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“There can be no peace as long as there is grinding poverty, social injustice, inequality,
oppression, environmental degradation, and as long as the weak and small continue to be
trodden by the mighty and powerful.”
Tenzin Gyatso, The 14th Dalai Lama
1.0 Introduction
Even since prehistoric times income has never been distributed equally among
individuals, households, groups or nations. The graves of farmers buried 7,000 years ago,
in Central Europe reveal hereditary inequality as some (the privileged) were buried with
tools and some without (University of Bristol 2012). In 300 BC, India had an extremely
structured caste system where inequality existed in „privilege‟, „reward‟, „dominance‟ and
„subordination‟ (Mandelbaum 1970). Noah Webster, publisher of the famous dictionary,
professed that “The causes which destroyed the ancient republics were numerous; but in
Rome, one principal cause was, the vast inequality of fortunes.”
This paper explores income inequality in three countries. The countries are UK, Brazil
and Bangladesh. While Bangladesh is an Asian Least Developed Country, UK is a
developed European nation and Brazil is a developing Latin American Country.
The main objective of this study is to explore the phenomenon of income inequality that
is affecting economic growth in most countries of the world. The distribution of income
in three countries, UK, Brazil and Bangladesh is to be given special emphasis in an
attempt to understand the causes and effects of income inequality.
To achieve the main objectives the following sub goals have to be satisfied:
1.2 Methodology
This study will be based on secondary data. A large number of literatures are available on
income inequality. Sources for data will include published articles, conference paper,
books and records available from various sources, which include the internet.
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The CIA Factbook and the site of the World Bank are expected to reveal historical facts
and figures on GINI Index and GNI per Capita of the countries being studied. These tools
are used to measure income inequality
1.3 Limitations
A substantial amount of facts, figures and data are available on global income
distribution. However, there is a dearth of qualitative information on income distribution
in Bangladesh.
This study is based on secondary data. It is mainly because of a lack of time that primary
data could not be incorporated in the report.
The study is also limited to income distribution in three countries Bangladesh, Brazil and
the UK. Again this is due to time factor. The opportunity for adding more countries into
the study remains an attractive proposition.
Income distribution is the way in which the income of the world is divided among nations
and the income of a nation is divided among its population. The distribution of income
within a society is of enormous importance. It affects the bonding of the society and
establishes its poverty level. Income distribution has an effect on economic rate of growth
(societies that are more equal grow faster than unequal ones). Also societies or countries
with greater inequality in income distribution have lower life expectancies.
Inequality is different from poverty, though they are linked. Poverty indicates a
deficiency of funds and the inability to procure the necessities of life such as food, clean
water, shelter, etc. Inequality is the difference in the standard of living between two
persons, groups or countries. Inequality is a relative while poverty is absolute.
Globally income inequality has become a matter of great concern as 20% of the world‟s
richest are now earning around 80% of the total world income and 20% of the poorest are
earning less than 2% of the income.
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Figure 1: Global Income Distribution (Percentage of World Income Held by Each Fifth
of World Population)
Domestic income inequality has also reached dangerous levels in some countries. For
example, in the USA the earnings of CEOs was 275 time the average earning of workers
in 2005.
400
300
200
100
0 Source : Mishel, et. al.
The State of working
America, 2008-09
Figure 2 - Ratio of Average CEO to Average Worker pay in the USA, 1965-2007
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There is ample proof that unequal income distribution hampers economic growth and the
attainment of other social goals. It aggravates ill health and increases mortality. High
inequality is also related to social distrust and failure of the democratic system (World
Bank 2000).
Various income inequality measures can be used to compare the income distributions
within an economy (country) and among the countries of the world. The most popular
measure of income distribution within a country is the Gini coefficient, while the most
used measure of inter-country measurement is Gross National Income (GNI) per capita.
