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WP 2007-3 An International Comparison of the Incomes of the Vast Majority

  • Economics
  • Political Science


Microsoft Word - VMIPaperIv2.doc 1 SCEPA Working Paper 2007-3 An International Comparison of the Incomes of the Vast Majority Anwar Shaikh and Amr Ragab April 12, 2007 Introduction Income levels and income inequality are two major dimensions of national and international well-being. The last two decades have witnessed a growing concern about both issues, from policy makers, social scientists, and the media. But the two dimensions are generally treated separately, with GDP per capita (GDPpc) as the paramount measure of national income and the Gini coefficient (G) as the central measure of inequality. Sometimes these are implicitly combined, as in the case of poverty measures which count the number of people in each nation who live on less than one dollar a day (World Bank, 2000/2001, p. 3) There are well-known problems with these traditional approaches. First of all, average income per capita also tells us nothing about income variations within a population. For instance, if four people with an average income of $50,000 are joined by one more with an income of $300,000, the per capita income of the group doubles1. Knowing that the Gini coefficient of the group is "high" alerts us to the fact that the average is unrepresentative, but does little to help us understand its real magnitude. A simple alternative would be to measure the income per capita of the vast majority of this group, say the first 80 percent in the income ranking. Such a measure would combine the average level of income and its distribution into an intuitively useful statistic. Moreover, it would have obvious political resonance in any modern political system. There is evidence, for instance, that state-wide voting preferences in the US are correlated with changes in average local incomes (Altman, 2006) and it would be interesting to see if this relationship is stronger with vast majority incomes. 1 With this inc

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