Income inequality widens

Income inequality in Malta has been widening whilst that in the EU and has been narrowing.  This is one of the most striking conclusions about income distribution in Malta drawn from an IMF Staff Discussion Note published late last month and based on Eurostat and World Bank Statistics.

Between 2005 and 2010, the so-called Gini coefficient that measures inequality has increased from 26.9 to 28.4 (a higher number means a more unequal distribution; 0.000 means everyone has the same income; 1.000 means one person has all the income).  Malta’s coefficient compares with a drop of 30.6 to 30.5 in the EU27 and a rise from 29.2 to 30.2 in the Eurozone.   Having said that, one also notes that in 2011 the coefficient in Malta narrowed to 27.4 (comparable EU/Eurozone are not available).

Although the Gini coefficient is sensitive to what happens to income shares in the tails of the income distribution, it is more sensitive to changes in shares in the middle of the distribution.  For this reason, it is common to supplement the Gini with an analysis of inequality at the extremes of the income distribution, such as the share of the top income quintile divided by the share of the bottom quintile (the so-called 80/20 calculation, which shows what the richest 20 percent and the poorest 20 percent of the population earn).

Here we find that the income quintile share ratio rose from 3.9 to 4.3 in Malta between 2005-2010 at a time when the same ratio has risen remained at 5.0 in the EU27 and increased from 4.6 to 4.9 in the Eurozone.  Again, Malta’s inequality at the extremes also worsened.  If one then includes 2011, whilst Malta’s inequality worsened from 3.9 to 4.1, the EU’s worsened from 5.0 to 5.3 and the Eurozone’s from 4.6 to 6.0.  Last year, it seems, was a particularly bad year for the EU and Eurozone.

Both income inequality and income extremes are susceptible to growth in GDP.  Between 2007-2010 the average annual percentage change in Malta’s real GDP was 1.3% - an excellent result compared with that of 30 other countries; only Poland had a better average growth, with around 3.4%.  On the other hand, the Gini coefficient in Malta rose by around 2.1 percentage points, whilst Poland’s dropped by 0.1 to 31.1.  Malta was one of 15 countries whose coefficient rose and only one of only five countries whose coefficient rose by more than two percentage points.

What's ideal for the Gini? It's not zero; if everyone had to have equal incomes that would be more Marxist than Marx -- nobody would want to work, and everyone's income would be very low. It's not 1 -- that means one person has all the income and the rest of us starve.  So what's the point we're shooting for?  Nobody knows.   But surely worsening income distribution is not in society’s interest.