Measuring income distributions within a country – the Gini coefficient is named after its
developer, Italian statistician and sociologist, Corrado Gini . It is based on the Lorenz
curve that plots cumulative income share on the vertical axis against the distribution of
the population on the horizontal axis. A diagonal line represents perfect equality of
incomes.
Source: http://cyro.cs-
territories.com/asa2_economics/unit6/di
stributionofincome.html
Figure 3: Gini coefficient can be calculated by
dividing the area A by the area OPT
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The Gini coefficient is the ratio of the area that lies between the line of equality and
the Lorenz curve. It can theoretically range from 1 (the most unequal society where a
single person receives 100% of the total income) to 0 (the most equal society where every
person receives the same income). It is sometimes expressed as a percentage ranging
between 0 and 100.
Some other tools for measuring intra-country income inequality are Theil-index, 20-20
Ratio, Decile dispersion ratio Palma Ratio, Hover Index, etc.
GNI per capita is gross national income divided by mid-year population. Gross national
income (GNI) is the all income earned by a country's residents and businesses, no matter
where the person is working or the business is located. GNI per capita is used to compare
mean average incomes between nations.
Figure 4: World Gross National Income Per Capita Map – Year 2010
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The Gross National Income per Capita and Gini Index of some selected countries are
shown below. According to this table the countries of the world can be classified into
four groups. This are:
Table 1 - Gross National Income per Capita and Gini Index of Selected Countries
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3.0 Theories on Income Inequality
Command Economies give more emphasis on collective benefits and not on the profit of
individuals. Monetary benefits are distributed jointly to teams or groups thus eliminating
income inequality (Economy Watch 2010). However, command economy is all but
extinct these days as it has proved to be inefficient. The efficiency of the free market with
its „invisible hand‟ has been more acceptable.
However the battle between efficiency and equity still continues. There are various
schools of thought that can help planners and decision makers in this battle. Some of
these are highlighted below:
Marxism suggests that distribution should be based on the individual's needs rather than
other factors.
Meritocracy is a system, in which people are rewarded for their superior talents or
intellect and not because of birth or wealth
Utilitarianism is the belief that any action is justified as long as it maximizes satisfaction
and the greatest happiness of the greatest number of members in society. Utilitarians
preach that all income distribution decisions should be based on this guiding principle.
Libertarianism According to the U.S. Internal Revenue Service, the basic premise of
libertarianism philosophy is that each individual should be free to do as he or she pleases
so long as he or she does not harm others. In the libertarian view, societies and
governments infringe on individual liberties whenever they tax wealth, create penalties
for victimless crimes, or otherwise attempt to control or regulate individual conduct
which harms or benefits no one except the individual who engages in it.
Social Justice is based on making certain that individuals fulfill their roles in society and
receive a more equally distributed share from society.
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4.0 Causes, Effects and Ways of Reducing Income Inequality
Many factors are thought to contribute to the growing rich-poor gap between countries
and even within societies. The most relevant ones include:
The Forces of Demand and Supply – In a free market wages are determined by the supply
and demand for different types of work. In the technology dependent world of today
demand has shifted away from less-educated and less-skilled workers toward workers
with higher education or particular skills. Specialized workers who can produce cars,
smart phones and hospital equipment are receiving much higher pay than the farmer
growing crops in the fields. This results in an ever increasing income gap between more -
and less-educated/skilled workers.
Wealth Concentration - The process by which wealthier households / countries are able to
earn more income from superior factors of production. Those who already hold wealth
have the means to invest in new sources of creating wealth
Globalization - Globalization has increased income inequality in developed nations but reduced the
income gap in the developing countries. Unskilled workers in developed countries are losing
their jobs and becoming poorer as unskilled workers in developing countries are willing
to do the same work for lesser wages.
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Household Composition - Single-parent families usually have lower income than families
where both parents are working. Grown children living in joint families may also
contribute to the family income. Thus the number of members working in a household
might also contribute to income inequality.
