Income inequality in Bangladesh

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1.1 Introduction The economy of Bangladesh though has faced many problems but now is growing faster than that of any other country. Its GDP is significantly increasing every year. But with the facing economy growth its income hasn’t increased and the dispersion of income is getting higher. Poverty hasn’t decreased that much yet. Now reducing poverty and inequality in income have become a challenge for the country. Despite the large numbers of people living in poverty, the definition of poverty has been the subject of debate. The mainstream emerging sees poverty as generally being characterized by inability of individuals, households, or entire communities, to command sufficient resources to satisfy satisfy a socially socially acceptable minimum standard of living. living. The alternative alternative view understands understands poverty as a part of social property relations. Inequality can be defined in terms of being the opposi opposite te of ‘equal ‘equalit ity’, y’, a state state of social social organizat organization ion that that enables enables or gives gives equal equal access access to resources and opportunities to all members. Bangla Banglades desh h has witnes witnessed sed a modest modest progre progress ss in reduci reducing ng povert poverty y since since the early early 1990s. 1990s. Howe Howeve ver, r, ther theree is no room room for for comp compla lace cency ncy.. Stil Still, l, about about one-t one-thi hird rd (31.5 (31.5 perce percent nt)) of its its population is living below the so-called poverty line (BBS, 2010). Likewise many other countries, poverty is still a vital concern and challenge for Bangladesh. The progress of inequality reduction in Bangladesh requires an in-depth assessment. This report is an attempt to sketch the current scenario and to make future projection of inequality so that we can have a clear image to generate evidence and insights that can be used to feed into poverty reduction.

1.2 Objective of the Study General Objective:

The main purpose of the report is to show the income inequality of the country and the government role in reducing it.

Income Inequality and the Role of Government in Bangladesh

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Specific Objective: •

To show income distribution in Bangladesh

•

To find out the prevailing recent income inequality

•

To show the government steps towards reducing it

•

To analyze the government’s action and plan for future

1.3 Sources of Data: All of the data have been collected from secondary sources. Survey report of BBS on Household Income and Expenditure has been used for numerical data collection and the graphs and charts. Other journals have been used to satisfy the need of the other parts of the report. The data sources are •

Survey Reports of BBS

•

Related Journals

•

Websites

1.4 Methodology For the analysis charts and graphs has been used. Analyzing the income inequality Lorenz curve has been used. Gini Coefficient as given in the BBS survey has been used directly. Other information provided in this report is fully observational. Mathematical terms or equation has been not used for analyzing. Statistical tools are also not used to the fullest.

1.5 Limitation:


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The main limitation in preparing a perfect report is not having sufficient knowledge of measuring the inequality of income. The Gini coefficient has been used directly and Lorenz curve is the only analysis made from the data. No further analytical tool has been used. This study has been done through analyzing different data there might be some flaws as analyzing has its own disadvantage. So there is no saying that the report is perfect in its way.

2.1 Income Inequality The unequal distribution of household or individual income across the various participants in an economy is known as income inequality. Income inequality is often presented as the percentage of income to a percentage of population. It is generally considered "unfair" if the rich have a disproportionally larger portion of a country's income compared to their population. The causes of income inequality can vary significantly by region, gender, education and social status.

2.2 Measuring Income Inequality Lorenz curve:

One of the most elegant devices for understanding income inequality is the Lorenz curve. Conrad Lorenz, an American statistician, devised this convenient graphical tool in 1912.The Lorenz curve is used in economics to describe inequality in wealth or income. Lorenz curves place the cumulative percentage of income received on the vertical axis, and the cumulative percentage of population on the horizontal axis. The Lorenz curve diagram, then, is a square, and if all individuals are the same size, the Lorenz curve is a straight diagonal line, called the line of equality since if the Lorenz curve were coincident with this line, income could be described as being equitably distributed. If there is any inequality in size, then the Lorenz curve falls below the line of equality. It is also convenient to scale the graph in decimal units, so that the sides of the square are exactly one unit. If the Lorenz curve diagram is scaled in decimal terms, area A +B is always equal to0.5. Thus, it remains only to estimate area A. We find it easier to take advantage of the fact that, A = 0.5 ± B, that is, we estimate area B first, and then calculate area A from that result. The total amount of inequality can be summarized by the Gini coefficient (alsocalled the Gini ratio).


