Family Income Distribution in the Philippines, 1985-2009: Essentially the Same

0.  From the following data and discussion we may be able to form conclusions on whether the distribution of income has become more equitable/equal over the past five (5) decades.   With percentile data, I will present different ways of grouping families according to income obtained from the Family Income and Expenditures (FIES) surveys, the latest of which is for 2009.  I will divide the distribution at the median; look at the top one (1) percent families; examine the coefficients of variation (CVs) at the percentiles; compare Gini coefficients; and, even though lacking in statistical rigor, impose the socio-economic classification of classes A, B, C, D and E on the percentile distribution.

A.  Median incomes

1.  The median income from 1961 to 2009, nearly half a century, splits the upper 50 percent with an 80 percent share of income and the lower half, with 20 percent.

As of 2009, the distribution appears to be the same at the end of Martial Law days.

Table 1.  Median Income and Income Distribution, 1961 – 2009
Family Income	1961	1985	2000	2003	2006	2009
Median income (x P1,000)	1	20	89	95	111	135
% Income Share of upper 50% families	82	80	82	81	81	80
% Income Share of lower 50 % families	18	20	18	19	19	20
Source: National Statistics Office.  Website: http://www.census.gov.ph; Family Income and Expenditures publications; Unpublished percentile data on incomes.

B.  Incomes of Top 1% families

2. In 1985, right before EDSA 1, the families in the top 1 percent (numbering about 100 thousand) of the income distribution earned an aggregate income of PhP 31.4 billion.  This is nearly what the combined 3.15 million families (or 32 percent) in the lower brackets of the distribution earned, which amounted to PhP 31.3 billion.

3. In 2000, right before EDSA 2, the top 1 percent families (numbering about 150 thousand) in the income distribution earned an aggregate income of PhP 251.2 billion.  This is nearly what the combined 5.8 million families (or 38 percent) in the lower brackets of the distribution earned, which amounted to PhP 249.6 billion.

4. In 2003, before the end of the first term of Mrs. Arroyo, the top 1 percent families (numbering about 165 thousand) in the income distribution earned an aggregate income of PhP 235.0 billion (hard to imagine that this declined by 6.4 percent from 2000 but this is the official figure).  This is nearly what the combined 5.3 million families (or 32 percent) in the lower brackets of the distribution earned, which amounted to PhP 227.1 billion.

5. In 2006, before the national elections, the top 1 percent families (numbering about 174 thousand) in the income distribution earned an aggregate income of PhP 256.3 billion.  This is nearly what the combined 5.2 million families (or 30 percent) in the lower brackets of the distribution earned, which amounted to PhP 257.9 billion.

6. In 2009, before the last national elections, some 185 thousand ‘top 1 percent’ families earned the equivalent of what 5.5 million ‘bottom 30-percent’ families collectively earned.

7. The 1:30 ratio in 2009 remained, or stabilized, at the same ratio in 2006.

Table 2.  Top 1% Families and Bottom % Families – Income Comparison
	1985	2000	2003	2006	2009
Number of Top 1% Families (x1000)	100	150	165	174	185
with
Aggregate Income (PhP billion)	31.4	251.2	235	256.3	342.7
Equivalent to
Number of Families (in millions)	3.15	5.8	5.3	5.2	5.5
% of Total	32%	38%	32%	30%	30%
with
Aggregate Income (PhP billion)	31.3	249.6	227.1	257.9	343
Source: National Statistics Office.  Unpublished percentile data on incomes.

These results raise even more concern when one looks at the top individual taxpayers of 2009 released by the Bureau of Internal Revenue (BIR) in accordance with Section 71 of the National Internal Revenue Code of 1997.  These individuals may not have been covered by the survey as their transactions would be categorized in statistical parlance as ‘rare events’ and thus would have little chance or probability of being selected as samples.