Slows Economic Growth – There is enough proof to suggest that countries with high
inequality have a lower growth rate. Research by the International Monetary Fund (IMF)
indicates that periods of continuous growth is most important for long-run economic
development. It is much easier to initiate growth in an economy than to sustain it. Again
when growth wanes, it is often due to inequality. Latin America has a Gini index of about
50, while emerging Asia has a Gini of about 40. If Latin America could reduce its Gini to
45, its bursts of growth would double (The Economist 2014).
Creates Health and Social Problems – inequality fosters a lack of Social Cohesion
(more distrust, less community involvement, higher crime rate, etc.). In more equal
societies people live longer, are less likely to experience mental illness and use less
illegal drugs.
Generates Political Instability – political conflict often originates from severe social
grievances, including class conflict. In their research „Inequality and the Instability of
Polity and Policy” Dutt and Mitra have clearly shown that inequality is positively
correlated political instability (Dutt and Mitra 2008),
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provides him much less utility than it would do to a family that has no car. This is an
example of reduced "distributive efficiency" within society. It decreases marginal
utility of wealth.
The European Commission‟s October 2011 “Agenda for Change” proposed that the EU
would focus on “inclusive and sustainable growth”, thereby enabling more people to
benefit from wealth and job creation. However, in reality rich nations have exhibited very
little willingness in the endeavor for a global redistribution of wealth.
Progressive taxation: the very rich are taxed proportionally more than the middle
income citizens. At the same time the concept of negative taxation may be included
whereby the very poor receive subsidy from the government. This may reduce the
amount of income inequality in society if the change in taxation does not cause
changes in income.
Minimum wage legislation: raising the income of the poorest workers (for the ones
that don't lose their jobs due to the minimum wage) may help reduce income
inequality.
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that everyone needs, cheaply or freely (such as food, healthcare, and housing),
governments can effectively raise the purchasing capability of its poorest citizens.
Welfare, In-trade transfers and Workfares: Public aid, aid for work, redistribution in
kind other than cash are all instruments available to the government to bring about
some parity in income distribution.
The United States of America has a GNI per capita (PPP) International $53,960 which
makes it the 17th richest country in the world. However, in distribution of income it is
ranked a poor 41st with a GINI Index of 45. At the same time Bangladesh which has a
GINI of 32.1 has a GNI per capita (PPP) of only $ 2,810. On the face of it, it seems that
there is no correlation between income inequality between countries and the inequality
within a country. The inequalities of income distribution between Bangladesh, Brazil and
the UK is being studied here in an attempt to determine the relationship between them
The growth and development of the Bangladesh economy during the last decade has been
remarkable. The GDP growth has been around 6 percent per year. More than 15 million
Bangladeshis have broken free of the vicious cycle of poverty. Human development, life
expectancy, population growth rate literacy, and per capita food intake have also shown
remarkable improvements.
However, the growth is perilous. Bangladesh is an extremely natural disaster prone area.
A natural disaster of considerable magnitude or global economic debacle may well
increase the size of the population below the poverty line, which at present is
approximately 47 million.
Bangladesh is one of the most densely populated countries in the world. It badly lacks in
infrastructure that include electricity, transport, and telecommunication services (The
World Bank). The number of skilled workers are increasing day by day and Bangladesh
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is now better prepared to handle job opportunities in more technology savvy areas.
Bangladesh has made commendable progress in implementing its Millennium
Development Goals.
Though income inequality in Bangladesh has increased since independence it has never
been extreme. GINI Co-efficient has risen from 25.9 in 1984 to 32.1 in 2010.
At the same time Bangladesh‟s Gross National Income per Capita (PPP) has also grown
from $990 in 2002 to $ 2,810 in 2013
Year GNI/Capita
(PPP)
2002 990
2006 1,350
2010 1,810
2013 2,810
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Some reasons for the income inequality in Bangladesh can be identified as:
The largest country in South America, Brazil‟s Gross Domestic Product (GDP) in 2012
was US$ 2.253 trillion. This was in spite of growths of only 2.7% in 2011 and 0.9% in
2012. However, low inflation rates and enhanced social well-being are positive
indications for the country.
