Decomposing Household Income by Source and Subgroup - Alex Eble

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Decomposing Household Income by Source and Subgroup of these crafts depends on commercial ties outside the village, which in turn is also dependent upon infrastructure and, to an extent, proximity to population centers. (Cohen 2000) Of income inequality in revenue from sidelines, a mere 5 percent can be explained by differences between villages within counties and between counties. This is also to say that almost all of the inequality in revenues from sidelines, as in family business, rises from differences between individuals within a village. Said differently, revenue from sidelines is relatively equally distributed across villages and counties. Contribution to Inequality (CV) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Agriculture Family Business Remittances Handicrafts Source of Income Sidelines Inter-county inequality Within-county, intervillage inequality Intra-village inequality Figure 5 – Income Factor Inequality Decomposed by Regional Contribution Given by the CV Contribution to Inequality (Theil's T) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Agriculture Family Business Remittances Handicrafts Source of Income Sidelines Inter-county inequality Within-county, intervillage inequality Intra-village inequality 11
Decomposing Household Income by Source and Subgroup Figure 6 – Income Factor Inequality Decomposed by Regional Contribution Given by Theil’s T The next task is to analyze how each income source contributes to overall inequality. 11 Figures seven through twelve illustrate these contributions graphically. Looking at the following six graphs, there are several obvious conclusions: Family business contributes the most to inequality within villages by a fantastically large margin. Agriculture contributes very little to inequality at any level. Within counties but between villages, sidelines, craftsmanship and family business all play large roles in contributing to inequality, although family business still plays the most prevalent role. Between counties, remittances are the largest contributor by far to inequality. This also shows that between counties the incidence of and/or revenue from family business and sidelines is more equal than that coming from individuals leaving home to work. In the overall income inequality decomposition of Theil’s T as in that of the CV, family business is by far the main contributor to inequality. This is an unsurprising finding. Jenkins (1995) and Papatheodorou (1998) both find similar contributions to inequality in their analysis of income factors’ contribution to inequality in the United Kingdom and Greece, respectively. One of the more interesting results found in this investigation is the difference between the two indices that the algorithm yields for proportional contributions to inequality. As stated before, Shorrocks (1982) asserts that “the relative [sic] importance of different income components is independent of the choice of inequality measure.” If “relative proportion” is taken to mean proportional contribution, the values that ineqdeco yields for the contribution of income components for Theil’s T and the CV violates Shorrocks’ assertion. Numerous tests of Jenkins’ ineqdeco algorithm all yielded the same result: the proportional contributions of income components are not independent of the choice of inequality measure. This warrants further investigation into the nature of Jenkins’ algorithm and its relation to Shorrocks’ assertions, both which lie beyond the scope of this paper. 11 Shorrocks cautions against two ways of interpreting this data. In the past, this contribution has been interpreted as either a) the inequality that would be observed if income component k was the only source of income differences; or b) the amount by which inequality would fall if differences in a factor’s income receipts were eliminated. Unfortunately, neither provides a consistent decomposition rule. This inconsistency leads to the conclusion that they are both to be avoided when making policy recommendations. 12
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Page 11: Contribution to Inequality (CV) 100
Page 15 and 16: Income Source Contribution to Inequ
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Decomposing Household Income by Source and Subgroup - Alex Eble

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