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Gini Coefficient:

At this point, the Gini coefficient, which is simply a quantification of the Lorenz curve, can be introduced. Gini coefficient is simple and handy summary measure of Lorenz curves. It is the ratio of the area between the line of equality and the Lorenz curve and the area beneath the line of equality. It is often used to measure income inequality. It is a number between 0 and 1, where 0 corresponds to perfect equality (e.g. everyone has the same income) and 1 corresponds to perfect inequality (e.g. one person has all the income, and everyone else has zero income). It was developed by the Italian statistician Corrado Gini and published in his 1912 paper.

3.0 Income inequality prevailing in Bangladesh 3.1 Income Distribution: For showing income distribution the whole region has been divided in deciles. Income of these specific decile has been provided. Household Income 01 National

Lower 5% Decile-1 Decile-2 Decile-3 Decile-4 Decile-5 Decile-6 Decile-7 Decile-8 Decile-9 Decile-10 Top 5%

Total 02 100.00

2010 Rural 03 100.00

Urban 04 100.00

0.78 2.00 3.22 4.10 5.00 6.01 7.32 9.06 11.50 15.94 35.85 24.61

0.88 2.23 3.53 4.49 5.43 6.43 7.65 9.31 11.50 15.54 33.89 22.93

0.76 1.98 3.09 3.95 5.01 6.31 7.64 9.30 11.87 16.08 34.77 23.39

Total 05 100.00

2005 Rural 06 100.00

Urban 07 100.00

0.77 2.00 3.26 4.10 5.00 5.96 7.17 8.73 11.06 15.07 37.64 26.93

0.88 2.25 3.63 4.54 5.42 6.43 7.63 9.27 11.49 15.43 33.92 23.03

0.67 1.80 3.02 3.87 4.61 5.66 6.78 8.53 10.18 14.48 41.08 30.37

0.458 0.431 0.452 0.467 0.428 0.497 Income Gini Co-efficient Table-1 Percentage share of income of households by Decile group and Gini Co-efficient (Source: BBS HIES 2010)


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It is seen from the table that the gap between the rich and the poor is extremely high. Another thing is that the top 5% of has the 24.61% of income and the bottom 5% has only .78% of income. Decile 1 to 5 in 2010 is recorded 2.00%, 3.22%, 4.10%, 5.00% and 6.01% respectively at national level. And that total occupies only 20.33% of the total 50% income. Whereas decile 6 to 10 in 2010 is recorded 7.32%, 9.06%, 11.50%, 15.94% and 35.85% respectively. They total consist 79.67% of the income. Changes in the income: From 2005 to 2010 there hasn’t been much change. The data are about same and inequality tends to remain somewhat unchanged. The Graphical presentations are given below

The graph show nationally income shared by household. The changes in 2005 to 2010 is the top accumulation of income has been reduced somewhat. In case of rural income shared the graph is provided below that is made from Table-1


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This graph shows that rural income shared by households is pretty close and changes are relatively very low. The urban income (%) shared by household graph is given below

There is a significant change in the inequality level from 2005 to 2010. At the top level the inequality reduced and in the bottom level it is increasing.

3.2 Measuring Income Inequality:


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It is believed that sustained and equitable economic growth inevitably leads to poverty reduction. There is widespread concern that economic growth has not been shared fairly, and that the current economic crisis further widens the gap between the rich and poor. In Bangladesh, the number of people living in poverty has increased due to rising disparities in the distribution of resources

and

income

within

this

country.

To

describe

the

situation,

we have

divided it

three

segments.

They

include

rural,

urban and

nation

level

income inequality.

Lorenz curve and Gini Coefficient:

To understand the inequality there is no other way than getting ideas from the Lorenz curve and Gini Coefficient.