In 2009 the poverty level (people living with US$2 per day) in Brazil was 11% while
people living in extreme poverty (with US$1.25 per day) was 2.2%. These two indicators
show drastic fall from 21% and 10% respectively in 2003/2004.
Income inequality creates a serious problem for Brazil‟s economy. The South and
Southeast regions of Brazil enjoy more wealth than the North and Northeast regions. This
is exhibited in health, infant mortality and nutrition. Though the GINI Index of Brazil
was a substantially high 0.519 in 2011 it was the best result the football loving nation
exhibited in 50 years.
The GINI Index and GNI per Capita of Brazil for some selected years are shown below:
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Year GINI index Year GNI / Capita (PPP)
Table 4: GINI Index for Brazil Table 5: GNI/ Capita for Brazil
The economy of the United Kingdom is made up of the economies of England, Scotland,
Wales and Northern Ireland. It is amongst the 10th largest economics of the world and
among 5th largest economics in Europe. However, compared to other developed countries
the UK has a very high level of income inequality. Its income is the most unequal in
Europe (The Equity Trust).
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The bottom 10% of the UK population have a net income of £8,628 (on average) while
the top 10% have net incomes of approximately £80,240. As can be seen from the graph
the poorest fifth of UK citizens receive only 8% of the total income and the top fifth have
just less than half (41%).
In 2010 the GINI Index of UK was 32.3 while its GNI per capita was $35,760 in 2013.
6.0 Conclusion
Compared to the UK, Bangladesh is indeed a poor country. The average income of its
citizens is only about 7.85% that of the citizens of UK. Even in comparison to Brazil
Bangladesh‟s position is very weak. However, Bangladeshis can take pride in the
knowledge that as regards distribution of income they are much in a much better position
than Brazil and even the rest of the world combined. The equality of income distribution
in Bangladesh is slightly better than that of the UK.
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Figure 7: Lorenz Curve for the World, the UK, Bangladesh and Brazil
However, there is apprehension that with increased development the income inequality in
Bangladesh may also grow. This is an area where the government has to keep a sharp
lookout and take necessary actions in necessary.
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APPENDIX I
1 L es o t ho 6 3 .2 1995
2 S o ut h A fri ca 6 3 .1 2005
3 B o t s w ana 6 3 .0 1993
4 S ierra L eo ne 6 2 .9 1989
6 N a mib i a 5 9 .7 2010
7 H ait i 5 9 .2 2001
8 H o nd ur as 5 7 .7 2007
9 Za mb i a 5 7 .5 2010
10 C o lo mb ia 5 5 .9 2010
11 G uat e ma la 5 5 .1 2007
12 H o ng K o ng 5 3 .7 2011
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14 C hile 5 2 .1 2009
15 Pa na ma 5 1 .9 2 0 1 0 es t .
16 B razil 5 1 .9 2012
17 Pa p ua N ew G ui nea 5 0 .9 1996
18 S w azil a nd 5 0 .4 2001
19 C o s t a R ica 5 0 .3 2009
20 G a mb i a, T he 5 0 .2 1998
21 Zi mb abw e 5 0 .1 2006
22 S ri L anka 4 9 .0 2010
23 E cua do r 4 8 .5 D ec emb er 2 0 1 3
24 Mexi co 4 8 .3 2008
25 Per u 4 8 .1 2010
26 Mad ag as c ar 4 7 .5 2001
27 C hi na 4 7 .3 2013
28 D o mi nic a n R ep ub lic 4 7 .2 2 0 1 0 es t .
29 B o liv ia 4 7 .0 2011
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31 R w a nd a 4 6 .8 2000
32 S ing a po re 4 6 .3 2013
33 Mal ay s i a 4 6 .2 2009
34 G eo rg ia 4 6 .0 2011
35 S o ut h S uda n 4 6 .0 2 0 1 0 es t .
36 A rg ent i na 4 5 .8 2009
37 Mo za mbi q ue 4 5 .6 2008
38 J a ma ica 4 5 .5 2004
41 U nit ed S t at es 4 5 .0 2007
43 C a mero o n 4 4 .6 2001
44 G uy a na 4 4 .6 2007
45 I ra n 4 4 .5 2006
46 U g a nd a 4 4 .3 2009
47 N ig eri a 4 3 .7 2003
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48 K eny a 4 2 .5 2 0 0 8 es t .
