By OTAVIANO HELENE*

Analysis of the income distribution map in the country

The issue of inequality in income distribution has always been among the major national problems. After all, Brazil is one of the most unequal countries in the world: according to systematized data released by the World Bank, Brazil, around 1990, became the country with the worst income distribution among all those for which there was available data.^[1]

Since then, we have oscillated between the last positions, with some improvement, especially in the first 15 years of this century. Despite this, we are still among the most unequal countries in the world.^[2] Other countries in this group are South Africa, some countries in its region of influence during the apartheid period and a few other African and American countries.

The current pandemic, as expected, has hit the poorest regions, countries and people hardest, whose “room for manoeuvre” in a critical and unexpected situation is very limited. This increased both the concentration of income in each country, as well as the differences between them.

Monthly household income per person

In Brazil, the average per capita household income of the most favored 5% in a single month is equal to the average income of the poorest 5% in more than 20 years. An examination of how much a person must earn to be in each economic group may allow a better understanding of the situation and, therefore, the difficulty of solving the problem.

The income mentioned here refers to income from all sources, including remuneration for work, plus the 13th salary, premiums, profit sharing, cards, vouchers, etc., closed and unemployment insurance, etc., retirements, welfare benefits, pensions, family allowance or similar, rental income, income from financial investments, dividends, donations, etc., and also income received in the form of material goods.

The data originate from the PNAD, with the values, originally from 2019, updated to 2021 based on information on GDP variation and inflation, and rounded (only the first two digits have meaning.)

The darker line in figure 1 shows limit values ​​of monthly household income per capita in relation to average income, of the order of R$ 1.400 in 2021 values. For example, someone who has a monthly household income per person of less than 0,13 times the national average income (close to R$ 170 per month) is in the poorest 10% group.

Another example: the average household income per person, which corresponds to the value 1,0 on the “vertical” axis of the figure, is a value that separates the 70% with the lowest income from the 30% with the highest income, which corresponds to R$ 1.400 cited. (There are far more people below average than above average.)

A per capita household income of more than R$2.700, close to twice the average per capita household income in the country, is already enough to place a person in the group of the 10% best off. If the per capita household income is more than seven times the national average, close to ten thousand reais per month, the person will be in the group formed by the 1% with the highest income.

Who loses and who gains if income distribution improves?

One of the indicators for measuring inequality in the distribution of a good is the Gini index, which ranges from zero – everyone has or receives exactly the same amount of the good – and 1 – only one person owns everything. (Often, the conventional limits of the Gini index are 0 and 100. The relationship between one convention and another is just a multiplicative factor equal to 100.)

In countries with very good income distribution, this index is less than 0,3; this typically occurs in northern Europe, in socialist countries or countries that left that system a few decades ago, and in a few countries in the Middle East. Gini indexes between 0,3 and 0,4 correspond to good income distribution, a typical situation in European and Asian countries. Indices between 0,4 and 0,5 indicate poor income distribution; This is typical of countries in the Americas, with rare exceptions (Canada and Uruguay among them), and the US being the only country with a Gini index above 0,4.

In some African countries, especially in and around South Africa and in several Central and South American countries, including Brazil, the Gini index is higher than 0,5, reflecting huge inequalities. In the specific case of Brazil, this index, corresponding to the distribution of per capita household income, is around 0,55.

In the graph above, the gray line illustrates what the change in income distribution should be for Brazil to be significantly less unequal. Maintaining the average income, for our Gini index to equal a value that could be considered good, it would be necessary for the incomes of people in the poorest 10% to increase to a value close to ten times at its lower end ( not shown in the graph) and close to 3 at the upper limit.

The group among the poorest 20 to 30% should have their average income doubled. For people whose per capita income is above the poorest 60% and below the richest 20%, there would be virtually no significant change in income. But in more advantaged groups, the reduction in the share of total national income would be reduced significantly; the limit that separates the 90% with the lowest incomes from the 10% with the highest incomes (a per capita household income close to R$2.700 in 2021 values), the reduction would be around 25%. From then on, the higher the income, the greater the reduction; for people whose per capita household income is exactly in the position between that which separates the group formed by the richest 1% from those with the lowest income (seven to eight times more than the average, close to 10 thousand reais per person) the reduction in income would be of the order of a third.

An income policy that favored the most impoverished groups, such as reducing unemployment, improving the minimum wage (which would have repercussions on incomes that, although below it, have it as a reference), increasing the values ​​and scope of social programs, including pensions and lower pensions and continued benefits, among several other possibilities, combined with tax rates closer to those practiced by capitalist countries, both on income and on capital gains, donations and inheritances in the case of the richest groups, could change significantly our levels of inequalities.

Furthermore, a less unequal educational system that avoided the huge differences observed today could create future difficulties for the current inequalities to be repeated.

Such measures, however, clash head on with the interests of the dominant groups that control public opinion and political decisions: the group of the best 10%, which would have their incomes and participation in the GDP significantly reduced in relation to the national average, is made up of people whose household income per person is greater than approximately R$ 2.700. On the other hand, the economic groups that would benefit from such changes have not shown the strength or organizational capacity necessary for such a confrontation. Changing the first of these two difficulties is perhaps impossible, but the second is not.

*Otaviano Helene is a senior professor at the Institute of Physics at USP, former president of Adusp and INEP. Author, among other books, of A diagnosis of Brazilian education and its financing (Associated Authors).

Notes

[1] According to World Bank data for the period 1960 to 1990. https://data.worldbank.org/indicator/SI.POV.GINI.

[2] According to the entry List of countries by income equality from Wikipedia (en.wikipedia.org/wiki/List_of_countries_by_income_equality), Brazil is the third most unequal country when the criterion is the ratio between the income of the richest 20% and the poorest 20%, just less bad than Africa South and Namibia.