National Income Inequality

Income inequality in 2010 in the national level is still pretty high. the Lorenz curve of the income inequality is given below


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From Table-1 Gini Coefficient in the national income (%) shared by household is 0.458. So the dispersion in income among the deciles is relatively large. Changes from the 2005 Gini Coefficient is only 0.009 percentage point.

Rural Income Inequality:

The breakdown of all the components of rural income and the corresponding Gini coefficients is shown in the following table. A component of rural income having a concentration ratio that is greater than the Gini ratio has a "disequalising" effect, indicating that relatively higher proportions of it accrue to the higher income groups. The Lorenz curve for rural income inequality in 2010 is provided below


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As the Gini Coefficient in Rural Income distribution is .0431 it is lower than the national level Gini coefficient. But the inequality rises from 2005 to .003 percentage point.

Urban Income Inequality:

Non-agricultural salary, the single largest source of urban income, was a disequalizing source of income. This is contrasted with non-agricultural wage which was a highly equalizing source. The difference between the two is that wages are paid on a daily or weekly basis representing mainly blue-collar jobs, whereas salaries are paid on a monthly basis, indicating white-collar jobs. Apart from farm income, which represents a very small share of urban income, and non-agricultural wage income, almost all the other components contributed to the rising urban inequality specifically income from non-farm enterprise, property income, remittances and transfer, and rental value of housing. Of these, income from non-farm enterprise and remittances and transfer were particularly important as their concentration ratios increased considerably over the decade. Though the concentration ratio of property income was quite high throughout the period, it remained fairly constant.

In urban areas inequality is tend to increase. The Lorenz curve showing inequa lity is given below


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There Gini Coefficient is .452 which is pretty lower than the Gini Coefficient of 2005. It has reduced to .045 percentage point.

4.0 Government steps to reduce income inequality


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Reduction of poverty and inequality is a fundamental challenge in Bangladesh. Government of Bangladesh is taking several steps in reducing income inequality. The steps taken by Bangladesh Government to reduce inequality are 1.

Social safety net program SSNP

2. Dynamic redistribution of wealth 3. Employment generation program 4. imposing government rules and regulation 5. imposing progressive taxes at an effective level

4.1 Social Safety Net (SSNP): Social Safety Net Programmes (SSNPs) are a set of public measures, which a society provides for its members to protect them from various types of economic and social hardships, resulting from a substantial decline in income due to various types of contingencies such as loss of cultivable land, crop failure, land and homestead loss due to river erosion, unemployment, sickness, maternity, invalidity, old age or death of earning household members. SSNPs are, therefore, needed to address: (a) risks, i.e., uncertain events which may adversely affect people’s wellbeing; (b) poverty, i.e., not having enough of something valuable to derive income and livelihood; and (c) vulnerability, i.e., the probability at present of not having enough of something valuable in future. SSNPs should cover three rather different groups who face various types of shocks and risks. These include: (i) the chronic poor, i.e., those who are poor even during “good times,” because they have limited access to assets and income to manage risks and even small reductions in their assets and income can have serious adverse consequences for them; (ii) the transient poor, i.e., those who live close to the poverty line and could fall into poverty when an individual household or the economy as a whole faces hardships; and (iii) other vulnerable population groups for whom general stability and prosperity alone would not be sufficient such as the disabled and divorced/separated/widowed women without access to any regular employment or help from others Income Inequality and the Role of Government in Bangladesh

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The programs include in SSNs in Bangladesh as follow: 1. Cash transfers: Old Age Allowances, Allowance for Retard/Disable Person, Allowance to the Widowed, Deserted and Destitute Women, Honorarium Program for the Insolvent Freedom Fighters, Primary education Stipend Project, Female Secondary School Assistance Program and so on. 2. In-kind

transfer:

Vulnerable

Group

Feeding

Program,

Vulnerable

Group

Development, Gratuitous Relief, Test Relief, Food for Works, Community Nutrition Program and so on. 3. Price subsidy: Fertilizer and Electricity Subsidy, Subsidy for Marginal Farmers to cope with the Fuel Price Hike, Food Subsidy. 4. Jobs on labor-intensive public works: Rural Employment Opportunities for Public Assets, 100 days Employment Generation Program and so on. 5. Fee waivers: Free schooling, health card. 6. Others Special programs: Housing for the Homeless, Microcredit for Women Selfemployment, Rehabilitation Program for Beggars and Alternative Employment Project for Beggars.

