Income distribution in Santa Fe and Argentina

How unequal is income distribution in Santa Fe compared to the national average and what sources of income explain it, with data from the EPH from 2016 to 2018. April 2019 report.

How equal is income distribution in our country? Is income more concentrated in our province? Where does income inequality come from? What policies should be implemented to reduce inequality? In this article, we will address these questions, and more. To do so, we will examine income distribution in Rosario and Santa Fe.

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What does the Gini coefficient measure?

We will focus on calculating and analyzing the Gini coefficient , one of the most widely accepted ways to measure income distribution. This coefficient is inspired by the most popular graph for studying inequality, the Lorenz curve. How does it work? The ratio obtained with the coefficient represents the degree of income concentration, which is determined on a range of values ​​from 0 to 1. The extreme value of 1 signifies extreme income concentration. Conversely, the extreme value of 0 signifies perfectly equal income distribution.

In the report accompanying this article, we will use per capita family income to calculate the Gini coefficient. Our approach is based on the premise that a person's standard of living is more closely related to the family budget than to their individual income. We will then break down this coefficient into the various income sources received by families. This will allow us to better understand the nature of inequality and answer some of the questions posed at the beginning of this article. The breakdown will be performed at both the provincial and national levels to provide a logical point of comparison between the different levels.

Sources of family income

Therefore, all the income of a family was added together, and then classified based on different sources of income :

  • Main occupation: composed of the income of salaried workers and self-employed workers
  • Secondary occupation: consisting of income from a secondary occupation prior to the reference week, debts/retroactive payments for occupations prior to the reference month, etc.
  • Retirements and pensions: being the amount received for retirements and pensions
  • Transfers: is the sum of the amount received from unemployment insurance and from subsidies or social assistance, in money from the government, churches or others.
  • Capital: comprised of rental income (from housing, office, land, etc.) owned by you, profits from a business you did not work in, and interest or rent income from fixed-term deposits/investments

Elasticities and data used

Once the Gini coefficient for each source is obtained, the corresponding Gini elasticities can be calculated . Why would we want to do this? Because calculating elasticities allows us to answer extremely important questions regarding the impact of public policies. For example, if income from one source increases by 1%, how does this affect distribution and inequality?

For the study accompanying this note, data from the third quarter of the last three years (2016-2017-2018) were used, provided by the Permanent Household Survey ( EPH ) published by INDEC . Furthermore, the values ​​for each income source are expressed in 2018 prices, based on the Consumer Price Index ( CPI ), to ensure comparability.

Santa Fe compared to the national average

In general, income in the province of Santa Fe is at similar levels to the national average. However, there is heterogeneity among the sources. Labor income, retirement and pension benefits, and transfers show higher average values ​​than the national average. Meanwhile, in secondary employment and capital income, the trend is reversed, with these figures exceeding the national average.

On the other hand, if we consider per capita income, we observe that throughout the period, the provincial level is lower than the national level. At the same time, it is noteworthy that the province's economic cycle is synchronized with the national cycle, exhibiting a procyclical behavior, similar to that found in various studies on output. In other words, the level of inequality at the provincial level is similar to the national level, although lower. There are also differences compared to the national level regarding the composition of household income.

Average per capita family income in Santa Fe in 2016, 2017 and 2018, at 2018 prices, and its annual variation

The average income from each source during the period is shown in the following table. This table displays the percentage of people who directly receive this income, along with the percentage of people who benefit from it—that is, those who share the same family group. Finally, the third column shows the ratio of beneficiaries to recipients, reflecting the average size of families receiving income from each source.

Average income by source in Santa Fe, with percentage of beneficiaries and recipients and their relationship, at 2018 prices

What sources explain inequality?

The results show that 63% of income inequality is explained by income from primary employment, while 23% is explained by retirement benefits and pensions. These figures for the province are similar to, but slightly higher than, those recorded nationally.

Regarding the elasticity calculations, it was found that the sources that most significantly explain income distribution have an elasticity coefficient close to one. This implies that an increase in these sources does not generate significant changes in inequality. The only source that reduces income distribution is transfers, and these are more redistributive at the provincial level than at the national level.

Secondary employment and capital income, on the other hand, are sources of income concentration, leading to a worse distribution. This effect is stronger at the provincial level than at the national level.

The graph shows that up to the fifth decile, the province exhibits a more equitable income distribution than the national average. However, from the eighth decile onward, this trend reverses, and the distribution becomes more equitable at the national level than at the provincial level. Therefore, there is no first-order stochastic dominance; that is, it cannot be concluded that income is more equitable at the provincial or national level.

Lorenz curves of income distribution in Santa Fe and in the country versus the equality line, 2018

The report accompanying this article expands on the above discussion in detail, as well as its methodology. So, in a year characterized by electoral struggle, if we want to improve income distribution, what is the best way? Is it necessary to improve income distribution or is it necessary to increase the level of income?

Open access, for use and citation

The report is available freely and without charge, under a Creative Commons license (CC BY-NC-SA 4.0):

Distribución del ingreso en Santa Fe y Argentina: evolución 2016-2018. Informes del Observatorio UNR N.º 47 — Serie Informes de Coyuntura N.º 15, abril de 2019. ISSN 2683-9067 / 2683-9075. Autor: Luciano A. Jara Musuruana.