Inequality income distribution in Mexico 2000-2008

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Contents 1 Introduction. 2 The source of data 3 GDP Per capita. 4 Total Net Income per capita. 5  Total Net Income Structure. 6 Income distribution and poverty. 7 Conclusions. 8 See also 8.1  References:

Introduction.

The income distribution in a country can have both negative and positive effects, on the one hand, if it has full inequality distribution the competition and the desire for people to be overcome can lost –why we overcome if we are going to gain the same income-. Furthermore, when there is excessive inequality, this leads to increased poverty ^[1].

Therefore, the ideal is ensuring that countries have some degree of inequality in income distrubution trying to bring the poverty at minimum level or eliminate it altogether, but both encourage competition and wishes of individuals overcoming.

We can say that there is some inequality income distribution in all countries of the world to a greater or lesser degree. According to Human Development Report 2009^[2] of UNDP, the country with less inequality income distribution between 1992 and 2007 was Denmark with a GINI^[3] index of 24.7 and the worst was Namibia with 74.3. Mexico was ranked 113th place with a GINI index of 48.1.

With that Gini index, inequality income distribution in Mexico can be considered high, so it has to be measured consistently with the purpose of knowing his tendency, and thus make decisions for the design of public policies that ensuring a more equitable manner.
Trying to achieve equity in income distribution improves well-being of people succeeding in reducing poverty. It allows people to have access to food, health care, free time and enjoy this, and so on.

Moreover, high inequality income distribution endangers the political stability of the country due to lack of consensus among groups with higher incomes and lower incomes. It also can encourage distrust and lack of commitment among economic agents and may impede economic growth of the country (Soubbotina et al, 2000).

The aim of this paper is to analyze the distribution of income in Mexico between 2000 and 2008, developments have had and their relationship to poverty.
In the following sections we will see an overview of GDP per capita, income per capita, the percentage structure of income by decile and Gini indices and finally the possible relationship between income distribution and poverty.

The source of data

The National Survey of Income and Household Expenditure (ENIGH) is the primary source of data for conducting this analysis, this survey provides the Total Net Income of Household after applying the procedure that the National Council for Assessment the Social Development Policy (CONEVAL)^[4] has developed to generate the poverty rates in Mexico.
CONEVAL is legally required to use the ENIGH as data source to generate poverty rates, survey that has been lifting the National Institute of Statistics and Geography (INEGI)^[5] since 1989 and usually it does every two years.
The aim of the ENIGH is to provide statistical information on revenue performance and expenditure of households in terms of amount, origin and distribution, additionally provides information on occupational characteristics and socio-demographic characteristics of household members, also provides information on housing infrastructure, the services in it and household equipment.
Speaking specifically of the sources of income, which is what we'll deal with, the ENIGH gets and classifies it as follows:

• Monetary current income per household member:

1. earned income from work
2. the income from a business
3. money transfer revenue (grants, gifts of money, income from other countries, etc.).
4. income from interest, rents, etc. and
5. Other Income (sale of second-hand)

• Non-monetary current income per household:

1. consumption (goods and / or services that are extracted from the home business for consumption within the same household)
2. payment in kind (goods and / or services that people receive from their jobs to supplement their salary or wages)
3. gifts (products and / or services that households receive from other households or institutions) and
4. the estimation of housing rental (people saves money because they do not spend it for the rent of the house when this is own, it is given or received as a benefit for their work or other form of tenure)

The household members give an estimated monetary value at market prices to the no-monetary current income and is considered as income because it is a saving for able to enjoy the goods and / or services without spending any money for them.

Because ENIGH captures the incomes with different reference periods, the CONEVAL methodology carry current monetary values of these, at constant values August each year, using national indexes of consumer price (INPC) published by the Bank of Mexico.

The procedure of the CONEVAL builds the "Total Net Income" by a summation of current monetary and non-monetary income of each household, then subtracts the sum of other income and expenditure made by the household in articles and / or services to give to other households^[6].

It is clear that the data presented here may not coincide with those presented in other studies, because this provides the income that result from applying the CONEVAL procedure as mentioned earlier.

GDP Per capita.

Much has been said about the great virtue that has the GDP to measure the economy of a country or region, but also said no ability to measure their social progress and over all, is terrible to measure the distribution of income among the population . Given the above, then, let's look at the evolution of GDP per capita in Mexico between 2000 and 2008.

