Friday, November 4, 2011

Income inequality on rise, rich are getting richer and the poor are getting poorer

The rich are getting richer and poor poorer as Nepal's income inequality has been rising in the last ten years widening the rich-poor gap, according to a report.
In the past ten years the Gini-coefficient increased from 34 to 47.3 indicating that the gap between the rich and the poor grew further, according to the Human Development Report 2011 released by the UNDP here today.
The Gini-coefficient measures the income inequality among the entire population of the country. The higher the number, the more income is being taken in by a small group. Likewise if most of the money is being made by the majority of the population, the lower the Gini-coefficient will be. It is the measure of the deviation of the distribution of income — or consumption — among individuals or households within a country from a perfectly equal distribution. A value of zero represents absolute equality, a value of 100 absolute inequality.
Almost 41 per cent of income or consumption is held by the highest 10 per cent of the populace and only 2.6 per cent of the income is shared by lowest 10 per cent of the populace as income distribution can vary greatly from wealth distribution in a country.
Nepal not only has the highest Gini-coefficient in Asia but also in the South Asian region meaning Nepal has the highest income inequality in the region, the annual report of the UNDP said.
The gap between the rich and poor has been increasing in a country that has 25.2 per cent of the populace, who does not even earn Rs 54 a day, new national poverty line, according to Nepal Life Standard Survey III published by the Central Bureau of Statics (CBS) recently.
However, Nepal has improved in the Human Development Index (HDI) that stands at 0.458, though inequality adjusted GHDI stands at 0.301. The HDI stood 0.455 in 2010.
The Human Development Report introduced a new way of measuring development by combining indicators of life expectancy, educational attainment and income into a composite human development index (HDI). The breakthrough for the HDI was the creation of a single statistic which was to serve as a frame of reference for both social and economic development. It sets a minimum and a maximum for each dimension, called goalposts, and then shows where each country stands in relation to these goalposts, expressed as a value between 0 and 1.
The composite HDI has three dimensions — health, education and living standard — and four indicators — life expectancy at birth, mean years of schooling and expected years of schooling, and gross national income per capita. The decent standard of living component is measured by GNI per capita (PPP$) instead of GDP per capita (PPP$). The HDI uses the logarithm of income, to reflect the diminishing importance of income with increasing GNI. The scores for the three HDI dimension indices are then aggregated into a composite index using geometric mean.


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