Table 3. BIR Top Individual Taxpayers 2009
Rank	Taxpayer	Tax Due
1	Elaine B. Gardiola	P59.54 million
2	Wilfredo B. Revillame	P57.25-million
3	Ronaldo R. Soliman	P36.70 million
4	Ramon S. Ang	P26.44 million
5	Oscar M. Lopez	P25.70 million
66	Henry Sy, Sr	P25.18 million
7	Carlos D.C. Ejercito	P25.02 million
8	Bonifacio D. Gumboc, Jr	P24.74 million
9	Ma. Teresa Caridad P. Gallego	P24.45 million
10	Felipe L. Gozon	P22.20 million
…
500	Hitoshi Goto	P 3.57 million

Thus this is evidence that the families in the top 1 percent in the income distribution would be under-represented in the survey.  And these should have a higher income share, than is reflected in the FIES, and would further skew the distribution.

C. Coefficients of Variation of the Percentiles

7.  The coefficient of variation (CV) is the standard error expressed in terms of the arithmetic mean (average).  It is a measure of dispersion, a measure of disparity.  The coefficient of variation is useful because the standard deviation of data can be better understood in the context of the arithmetic mean of the data.  The following graphs chart out the CVs of income percentile data obtained from the NSO over many years.

8.  There are no significant changes aside from those at the tails, both at the lowest and highest ends.  The general outlook of the distribution is that of a ‘flat-liner’, bereft of activity showing change.  The family incomes are clustered closely together.  In 2009, eighty-nine (89) 0f the 100 percentile CVs were no greater than 0.1 percent.[2]

Table 4. Distribution of Percentile CVs, 2009
CV (in %)	Frequency
0.01 -0.1	89
0.11 – 0.2	6
0.21 – 0.3	2
0.31 – 0.4
0.41 – 0.5	1
0.51 – 0.6
0.61 – 0.7
0.71 – 0.7
0.81 – 0.9
0.91 – 1.0	1
1.01 +	1

Groupings based on a cut-off, for instance, a point/line representing the poverty threshold imposed on these charts would appear to be insufficient.  Income alone would not be a valid indicator of poverty classification because of the observed ‘homogeneity’ of incomes.

D. Gini Cofficient

9.  The Gini coefficient is a measure of the inequality of a distribution, a value of 0 expressing total equality and a value of 1 maximal inequality.  The Gini coefficient is usually defined mathematically based on the Lorenz curve, which plots the proportion of the total income of the population (y axis) that is cumulatively earned by the bottom x% of the population.

10.  However, a low coefficient does not always mean an ideal condition.  It could be that many incomes are similar (either low or high).  In the Philippine example the acknowledged ‘income-poor’ Autonomous Region of Muslim Mindanao has the lowest coefficient followed by the ‘richer’ regions, such as the National Capital Region (NCR) and Central Luzon (Region III).

11. The ARMM had the lowest Gini ratio while Regions 8, 9 and 10 had the highest ratios.

Table 5. Gini ratios, 2009
Region	Ratio
A R M M	0.2948
REGION III	0.3727
N C R	0.3953
REGION IV B	0.4004
REGION IV A	0.4063
REGION I	0.4086
REGION V	0.4164
REGION VI	0.4197
C A R	0.4212
REGION XI	0.4275
REGION II	0.4425
REGION XII	0.4425
Caraga	0.4595
REGION VII	0.4601
REGION X	0.4737
REGION IX	0.4738
REGION VIII	0.4841

Table 6. Gini ratios, 2006
Region	Ratio
A R M M	0.3113
REGION I	0.3953
N C R	0.3988
REGION III	0.3994
REGION XII	0.4006
REGION IV A	0.4082
REGION IV B	0.4106
REGION II	0.4216
REGION XI	0.4225
REGION VI	0.4326
C A R	0.4418
REGION V	0.4428
Caraga	0.4452
REGION VII	0.4639
REGION X	0.4806
REGION VIII	0.4828
REGION IX	0.5054

11.  Nevertheless, the movement of the coefficient at the national level showed an indication of more equality or less inequality over the years, with the highest being in 1997 and 2000.

Table 7. Gini Coefficient, Philippines
	Year	Coefficient
1	1985	0.4466
2	1988	0.4446
3	1991	0.468
4	1994	0.4507
5	1997	0.4872
6	2000	0.4822
7	2003	0.4605
8	2006	0.458
9	2009	0.4484

12.  Of 135 countries and dependencies listed in the World Fact Book of the Central Intelligence Asia (CIA), the following rankings can be obtained.  It is clear that the Gini ratio is not always reflective of state of a country’s development[3].