49 B ur undi 4 2 .4 1998
50 R us s i a 4 2 .0 2012
52 S eneg a l 4 1 .3 2001
53 D j ibo ut i 4 0 .9 2002
54 Mo ro cco 4 0 .9 2 0 0 7 es t .
56 N icar ag ua 4 0 .5 2010
57 T ur key 4 0 .2 2010
58 Mal i 4 0 .1 2001
59 T unis ia 4 0 .0 2 0 0 5 es t .
60 J o rda n 3 9 .7 2007
61 B ur ki na Fas o 3 9 .5 2007
62 G ha na 3 9 .4 2 0 0 5 - 06
63 G ui nea 3 9 .4 2007
64 T ha il a nd 3 9 .4 2010
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65 Macedo nia 3 9 .2 2011
66 Ma ur it a ni a 3 9 .0 2000
68 Mal aw i 3 9 .0 2004
69 Ma ur it i us 3 9 .0 2 0 0 6 es t .
70 B hut a n 3 8 .7
71 Po rt ug a l 3 8 .5 2007
72 S erbia 3 8 .0 2 0 1 3 es t .
73 C a mbo di a 3 7 .9 2 0 0 8 es t .
74 Y e me n 3 7 .7 2005
75 I s rael 3 7 .6 2012
76 J apa n 3 7 .6 2008
77 T anza ni a 3 7 .6 2007
78 V iet na m 3 7 .6 2008
80 I nd ia 3 6 .8 2004
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82 I ndo nes i a 3 6 .8 2009
83 L ao s 3 6 .7 2008
84 Mo ng o li a 3 6 .5 2008
85 B eni n 3 6 .5 2003
86 N ew Zeal a nd 3 6 .2 1997
88 L it hua ni a 3 5 .5 2009
89 A lg eri a 3 5 .3 1995
90 L at v ia 3 5 .2 2010
91 Mac a u 3 5 .0 2013
92 A lba ni a 3 4 .5 2008
93 G reece 3 4 .3 2 0 1 2 es t .
94 T aiw a n 3 4 .2 2011
95 Po l a nd 3 4 .1 2009
96 N ig er 3 4 .0 2007
97 I rela nd 3 3 .9 2010
98 A zer ba ij a n 3 3 .7 2008
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99 K y rg y zs t an 3 3 .4 2007
108 C ro at i a 3 2 .0 2010
109 I t aly 3 1 .9 2 0 1 2 es t .
110 T i mo r - L es t e 3 1 .9 2 0 0 7 es t .
112 K o rea, S o ut h 3 1 .1 2 0 1 1 es t .
113 C y prus 3 1 .0 2 0 1 2 es t .
114 A r me ni a 3 0 .9 2008
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116 E g y pt 3 0 .8 2008
119 Pa kis t a n 3 0 .6 F Y0 7 / 08
120 A us t r al ia 3 0 .3 2008
121 K o so v o 3 0 .0 F Y0 5 / 06
123 S w it zer la nd 2 8 .7 2 0 1 2 es t .
124 U kr a i ne 2 8 .2 2009
127 R o ma ni a 2 7 .4 2011
130 G er ma ny 2 7 .0 2006
131 Fi nl a nd 2 6 .8 2008
132 A us t ri a 2 6 .3 2007
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133 S lo v akia 2 6 .0 2005
135 N o rw ay 2 5 .0 2008
137 D enma r k 2 4 .8 2 0 1 1 es t .
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