Rising gap in Incomes UPSC NOTE

 Findings of a recent study which challenges the claim of declining income inequality in India

  • Unlike previous surveys, the PLFS records gross incomes of the self-employed, thus allowing for a greater depth of analysis.

  • To be sure, the analysis presented here is a preliminary one, and does not adjust for possible errors in self-reporting of incomes, for those individuals reporting zero income or no income, or seasonal adjustments (since incomes of the self-employed in agriculture varies over the year).

  • Only those individuals who earn income from work are considered, excluding those who work as unpaid family helpers (a large proportion of whom are women).

  • The category of the self-employed includes own-account workers — such as individual farmers, roadside hawkers, etc.

  • In this simple analysis, only nominal weekly incomes are considered, without adjusting for inflation.

  • As shown in Table 1, the Gini coefficient has fallen from 0.4297 in 2017-18 to 0.4197 in 2022-23

  • When comparing the different forms of employment, the Gini coefficient falls for regular wage and casual wage workers, but rises for the self-employed. 

  • The Gini for the self-employed workers rises from 0.37 to 0.3765, an increase of 1.5%.

  • For regular and casual wage workers, the Gini coefficients register falls of 1.7% and 4.8%, respectively.

  • Inequality no doubt has fallen, but inequality among the top income earners seems to have fallen far more than when we consider the population as a whole.

  • The Gini coefficient is an aggregate measure, which delivers an estimate of inequality considering all incomes in a given sample. 

  • It is possible for the Gini coefficient to register a fall in inequality even with a divergence between different classes of income-earners

  • Figure 1 outlines a process of polarisation occurring in the Indian economy

  • Income-earners in the two PLFS surveys are divided into deciles, and the average weekly income of each decile is estimated for both periods. 

  • The yearly rate of growth of average weekly incomes for each decile over a five-year period is then calculated, and charted.

  • This is a preliminary analysis of certain broad trends, and more rigorous study is required to fully understand these changes

  • Nonetheless, we may try to advance an explanation for these contradictory changes occurring in the economy regarding inequality.

  • As has been extensively documented, the rise in women’s labour force participation has primarily come about through forms of low-paid, part-time self-employed work

  • Households may be earning more, and women may be working, but this increase in low-paid self-employed work has led to an increase in the gap between the top and bottom of self-employed incomes.

What is Gini coefficient

  • The Gini coefficient is a statistical measure of income or wealth inequality within a population.

  • It is usually expressed as a number between 0 and 1, where 0 represents perfect equality (everyone has the same income) and 1 represents perfect inequality (one person has all the income, while everyone else has none).

  • Imagine a country with 100 people, ranked from the poorest to the richest.

  • The Gini coefficient measures the area between the line of perfect equality (a 45-degree diagonal line) and the Lorenz curve, which shows the actual distribution of income.

  • A larger area indicates greater inequality.

  • For example, a Gini coefficient of 0.30 means that 30% of the total income in the country is concentrated in the hands of the top 20% of earners.

  • The Gini coefficient is a useful tool for policymakers and researchers because it provides a quantifiable way to compare income inequality across different countries and over time. 

  • It can also be used to assess the impact of different policies on inequality.



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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Rising gap in Incomes UPSC NOTE
Rising gap in Incomes UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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