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CEMS 4 24102017.pptx - Business in Latin America...

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Business in Latin AmericaInstitutions, society and government.Session 4:Why inequality matters to businessHow to measure inequalityInequality in OECD and Latin American countries
Income inequality remains at record-high levels in many countries despitedeclining unemployment and improving employment rates.Higher-income households benefited more from the recovery than those withmiddle and lower incomes.Persistent long-term unemployment and slow wage growth prevented recoveryof labour incomes among poorer households in many countries .Redistribution, which cushioned the impact of the crisis in early years, hasbeen weakening during the recovery in a majority of countriesKEY FACTSSource: OECD, November 2016.
HOW ECONOMICINEQUALITY HARMSSOCIETIESRICHARD WILKINSON
“In OECD countries, the richest 10% ofthe population earn 9.6 times theincome of the poorest 10%”.
“62 billionaires own the same amount ofwealth as 3.5 billion people who makeup the poorest half of the world’spopulation”Source: World Economic Forum
MEASURES OF INEQUALITYDesirable properties and how different measures satisfy them.GiniTheilMean logdeviationRelative meandeviationFormulaCompares person’sincome to:Other persons’ incomehis share in populationmeanmeanFeaturesMean-normalized measure.Shows percentagedifference between incomesof two randomly selectedindividualsCompares relativeincomes of all individuals(either populationweighted or incomeweighted)Mean-normalizedmeasureIntuitive explanationGini of 30 means that theexpected difference inincome btw. 2 randomlyselected persons is 60 ofoverall mean income.Shows percentagedifference betweenincome of a randomlyselected individual andoverall mean income.Shows percentage of totalincome that should betransferred so that allincomes are the same.Income-scaleindependence (if allincomes increase bythe same %, measuredoes not change)YesYesYesYesSource: World Bank||121112jinjniyynmmnYinn1log1)log(1lniynmniimynm1||121
GiniTheilMean logdeviationRelative meandeviationAbsolute increase of allincomes reducesinequalityYesYesYesYesSize independence(population size does notaffect the measure)YesYesYesYesProgressive transferreduces inequality (ThePigou-Dalton transferprinciple)YesYesNot if both individualshave incomes greater (orlower) than the mean.Symmetrical (if twopeople change theirplaces, measure is notaffected)YesYesYesYesMeasure varies between0 and 1YesNot bounded from above.Not bounded from above.YesDecomposability(between recipients andbetween income sources)Yes, between incomesourcesNo, between recipientsYes (both)Yes (both)NoSensitivity to transfersGreatest at the mode(varies as density functionof the distribution)Insensitive if transferstake place between twoindividuals with incomegreater (or lower) than themean.

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Term
Spring
Professor
N/A
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Human Development Index

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