DISCLAIMER: Every reasonable effort is made to ensure the accuracy of the information used in the creation of this reference

material, without prejudice to the existing copyrights of the authors. As an off-shoot of the innumerable difficulties encountered
during these trying times, the authors endeavored to ensure proper attribution of the esteemed original works, by way of footnotes or
bibliography, to their best abilities and based on available resources, despite the limited access and mobility due to quarantine
restrictions imposed by the duly constituted authorities.
We make no warranties, guarantees or representations concerning the accuracy or suitability of the information contained in this
material or any references and links provided here. Links to other materials in our CPOD and CAM was made in good faith, for non-
commercial teaching purposes only to the extent justified for the purpose, and consistent with fair use under Sec. GD185 of Republic
Act No. 8293, otherwise known as the Intellectual Property Code of the Philippines.

Final continuation…

#21 Lecture notes: (for lectures and discussions only)

Book references and suggested readings:
A. Economic Development 12th Edition by Michael P. Todaro and Stephen C. Smith
Copyright 2015,2012,2009 by Michael P. Todaro and Stephen Smith
B. Economics by Paul A. Samuelson and William D. Nordhaus
Copyright 2010,2005,2001 by McGraw Hill Companies, Inc.
C. Issues in Philippine Economic Development
Copyright 1995 by tereso Tulao Jr., Gerardo Largosa, Christina Castill
D. Economics (volume 3)
Philippine Economic and Development Issues
Copyright Gerardo Sicat, 1983, 2003

Poverty, Inequality, and Development

Despite recent developments, poverty remains widespreads in the developing world. On 2013 World Bank estimate, in
2010, mmore than 1.2 billion people lived on less than 1.25 US Dollar per day at 2005 U.S. purchasing power parity.
Some 2.4 billion lived on less than 2 U.S. dollar a day.

The basic issue is not only how to make the Gross National Income (GNI) higher but who would also make it grow: the
few or the many. If it would make it grow among the rich sector, it would be appropriated by them, then progress agaisnt
poverty would be slow and inequality worsen. But if it will come from the many, they would be the main beneficiaries as
such the resulting economic growth will be share more evenly.

The core of development problems and the principal objective of development policy is the elimination of widespread
poverty and high and growing income inequality. However economic poverty and unequal distribution of income and
assets are only part of a broadere inequality problem in the developing world. Others of equal and maybe higher
importance includes inequalities of power, prestige, status, gender , job saatisfaction, conditions of work, degree of
participation, freedom of choiceand many others related to the development value and of goal of self-esteem and
freedom of choice. We could not separate economic from non-economic manifestation of inequality, each of which
reinforces the other in a complicated and often interrelated process of cause and effect.

Measures of Inequality
Principal measures of income distribution both for analytical and quantitative purposes:
1. Personal or size distribution of income
2. Functional or distributive factor share distribution of income.

The personal or size distribution income is the distribution of income according to size class of persons without regard to
the sources of that income, example the share of total income accruing to the poorest specific percentage or the richest
specific percentage of a population.
In size distribution income, individuals are arranged in an ascending personal incomes and then divide the total
population into distinct groups or sizes. A common method is to divide the popularion into successive quintiles (fifths- a
20 % proportion of any numerical quantity) or deciles (tenths- a 10% portion of any numerical quantity) according to
ascending income levels and then determine what proportion of the total national income is received by each income
group.

Size distribution of personal income in a developing country by income share (a sample)

Share of total income (%)

Personal income
Individuals (money units) quintiles deciles

1 0.8
2 1.0 1.8
3 1.4
4 1.8 5 3.2

FOOTNOTES: Materials contained in the learning packets have been copied and conveyed to you by or on behalf of Pamantasan ng
Cabuyao pursuant to Section IV- The Copyright Act (RA) 8293 of the Philippines Intellectual Property Code. You are not allowed by
the Pamantasan ng Cabuyao to reproduce or convey these materials. The content may contain works which are protected by
copyright under RA 8293. You may be liable to copyright infringement for any copying and/or distribution of the content and the
copyright owners have the right to take legal action against such infringement. Do not remove this notice.

(21)
DISCLAIMER: Every reasonable effort is made to ensure the accuracy of the information used in the creation of this reference
material, without prejudice to the existing copyrights of the authors. As an off-shoot of the innumerable difficulties encountered
during these trying times, the authors endeavored to ensure proper attribution of the esteemed original works, by way of footnotes or
bibliography, to their best abilities and based on available resources, despite the limited access and mobility due to quarantine
restrictions imposed by the duly constituted authorities.
We make no warranties, guarantees or representations concerning the accuracy or suitability of the information contained in this
material or any references and links provided here. Links to other materials in our CPOD and CAM was made in good faith, for non-
commercial teaching purposes only to the extent justified for the purpose, and consistent with fair use under Sec. GD185 of Republic
Act No. 8293, otherwise known as the Intellectual Property Code of the Philippines.