The government of Bangladesh spends a large sum of money in the social safety net program in every year to reduce income inequality and thus eliminate poverty. The allocation pattern of social safety net program by the government is show below

Table-2 Allocation Pattern of Social Safety Net Programmes (In Crore taka) Programmes

Cash

transfer

Budget (2009-10)

Budget

revised

11)

(various 5,539.28

(2010-

revised 6359.30


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allowances) programmes Cash transfer (special) Food

161.00

security 4932.48

programmes:

55.52 7232.12

Social

Protection Micro credit programmes: 395.00

340.02

Social empowerment Miscellaneous fund

2984.15

3300.38

4.2 Employment Generation Programmes: To reduced income inequality Government is creating employment opportunity for the unemployed people. Given pervasive poverty, malnutrition and underemployment in Bangladesh, it is quite logical that the public development strategy includes programmes to generate employment, especially among the poor. Toward this end, the government has undertaken a number of programmes. The programs taken by Government of Bangladesh are the following 1. the Food-for-Work (FFW) Programme, 2. The Rural Development (RD) Programme 3. The 100-day Employment Generation Programme (EGP).

5.0 Recommendation and Conclusion


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5.1 Recommendation: As the government wants to increase the social optimality, they are more likely to reduce the inequality in income. Government has been trying to decrease the rate of inequality but still no effective change has been seen. Some recommendations can be made to gear up some changes and decrease the rate of inequality. •

Government has to take more people with high income under tax criteria

•

Progressive tax is good enough to reduce the inequality

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Minimum wage should be increased

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The ratio of high payment and lower payment should be reduced

•

Different development programmes should be introduced

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More employment should be created to reduce unemployment

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Tax payers should be encouraged to contribute in social welfare programmes

•

Maintaining and developing new rules and regulation can be of help

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People can be trained to further development creating human capital

•

Some percent of GDP should be used to take some people out of the poverty line

•

Effectiveness of programmes should be monitored and incase of failure instantly treatment needed

5.2 Conclusion In Bangladesh there is positive relation of increasing income inequality with the increase of total income. As the government is trying to reduce the rate of inequality, there is hardly any change seen. Income Distribution also shows the differences where most of the wealth concentrates in


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one decile and others are scattered in the rest of deciles. Gini coefficient hasn’t changed to significant percentage point which is still considered high. Government Social Safety Net programmes to redistribute the wealth isn’t working well. So reasons for the failure of programmes should be found out and treated well.

Reference Bangladesh Bureau of Statistics, Report of the Household Income and Expenditure survey 2010. Dhaka:Bangladesh Bureau of Statistics Muhammad Sirajul Haque, Economic Growth and Income Inequality in Bangladesh. S. R. Osmani and Binayak Sen, Inequality in Rural Bangladesh in 2000s, Trend and causes. Azizur Rahman Khan, Measuring Inequality and Poverty in Bangladesh: An Assessment of the Survey Data. Bangladesh Development Studies International Monetary Fund 2012, Bangladesh: Poverty Reduction Strategy Paper. General Economic Division, Planning Commission, Government of People’s Republic of Bangladesh and UNDP, Financing Growth and Poverty Reduction: Policy Challenges and Options in Bangladesh. Uttam Deb, Zobdul Hoque, Nafisa Khaled and Subir Kanti Bairagi, Growth, Income Inequality and Poverty Trends in Bangladesh: Implications for Development Strategies. Barkat-E-Khuda, Social Safety Net Programmes in Bangladesh: A Review. http://en.wikipedia.org/wiki/Lorenz_curve http://en.wikipedia.org/wiki/Gini_coefficient http://www.investopedia.com/terms/i/income-inequality.asp http://en.wikipedia.org/wiki/Economic_inequality http://www.closertogether.org.nz/reduce-income-inequality/


Income inequality in Bangladesh

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