Income inequality in the Philippines

From Wikipedia, the free encyclopedia

Income inequality in the Philippines is the extent to which income, most commonly measured
by household or individual, is distributed in the Philippines in an uneven manner. It is an important
indicator of equity in an economy, and has implications for other social outcomes such as crime
and social exclusion. [1]

Contents

[hide]

1 Overview

2 Gini Coefficient

3 Causes of Inequality
o 3.1 Institution: Corruption and Political Dynasty

o 3.2 Geography

o 3.3 Education

4 References

5 External links

[edit]Overview

Income inequality has been a long lasting development challenge for the Philippines. In a
statement released by the National Statistical Coordination Board in 2005, it was recognized that
the income gap between the rich and the poor was wider in the Philippines than in Indonesia and
Thailand, indicating serious inequality in the distribution of the country’s economic gains. [2] It is
noted that the income of the Philippines’ richest ten percent of the population was in fact twenty
times the income of the poorest ten percent. [3]

Data spanning across 1985-2006 in the Philippines have shown that income inequality has been
prevalent throughout her history, despite signs of economic growth. It has been observed that
since 1985, the richest quintile of the population has consistently commanded more than 50% of
total family income in the country, with the poorest quintile at less than 5%. Despite major
fluctuations in economic performance during the period 1985-2003, income inequality while very
high, has remained relatively stable. [4]

[edit]Gini Coefficient
The Gini coefficient is the most commonly used measure of income inequality. It calculates the
extent to which the distribution of income among individuals within a country deviates from a
perfectly equal distribution. Ranging from 0 to 100, a Gini coefficient of 0 represents perfect
equality; a Gini coefficient of 100 represents perfect inequality. [5]
Philippines has a Gini coefficient of 48 in 2000 – as compared to neighbouring developing
countries in the ASEAN region like Thailand (43 in 2000), Vietnam (37 in 2002), Lao PDR (37 in
1997), and Indonesia (34 in 2002) – Philippines actually ranked as one of the worst income
distributions compared with its neighbouring countries. [6]

From the Philippines’ National Statistics Office latest released statistical booklet, the Gini
coefficient ratio fell, only slightly, from 48.22 in 2000, to 45.80 in 2006. [7] However, this slight fall
in income inequality has to been taken into context. The total family income rose from 2,199
billion Pesos to 3,006 billion Pesos in this same period, [8] indicating an income growth of 37% -
the 5% fall in Gini coefficient pales in comparison.

[edit]Causes of Inequality
Income inequality has multiple roots, and can be molded by a combination of political, social and
cultural forces.

[edit]Institution: Corruption and Political Dynasty

Philippines’ political culture is dynastic in nature, meaning local officials are often related to each
other by blood. It is expected national resources would flow more favourably to provinces which
have local governments related to the ruling political figures. These national resources are used
to build infrastructure, create employment, and target poverty. Hence such ties only serve to
exacerbate income inequality in Philippines.

Interestingly, studies have found an opposite relationship [9], by running simple regressions. It is
found that political dynasties are destructive in a different way. Political dynasties in this case tend
to reduce economic efficiency by allocating resources selfishly, and hence inefficiently . Access to
the basic services is also restricted to the poor in provinces governed by political dynasties.
Hence when compared to areas which are more competitive and efficient, the poor continue to
remain poor. In addition, rampant graft and corruption created a rent that discriminated against
the poor in favour of connected individuals and businesses. It hinders the growth of efficient yet
competitive start-ups in the country without any political connection. This accentuates income and
wealth inequality in the country.

[edit]Geography
Research has found that geography also plays an important part in the widening income
inequality[10]. Landlocked provinces often experience high transportation cost. As current research
literature has shown[11] , landlocked countries tends to have lower economic growth. Borrowing
the concept to look at intra-country growth, location could thus cause a divergence in the levels of
growth between different provinces within the country. In addition, the government invests
selectively on infrastructure,as a result, not all provinces have easy and affordable access to
markets.

A second geographical problem is the frequency of typhoons hitting the province. Data have
shown that areas in Philippines more frequently hit by typhoons also happen to be the poorest
areas[12]. Given the unequal access to resources due to political constraints, this serves to further
exacerbate the problem of income inequality.
The concentration of economic activities in Philippines' capital Manila is also cited as one of the
causes of inequality[13]. In order to reduce income inequality, it is suggested in the same research
that Philippines should spread out its industrial activities so as to better provide job opportunities
in rural areas, thus closing the gap between rural and urban inequality.

[edit]Education
Another main contributing factor to income inequality in Philippines is the lack of adequate
education opportunity in the country. Through the enhancement of skill and knowledge of the
underprivileged sections of the society, education play a vital role in stopping the cycle of
generations of poverty among the poor due to a lack of skills and ignorance. Rich Filipinos are
able to access significantly better educational resources through better funded schools and
private tutoring. There is also a substantial number of Filipinos who send their children overseas
for education to America, Europe and neighbouring countries such as Singapore. Equal access to
good education is the main pathway of upward social mobility among the poor. Due to the
absence of high quality universal education in the Philippines, many Filipinos are stuck in poverty
trap for generations as they are not equipped for knowledge intensive jobs [14].

Additional research has found that education is significant in determining levels of inequality [15].
The author of the paper also notes several measures taken by the government to target
education, like the "Education for All" (EFA) Policy. This policy aims to expand public education,
up to at least the level of secondary schools.