Table 1 illustrates the evolution of GDP per capita in those years. Clearly there is a restriction between 2000 and 2002 and its continued growth from the year 2004, although slowing between 2006 and 2008. The slowdown coincides with the start of the global financial crisis that began in October 2008.

GDP per capita is misleading, because it gives the idea that all the population earns the same amount of income, which is totally unrealistic, as we shall see.

 

Total Net Income per capita.

Table 2 presents the Total Net Income (INT) per head by deciles of households, obtained from the ENIGH data and after carrying out the procedure for obtaining CONEVAL poverty rates for each year.

To construct the deciles, households were ordered by the INT per capita within the same household, so that in the 1st decile households were less INT per capita and 10 ° the most.

In this table we can see the great disparity in income distribution that occurs. First, the sum of the INT per capita of the first three deciles is neither 20% of the 10th decile for each year. Moreover, the INT per capita for the 9th decile is about 40% of the 10th decile in all cases.

You can also see that between 2000 and 2002, the "INT per capita" increase into deciles I to V, while IT decreased in deciles VI to X,. This decrease in the last 4 deciles turn led taht a total level also falled.

Between 2002 and 2004 there was a generalized decrease of the INT per capita in all deciles, where decile I was most affected.

From 2004 to 2005 and from 2005 to 2006 there was a generalized increase in INT per capita, where the first four deciles had the highest growth, allowing better distribution of income.

Between 2006 and 2008 there was again an overall decline of INT per capita and the first 4 deciles were most affected, this may have caused a worsening income distribution.

Unfortunately, the growth of per capita INT has not been constant over the years presented here, rather, has had ups and downs and always low-income people is the most affected.

 
Total Net Income Structure.

Table 3 shows the share of deciles of households in total net income and the Gini index. To construct the deciles, we used the same procedure in the previous table.

The Gini index can be different from those presented in other studies due to several factors: how conform incomes, the treatment is given in conformation and the number of percentiles to be used for the construction of the index itself. The more percentiles are used, the Gini index tends to be more reliable.

In this table we can see very clearly the high income distribution inequality that exists in Mexico. We can notice that the first three deciles have had minimal share in income distribution, which is around 2% annually, compared to the tenth decile is between 32 and 36%.

The tenth decile has an income share above 15 times the share in the first decile and above 2 times that of the ninth.

As for the Gini index, in the year 2000 was the worst income distribution have had, while in 2006 was the best distribution.

Between 2000 and 2004 there was a steady improvement in income distribution by passing the Gini index for 0440 to 0407, rebounding slightly in 2005 and remain unstable until 2008. This improvement may result from the programs to combat poverty that the Mexican government has been working for several years, this has permited increase the income of households in the lowest deciles. But also due to the strong reception of remittances that many Mexican families had until the first half of 2008. Remittances sent to them by a relative from abroad, mainly from USA.

 

Income distribution and poverty.

Some experts say that improving income distribution leads to a decrease in poverty rates and Figure 1 confirms this assertion. This figure shows the percentage of population living below the Food Poverty Gap, which in july 2009 CONEVAL released the latest one. There you can see the correlation between the Gini index and poverty.

Conclusions.

There is no doubt that between 2000 and 2008 has been a significant improvement in income distribution in Mexico, this is because the households located in the lowest deciles of the distribution have increased their participation in income, while that households in the higher deciles, have been diminished significantly.
It is also undeniable that improving income distribution, poverty levels decline, were demonstrated. 

 

See also

• Mexico
• Gross_national_income_per_capita
• Inequality
• Statistics_and_Economy

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 References:

1. ↑ Soubbotina, Tatyana P., Katherine Sheram and the World Bank. (2000) “Beyond economic growth: meeting the challenges of global development”. World Bank, Washington, D.C.
2. ↑ Human Development Report 2009, http://hdr.undp.org/en/. Considering only countries with observed data.
3. ↑ The Gini index measures the degree of inequality income distribution. It takes values between 0 and 1. If the value goes to 0 there is less inequality and vice versa if approaches 1.
4. ↑ The National Council for Assessment the Social Development Policy (CONEVAL) is a public agency of mexican gobernment, with autonomy and technical capability to generate objective information on the situation of social policy and measurement of poverty in Mexico, to improve decision making in the field, http://www.coneval.gob.mx.
5. ↑ National Institute of Statistics and Geography (INEGI)is the mexican NSO, http://www.inegi.org.mx.
6. ↑ See Methodological Notes, http://www.coneval.gob.mx/contenido/med_pobreza/3495.pdf