Milorad KovacevicHuman Development Report Office, UNDP

Workshop on Measuring Human Development, June 14,2013

GIZ, Eschborn, Germany

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HDI and Inequality

United Nations Development Programme Human Development Report Office

HDRO 2

Inequality and Human Development

• Equality is at the core of the human development approach which intrinsically pursues the value of social justice

• The country-average HDI conceals wide disparities in distribution of HD across population within a country

• False impression: Every one within the country has the same HDI Equal distribution of HD within the country

• Two countries with different distributions of achievements can have the same average HDI

HDRO 3

Inequality in dimensions of HDI

• A statistical measure that characterizes the dispersion in the distribution of some attribute – the second moment of the distribution…

or• …a summary measure of the “loss in the social objective as compared to

the potential degree of achievement, with loss being] interpreted as the loss that can be attributed to inequalities.”

• Inequality in concentration of income and other forms of material wealth

• Inequality in distribution of other characteristics (e.g., years of education) is often recognized, but rarely measured and always questioned.

HDRO 4

Inequality in dimensions of HDI

How to interpret inequality in health?

• Would societies be willing to shorten some people’s lives or lower their educational achievements to lower health or education inequality?

Or• Should societies accept the fact that some people die young--some even

before their 5th birthday? The idea is not to shorten lives but to increase for those with low levels of survival --through policies?

HDRO 5

Disposable Income, simulated

Distribution of years of schoolingExample: India, Source: DHS 2005/06

Distributions of HDI dimensions

HDRO 6

Life expectancy

Atkinson measure(ε=1)

Afghanistan 49.1 0.509Bangladesh 69.2 0.232Bhutan 67.6 0.241India 65.8 0.271Iran 73.2 0.161Maldives 77.1 0.073Nepal 69.1 0.195Pakistan 65.7 0.323Sri Lanka 75.1 0.094

Distribution of (expected) length of life, from life tables

India 2005-2010

Age-group w my0 0.01344 0.09970241 0.00357 2.6050425 0.00548 7.50365….25 0.0229 27.49956….50 0.02861 52.4994855 0.03875 57.5006460 0.06059 62.4997565 0.08825 67.5004….95 0.03692 96.50081100 0.05533 103.9714

HDRO 7

Inequality-adjusted Dimensional Indices

• Distributional data at the level of household or individual

• Variables relevant to three dimension:Household consumption or income per capitaYears of schoolingExpected length of life

• Source of data:Nationally representative household surveysUN life tables

HDRO 8

Inequality-adjusted Dimensional Indices

• From distributional data Atkinson measure of inequality

• Accounts for inequality of distribution of achievements in the HDI dimension across population

• From dimensional index and distributional data Inequality-adjusted (dimensional) index

)

• Sen’s welfare function. Discounts the average value by the level of inequality in the dimension

HDRO 9

Inequality-adjusted HDI

Important properties (questionable because of the use of Life tables):• Sub-group consistency• Path Independence• Distribution sensitive (higher weight at the lower and of distribution)

Foster, Lopez, Szekely (2004)

HDRO 10

Interpretation of the IHDI

• HDI is the average level of Human Development• IHDI is distribution sensitive average level of HD• IHDI is equal to HDI if there is no inequality

• The loss in the HDI due to inequality experienced by an average person is

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Interpretation of the IHDI (contd.)Problematic?• HDI is the potential level of HD that can be achieved if everyone is equal• IHDI is the actual level of HD when inequality is accounted for

• Use of Atkinson’s logic for inequality in economic welfare

is the level of income per person that, if equally distributed, would yield the same level of welfare.

• Is it right to say:The IHDI is the average human development achievement that if equally distributed would yield the same level of HD as estimated by the HDI.

Additional Concerns

• Income index (log transformed) is adjusted by inequality from untransformed income data

• Atkinson index cannot be calculated when zero values are present; an arbitrary solution

• Choice of ε in the Atkinson index:- Aversion to inequality, ε, can be both - dimension and country specific:

150 countries x 3 dimensions = 450 ε.

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Recommendation

• To avoid a misinterpretation (or a lack of a good interpretation):- Estimate inequality in distribution of human development

across population as a stand-alone measure - a mean of inequalities in the distributions of the three

dimensions across the population:

- , or

• Is there advantage of using the geometric mean?• Computational concerns remain

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ThanksMilorad.Kovacevic@undp.org