Income Group 7

Inequality
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1
What is income inequality?

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Income inequality measures

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Main features of income inequality
in Viet Nam & Japan

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How to reduce income inequality?
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1 Income inequality is the disproportionate distribution
of total national income among households
What is - Economic Development (M. Todaro & S. Smith) -

income
inequality?
Income inequality refers to the extent to which
income is evenly distributed within a population
- IMF -

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2
Income inequality measures

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 Definition
GINI An aggregate numerical measure of income inequality
ranging from 0 (perfect equality) to 1 (perfect inequality)
Index (Source: Economic Development - M. Todaro & S. Smith)

0 1
perfect equality perfect inequality

• The higher the GINI index (close to 1), the higher the
inequality of income distribution.
• The lower the GINI index (close to 0), the lower the
inequality of income distribution.
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Classification

GINI coefficient 0,2 - 0,35 0,35 - 0,5 0,5 - 0,7

Relatively equal Relatively unequal Highly unequal

Classification income distribution income distribution income distribution

(Source: Economic Development - M. Todaro & S. Smith)

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GINI index of Japan and Vietnam

JAPAN
2008 2010 2013
⇒ 0,2 < Japan’s GINI < 0,35
 Relative equal
34.8 32.1 32.9

Source: World Bank Open Data

VIETNAM 2008 2010 2012 2014

⇒ 0,35 < Japan’s GINI < 0,5
 Relative unequal
35.6 39.3 35.6 34.8

Source: World Bank Open Data

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Size distribution
of income
Quintiles (fifths) or Deciles (tenths)
Kuznets ratio

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Size distribution of income

The level of income inequality is reflected in the difference

between the income share held by the poorest and the richest.

The most commonly Divide the population into Determine what proportion of the
measure used by
successive quintiles (fifths) or total national income is received
economists
deciles (tenths) according to by each income group
ascending income levels

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Japan

Year 1st 20% 2nd 20% 3rd 20% 4th 20% 5th 20%

2008 6.4% 12.1% 17.0% 22.9% 41.5%

2010 8.2% 12.7% 16.5% 22.2% 40.5%

2013 7.7% 12.8% 16.6% 21.7% 41.1%

Source: World Bank Open Data

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Viet Nam

Year 1st 20% 2nd 20% 3rd 20% 4th 20% 5th 20%

2008 7.4% 11.6% 15.7% 21.8% 43.5%

2010 6.5% 10.8% 15.0% 21.4% 46.3%

2012 7.1% 11.6% 16.1% 22.2% 43.0%

2014 7.1% 12.0% 16.4% 22.4% 42.2%

Source: World Bank Open Data
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 Japan:
Kuznets Ratio • Decreased in 2008 - 2010
• Increased in 2010 - 2013
Viet Nam:
• The ratio of the incomes received by • Went up in 2008 - 2010
the top 20% and bottom 40% of the • Fell down gradually in 2010 - 2014
population
• Often used as a measure of the
degree of inequality between high- • Ratio of two countries decreased over the period
and low-income groups in a country. •  lower degree of inequality over time
• For all years, ratio of Viet Nam was always higher
than Japan’s
Japan •  the degree of inequality between high- and
low-income groups of Vietnam was higher than
2008 2010 2013 Japan
2.24 1.94 2.00
• Vietnam: higher income inequality
Viet Nam • Income inequality of both countries is reduced
2008 2010 2013 2014 over the period
• Income share of each group of Viet Nam and
2.29 2.68 2.30 2.21 Japan was approximately the same but the trend
was quite different, especially in 2010
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3
Main features of
income inequality in
Viet Nam & Japan

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 Income inequality is reflected by
different sources of income
• Lower income group: higher proportion of Average percentage of workers
working in two areas (2008 to 2018)
self employment (farming, fishing)
Wage Self
VIET NAM

• Higher income group: higher proportion of Employment Employment

wage employment (factories, companies) Lowest 20% 17.74% 82.26%

• Low income groups: mainly simple workers,

2nd 20% 35.08% 64.92%
have limited skills, work in agriculture
 low income 3rd 20% 43.98% 56.02%

• High income groups: mainly qualified 4th 20% 51.32% 48.68%

labors, own special skills, have advanced
technology, work in fast growing industries Highest 20% 55.50% 44.50%
Source: GSO - Vietnam Household
 high income Living Standard Survey 2018
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 Income inequality is reflected by
different geographical location
Top 5 provinces having
• Poorest provinces are divided by mountainous highest/lowest GNI per capita
terrain, have to bear with natural disasters
Highest Lowest
VIET NAM

(landslides, flash floods, rainstorms, harsh climates)

• Terrain is divided  difficult in trading and Binh Duong Son La

transportation. Natural disasters  spend money

Ho Chi Minh City Ha Giang
for compensate for property loss.
•  Lower and lower income. Ha Noi Dien Bien

• Richest provinces have flat terrain, undivided, Dong Nai Cao Bang
and mild climates.
•  Develop more and more. Bac Ninh Bac Kan

Source: GSO - Vietnam Household

Living Standard Survey 2020
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 Income inequality is reflected by
aging population

• Aging population: more aged people

JAPAN

and fewer youngsters, the proportion of

senior employees approaching retirement
age is increasing.

• Japan is using the seniority – based

wage principle.

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 Income inequality is reflected by
labor dispatched law

• Dispatched employees: not official, not sign labor

JAPAN

contract  unstable and considerably low wage.

• 1986: 16 types of jobs had the right to employed

dispatched workers.

• 1996: 26 types of jobs

• Since 1999: free.

• Companies choose dispatched employees to cut costs.

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4
How to reduce
income inequality?
There is no particular tendency for inequality to change in process
of economic development. Inequality seems to be a rather stable
part of a country’s socioeconomic makeup.

However, income inequality can be reduced by systematic policies.

Specifically, inequality can be gradually reduced through well-
implemented policies to promote pro-poor growth over time.

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SUGGESTIONS
1 Support low income groups 2 Adjust tax system
• Education • Vietnam: adjust the national tax system in a

• Financial support more progressive way (increasing direct

• Public investment taxes, ending tax evasion, etc.)
• Facilitate the move of irregular workers into • Japan: Japan's personal income tax (the tax

regular jobs (Japan) for higher income is higher)

Improve efficiency of state Raise minimum wage to reaches

3 administration 4 a maximum effectiveness value
The minimum wage: an important element of
Establish an open institutional environment
public policy for reducing poverty and
conducive to fairer policies  empowers
inequality.
individuals and civil society to protect their
Increasing the minimum wage: raise income for
rights.
millions of low-wage workers.
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THANK YOU
Any question?

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