equality” (each person receives the same income) and 1 in the case of “perfect inequality” (all income goes to the person with the highest income).
The P90/P10 ratio is the ratio of the upper bound value of the ninth decile (i.e. the 10% of people with the highest income) to that of the upper bound value of the first decile.
OECD measures of inequality are based on income. For Asian developing countries, where most people are self-employed in agriculture or casual labourers, income data are often not relevant or non-existent. For most countries, inequality measures are expenditure-based. Thus, country comparisons should be made with caution, as expenditure-based measures typically show lower inequality than income-based measures. Data for non-OECD Asian countries are from the World Bank Development Research Group (http://data.worldbank.org/indicator) and data for OECD countries (based on equalised disposable income) are from the OECD Income Distribution Database available at www.oecd.org/social/income-distribution-database.htm.
Note: The Asia/Pacific average does not include OECD four countries in this region.
Source: World Bank (2021), World Development Indicators; OECD (2021), Income Distribution Database for OECD countries.
Note: The Asia/Pacific average does not include OECD countries in the region. The OECD average does not include Colombia.
Source: World Bank (2021), World Development Indicators; OECD (2021), Income Distribution Database for OECD countries.
Source: World Bank (2021), World Development Indicators.