Final continuation…

#22 Lecture notes: (for lectures and discussions only)

Book references and suggested readings:
A. Economic Development 12th Edition by Michael P. Todaro and Stephen C. Smith
Copyright 2015,2012,2009 by Michael P. Todaro and Stephen Smith
B. Economics by Paul A. Samuelson and William D. Nordhaus
Copyright 2010,2005,2001 by McGraw Hill Companies, Inc.
C. Issues in Philippine Economic Development
Copyright 1995 by tereso Tulao Jr., Gerardo Largosa, Christina Castill
D. Economics (volume 3)
Philippine Economic and Development Issues
Copyright Gerardo Sicat, 1983, 2003

Size distribution of personal income in a developing country by income share ( a sample)

Share of total income (%)

Personal income
Individuals (money units) quintiles deciles

5 1.9
6 2.0 3.9
7 2.4
8 2.7 9 5.1
9 2.8
10 3.0 5.8
11 3.4
12 3.8 13 7.2
13 4.2
14 4.8 9.0
15 5.9
16 7.1 22 13.0
17 10.5
18 12.0 22.5
19 13.5
20 15.0 15 28.5
Total of national income 100.0 100 100.0

A common measure of income inequality is the Kuznets ratio after Nobel Laureate Simon Kuznets which is the ratio of
the income received by the top 20% and bottom 40% of the population. This ratio is used as a measure of the degree of
inequality between high- and low-income groups in a country. This ratio inequality ratio is equal to 51 divided by 14 which
is approximately 3.64.

The breakdown of the size distribution in column 4 shows that the top 10% of the population (the two richest individuals)
received 28.5% of the national income while the 10% bottom of the population (the two poorest individual) received only
1.8% of the national income

If we divide the total population into 20 equal groups of individuals and calculate the percentage of total income received
by top group. The top 5% of the population on the table above (the twentieth individual) receives 15% of the income, a
share higher than the combined shares of the lowest 40% which is only 14%.

Another way to analyze personal income statistics is the use of Lorenz Curve which is a graph depicting the variance of
the size distribution of income from perfect inequality. The number of income recipients are plotted on the horizontal axis
in cumulative percentages and the total income received by each percentage of population are plotted in the vertical axis
which also cumulative up to 100% which means that the two axes are of the same length.

FOOTNOTES: Materials contained in the learning packets have been copied and conveyed to you by or on behalf of Pamantasan ng
Cabuyao pursuant to Section IV- The Copyright Act (RA) 8293 of the Philippines Intellectual Property Code. You are not allowed by
the Pamantasan ng Cabuyao to reproduce or convey these materials. The content may contain works which are protected by
copyright under RA 8293. You may be liable to copyright infringement for any copying and/or distribution of the content and the
copyright owners have the right to take legal action against such infringement. Do not remove this notice.

(22)
DISCLAIMER: Every reasonable effort is made to ensure the accuracy of the information used in the creation of this reference
material, without prejudice to the existing copyrights of the authors. As an off-shoot of the innumerable difficulties encountered
during these trying times, the authors endeavored to ensure proper attribution of the esteemed original works, by way of footnotes or
bibliography, to their best abilities and based on available resources, despite the limited access and mobility due to quarantine
restrictions imposed by the duly constituted authorities.
We make no warranties, guarantees or representations concerning the accuracy or suitability of the information contained in this
material or any references and links provided here. Links to other materials in our CPOD and CAM was made in good faith, for non-
commercial teaching purposes only to the extent justified for the purpose, and consistent with fair use under Sec. GD185 of Republic
Act No. 8293, otherwise known as the Intellectual Property Code of the Philippines.

Final continuation…

#22 Lecture notes: (for lectures and discussions only)

Book references and suggested readings:
A. Economic Development 12th Edition by Michael P. Todaro and Stephen C. Smith
Copyright 2015,2012,2009 by Michael P. Todaro and Stephen Smith
B. Economics by Paul A. Samuelson and William D. Nordhaus
Copyright 2010,2005,2001 by McGraw Hill Companies, Inc.
C. Issues in Philippine Economic Development
Copyright 1995 by tereso Tulao Jr., Gerardo Largosa, Christina Castill
D. Economics (volume 3)
Philippine Economic and Development Issues
Copyright Gerardo Sicat, 1983, 2003

Lorenz Curve

100

90

80

70
Percentage of
Income 60 .
Line of equality
50
.
40
.
30 . Lorenz curve
.
20 .
.
1 .
.
0 10 20 30 40 50 60 70 80 90 100
Percentage of income recipients

The more the Lorenz curve away from the diagonal (line of perfection), the greater the degree of inequality.

The perfect inequality is when the Lorenz curve is congruence with the bottom horizontal and right-hand vertical axes.

FOOTNOTES: Materials contained in the learning packets have been copied and conveyed to you by or on behalf of Pamantasan ng
Cabuyao pursuant to Section IV- The Copyright Act (RA) 8293 of the Philippines Intellectual Property Code. You are not allowed by
the Pamantasan ng Cabuyao to reproduce or convey these materials. The content may contain works which are protected by
copyright under RA 8293. You may be liable to copyright infringement for any copying and/or distribution of the content and the
copyright owners have the right to take legal action against such infringement. Do not remove this notice.
(22)