This week’s column offers readers a simplified and hopefully accurate description of the methods/techniques employed in official studies of inequality and poverty in Guyana.
Measuring inequality
The measure most frequently used officially to indicate levels of inequality/ equality in Guyana is the Gini Coefficient. Readers should not be put off by this term, as the central ideas behind it are quite straightforward. And perhaps more importantly, an understanding of this term is required for an informed appreciation of this topic. The coefficient, devised by an Italian statistician (Gini), has become the most widely used indicator of inequality (or dispersion), within statistical populations. It is expressed on a scale of zero to one (0-1), where 0 represents perfect equality and 1 perfect inequality.
How is the scale established? If cumulative percentages of a given population are plotted against cumulative percentages of their income/consumption and a line is drawn connecting these plots, one arrives at what is termed a Lorenz curve. The resulting curve may be a straight line or literally curved.
More specifically, if let’s say that the first 20 per cent of the population obtains 20 per cent of the income/consumption and the next 20 per cent gets a similar 20 per cent of income/ consumption, then 40 per cent of the population would have gotten 40 per cent of the income/ consumption (that is 20 per cent + 20 per cent equals 40 per cent). If this distribution continues the same for the rest of the population and the income/consumption it receives also remains the same, then the resulting Lorenz curve is a straight line. Such a curve describes a situation of perfect equality because all five of the 20 per cent groupings in the population get the same 20 per cent of income/consumption.
Of course, in real life this result never obtains. Some groups of 20 per cent will get less and some will get more than 20 per cent of the income/consumption. When this happens there is inequality.
Readers, who are comfortable following the explanation thus far, should note that, formally, this inequality can be measured as the area of the distance between 1) a hypothetical straight line connecting the two items being measured on a graph (population and income), and 2) the actual curve the plotted information reveals divided by the entire area below the hypothetical straight line. This extended description is optional for those readers who may find it difficult to follow without seeing a graph in front of them; however not following this extension does not make the description any less valid.
Based on the above, the closer to zero is the Gini coefficient the greater is the equality (or the lower is the inequality). In other words, if the coefficient is zero, everyone has the same income/ consumption. And by parity of reasoning, the closer the coefficient is to one, the greater is the inequality (or the lower is the equality). When the coefficient is equal to one, this means that one person has all the income/consumption and everyone else gets none!
Next week, I shall examine the results of studies on inequality/equality for Guyana. In the next section I address how poverty has been measured in studies of it for Guyana.
Measuring poverty
As the IDB had observed the last “official” study of poverty in Guyana dates from 2006. Further, the 2006 study was not designed as a dedicated study of poverty. The Household Income and Expenditure Survey (HIES) completed in that year effectively surveyed 7,183 households (28,477 persons) to obtain consumption data for the entire population. The consumption information obtained was to be used as a proxy measure of income or welfare.
The HIES defined consumption to include 1) direct spending of households; 2) the value of home produced food; 3) the value of “in-kind” payments received by the household; 4) housing expenditure (including the value of owner-occupied housing); and 5) non-consumption items such as gifts and donations.
From the data obtained two poverty lines were drawn in order to classify the poor into two groups of extreme poverty and moderate poverty. Extreme poverty includes those households who could not afford a specified basket of food items at the time of the survey. And moderate poverty includes those households that could not afford that basket of food items plus essential non-food items as determined through the survey.
How is the specified food basket established? With the support of the Caribbean Food and Nutrition Institute (CFNI) a standard food basket of 2,400 calories per adult male (18 years +) was designed and then costed. The average cost of that food basket was US$1.25 per day at 2006 prices. This costed basket of food therefore, fixed the extreme poverty line.
The information on non-food expenditure for an adult male was estimated from the survey and added to the food basket to arrive at the moderate poverty line. This was costed at US$1.75 per day at 2006 prices; that is an additional 50 US cents per day.
The adult male was used as the benchmark for measuring values, so that for non-adult males the standard was pro-rated. Thus children in a household, dependent on their age, were treated as fractions of male equivalents.
Basic needs
Finally, surveys like the HIES make it possible to derive an important complementary measure of poverty. This is based on measuring the extent to which the surveyed population lack, or is deprived of basic needs, due to their insufficient command of resources to satisfy them. In the 2006 HIES five basic needs were measured, namely 1) housing (which includes home ownership, number of rooms available, square footage per person, home facilities and the type of building materials used); 2) access to potable water; 3) access to electricity; 4) access to education; and 5) access to health care.
Next week I shall commence presenting the major results obtained from Guyana studies, before engaging in a wider discussion of several issues pertinent to a broader appreciation of inequality and poverty in the country.
