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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