INCOME DISTRIBUTION AND POVERTY ERADICATION Topic 3: INCOME DISTRIBUTION AND POVERTY ERADICATION

At the end of this topic, students should be able to: Explain the income distribution concept Define inequality of income Discuss factors influencing income inequality Define poverty Define poverty line index Differentiate between absolute, hard core and relative poverty Define Gini coefficient concept Define Lorenz curve Understand the Lorenz curve Discuss poverty eradication policies in urban areas Discuss poverty eradication policies in rural areas

Income distribution concept In economics, income distribution is how a nation’s total GDP is distributed amongst its population. Income and distribution has always been a central concern of economic theory and economic policy. National income are divided among groups of individuals, households, social classes, or factors of production, to compute an average for comparison purposes. 4

MALAYSIA: MEAN MONTHLY GROSS HOUSEHOLD INCOME BY ETHNIC GROUP 1970-2014(RM) http://www.epu.gov.my/en/household-income-poverty 5

Inequality of income Economic inequality (also described as the gap between rich and poor, income inequality, wealth disparity, or wealth and income differences) is the difference between individuals or populations in the distribution of their assets, wealth, or income.

Factors influencing income inequality: Too focus on economic growth and not the overall development of a country. Macroeconomic factors such as inflation and unemployment. Demographic factors. Historical, cultural and natural factors 6

Factors influencing income inequality: i. Too focus on economic growth and not the overall development of a country. - Inequality occurs when socio-economic is being put aside and the country is only focusing on achieving higher national income. ii. Macroeconomic factors such as inflation and unemployment. -Inflation only benefits the producers or businessmen and consumers will be in disadvantage. -Unemployment can cause the society to lose the source of income to survive. iii. Demographic factors. - Differences in income in terms of genders and age. iv. Historical, cultural and natural factors -There are certain cultures that do not accept modernization. -Society who are living in poverty could not afford to send their children to school. Therefore, they keep living in poverty from generation to generation.

What is poverty?

Poverty concept State of being poor: the state of not having enough money to acquire basic needs such as food, clothing, and housing. 7

Poverty Line Income (PLI) A level of income below which somebody is considered to be living in poverty. It is based on the price of basic necessities and is usually determined by a government. Adjusted annually to reflect changes in the consumer price index(CPI). CPI in Peninsular Malaysia is separated from CPI for Sabah and Sarawak. Usually, the poverty line for Sabah and Sarawak is higher than that in Peninsular Malaysia.

Types of poverty Absolute Poverty Hardcore Poverty (Extreme poverty) Relative Poverty

Absolute Poverty A household is considered poor if his income is less than the level of the poverty line (PL) Poverty line indicates the sufficient income to enable these households to meet basic needs in terms of food and non-food items that allow each of its members to function in society. These are households which fail to earn enough to fulfil basic survival needs such as food, clothing and shelter. Households that fall into this category earn average monthly incomes of less than RM460 in Peninsular Malaysia, less than RM630 in Sabah and less than RM590 in Sarawak.

Hard core poverty (Extreme Poverty) A household is considered to be extremely poor if the household income is less than half level of the poverty line (PL). If the PLI for Peninsular Malaysia was RM529 in 2002, therefore the PLI for hardcore poverty is half than that which is RM264.50.

Relative poverty Relative poverty concept encompasses both absolute poverty and extreme poverty. Relative poverty is essentially established the position of a group of poverty than any other group. Income differences between races, urban and rural, and between region or states.

The difference in income between the high and middle income earners. A group whose mean income is less than another group is define as being in relative poverty. There are:   Rural dwellers can be considered as being in relative poverty compare to urban dwellers even though their mean income exceeds the PLI. The difference in income between the high and middle income earners. Income differences between races.

Chapter 1

Gini coefficient It was developed by the Italian statistician and sociologist Corrado Gini. The Gini coefficient (also known as the Gini index or Gini ratio) is a measure of statistical dispersion intended to represent the income distribution of a nation's residents. 9

Gini coefficient concepts Definition: The Gini coefficient is a number between zero and one (0<G<1) that is a measure of inequality. An example is the concentration of suppliers in a market or industry. 11

The Lorenz curve 12

The Lorenz curve concepts 17

Urban poverty is greater than the poverty in cities. Poverty eradication in rural areas Urban poverty is greater than the poverty in cities.   i. Modernize their traditional methods of production. ii. Provide them with support and opportunities to be involved in modern farming and value-added processing of agricultural products. iii. Be involved in non-farm or off-farm activities. 18

Poverty eradication in urban areas i. Control price level to reduce the cost of living   ii. Provide them with better amenities and transportation iii. Provide training to improve skills for better salaries iv. Create more employment opportunities