Goal 10. Reduce inequality within and among countries

Potential and Illustrative Core Indicators:

Indicator 70: [Indicator on inequality at top end of income distribution: GNI share of richest 10% or Palma Ratio]

Rationale and definition: Concerns about inequality focus on the top and bottom ends of the income distribution. Indicator 70, on “relative poverty”, tracks the bottom end of the income distribution, whilst this indicator monitors changes at the top end of the distribution. We see two options for such an indicator. First, countries may track the share of incomes generated by the richest 10% of the population. An alternative indicator is the increasingly popular Palma Ratio, defined as the ratio of richest 10% of the population’s share of gross national income (GNI) divided by the poorest 40% of the population’s share. The Palma ratio seeks to overcome some of the limitations of the widely used Gini coefficient, which fails to take into account changing demographic structure (e.g. the effects of a baby boom or an aging population) and is insensitive to changes in the tails (top and bottom) of the income distribution, which is where most movement occurs.141 Furthermore, using a simple ratio, as opposed to the more complex Gini-coefficient measurement, is more intuitive for policy makers and citizens. For example, for a given, high Palma value it is clear what needs to change: to narrow the gap you raise the share of income of the poorest 40% and/or you reduce the share of the top 10%.

Disaggregation: The income share of the top decile and the Palma ratio are formulated using household survey data relating to income and consumption (usually from World Bank PovCal / World Development Indicators). Such data can be disaggregated by income deciles in countries, allowing for comparative analyses between countries and regions. Further disaggregation by centiles, regions or groups would require complex analysis of the original household survey data, which at present may not be feasible on a national / global scale.

Comments and limitations: An important limitation of the income share of the top decile and the Palma ratio (as well as the Gini-Coefficient) is that the indicators cannot be decomposed (i.e. overall inequality is related consistently to inequality among sub-groups). Furthermore, data is based on household surveys, some of which measure income and some consumption. The mix makes international comparison quite challenging, as the distribution of consumption tends to be less unequal than that of income. But since no means of adjustment (income vs. consumption) is readily acceptable, it is common practice not to adjust the surveys. To improve the quality of this data we recommend expanding the collection of pure income-based data, for example via the Luxembourg Income Study, which currently has micro-data for 40 countries.142

Preliminary assessment of current data availability by Friends of the Chair: B

Potential lead agency or agencies: UN Statistics Division, World Bank, OECD (with Luxembourg Income Study).

Indicator 71: Percentage of households with incomes below 50% of median income ('relative poverty') Rationale and definition: Relative poverty is defined as the percentage of households with incomes less than half of the national median income. It is an indicator of inequality at the bottom of the income distribution, which acts as a cause of social exclusion and undermines equality of opportunity.

141 Palma, G., (2011), Homogeneous middles vs. heterogeneous tails, and the end of the ‘Inverted-U’: The share of the rich is what it’s all about, Cambridge Working Papers in Economics, See: http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe1111.pdf

142 See a list of LIS available datasets: http://www.lisdatacenter.org/our-data/lis-database/documentation/list-of-datasets/

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Disaggregation: The data should be disaggregated by sex and age of the head of household and by urban/rural locality. If possible with the given survey methodology, ethnicity, religion, language, disability and indigenous status should also be reviewed.

Comments and limitations: This indicator requires measurement of the national distribution of household income, which is still rare in most countries. Frequently such measurements are conducted once every two to three years and data becomes available with reporting lags of up to three years.143

Preliminary assessment of current data availability by Friends of the Chair: A

Potential lead agency or agencies: The indicator can be compiled from income distribution data. The UN Statistics Division, World Bank, or the OECD could take the lead in compiling data.

Additional indicators that countries may consider:

• Gini coefficient: The Gini measures the extent to which the distribution of income or consumption expenditure among individuals or households within an economy deviates from a perfectly equal distribution. A Gini value of 0 represents perfect equality, and a value of 1 denotes perfect inequality. It is a well-known indicator for income inequality, which has been in use for over 100 years.

• Income/wage persistence. This is a measure of intergenerational socioeconomic mobility, which is generally defined as the relationship between the socioeconomic status of parents and the status their children will attain as adults. Economic mobility can be measured either through wage or income, and it is expressed as the fraction of parental income or wages reflected in their offspring’s.

• Net ODA to the LDCs as percentage of high-income countries' GNI (modified from MDG Indicator). This indicator measures progress towards aid commitments. The agreed target range for this indicator is 0.15-0.2%.

• [Average remittance cost] - Indicator to be developed. Remittances are increasingly important to many economies, but accurate measurement remains difficult. The G20 committed to reducing global average remittance cost by 5%, so enhanced statistical methodology is needed to improve data collection for monitoring of remittance costs.144

• ODA as a percentage of vulnerable countries’ GNI: This indicator is the amount of ODA received by a country as a percentage of its gross national income. This indicator is a continuation of indicators under MDG Goal 8 and is a measure of aid dependency.

• [Indicator on migration] - to be developed: this indicator will track the orderly, safe, and responsible migration and mobility of people

143 See OECD Income Distribution Database: http://www.oecd.org/social/income-distribution-database.htm 144 UN Statistics Division, (2014).

Revised working draft (July 25, 2014)