Table 8. Countries with the lowest Gini Ratios
Country	Gini ratio	Reference Year
Sweden	23	2005
Norway	25	2008
Austria	26	2007
Czech Republic	26	2005
Luxembourg	26	2005
Malta	26	2007
Serbia	26	2008
Slovakia	26	2005
Albania	26.7	2005
Germany	27	2006

Table 9. Countries with the Highest Gini Ratios
Country	Gini ratio	Reference Year
Brazil	56.7	2005
Colombia	58.5	2008
Bolivia	59.2	2006
Haiti	59.2	2001
Central African Republic	61.3	1993
Sierra Leone	62.9	1989
Botswana	63	1993
Lesotho	63.2	1995
South Africa	65	2005
Namibia	70.7	2003

13.  Among the Association of Southeast Asian Nations (ASEAN), it was Laos with the lowest Gini, and Singapore with the highest..

Table 10. ASEAN Countries’ Gini Ratios
Country	Gini ratio	Reference Year
Laos	34.6	2002
Vietnam	37	2004
Indonesia	39.4	2005
Cambodia	43	2007 est.
Thailand	43	2006
Philippines	45.8	2006
Malaysia	46.1	2002
Singapore	48.1	2008
Myanmar	N/A	N/A

E.  ABCDE Socio-economic classification

14.  Market/opinion researchers classify according through proxies of wealth/assets, aside from measure of income to segment the (consumer) market.  These proxies may include conditions in the community where the residence of the respondent is, the types of materials used for the house, household furnishings, ownership of house and/or lot.

15.  From the 16 April 2007 release of Pulse Asia, its nationally-representative sample has seven (7) percent making up classes A, B, and C; sixty-seven (67) percent, class D; and twenty-five (25) percent, class E.  This breakdown has a sampling error of +/- 3 percent.  [Statistically speaking, classes ABC may be 4 to 10 percent of the population; class D, 64-70 percent; and class E, 22-28 percent.]

16.  In 2010, the breakdown became: 9 percent for class ABC; 62 percent for class D; and 29 percent for class E.  Class ABC can be further subdivided into class AB, 0.3 percent, and class C, 8.6 percent, although Pulse Asia estimates an undercount of class AB.

.

Table 11: Percent Distribution of Families, by Socio-Economic Class
Socio Economic Class	Percent Share of Families to Total
	2007	2010	My guess-timate*
ABC	7	9	10
of which: AB	n.a.	0.3**	1
C	n.a.	8.6	9
D	68	62	60
E	25	29	30
Source: Pulse Asia, in consultation with Dr. Ana Tabunda  Note: * – Rounded off but within +/- 3% standard errors of 2010 figures ** -Undercounted due to refusals of AB respondents

.

17   While statistical rigor will not be as robust, we can apply the above percentages [my guess-timates] to the income distribution and find out how much income these classes earned in during the reference years.

Table 12. Percent Distribution of Families and Incomes, by Socio-Economic Class, 1985
CLASS	Families		Cumulative Income		Average Income
	Number	Share	Amount	Share
	(x 1000)	%	(x PhP 1 million)	%	(x PhP 1000)
ABC	985	10	111,420	36	113
D	5,908	60	165,857	54	28
E	2,954	30	28,498	9	10
Total	9847	100	305,775	100	31

Table 13. Percent Distribution of Families and Incomes, by Socio-Economic Class, 2000
CLASS	Families		Cumulative Income		Average Income
	Number	Share	Amount	Share
	(x 1000)	%	(x PhP 1 million)	%	(x PhP 1000)
ABC	1,507	10	838,445	38	556
D	9,043	60	1,174,919	54	130
E	4,522	30	173,886	8	38
Total	15072	100	2,187,250	100	145

Table 14. Percent Distribution of Families and Incomes, by Socio-Economic Class, 2003
CLASS	Families		Cumulative Income		Average Income
	Number	Share	Amount	Share
	(x 1000)	%	(x PhP 1 million)	%	(x PhP 1000)
ABC	1,648	10	884,478	36	537
D	9,888	60	1,346,581	55	136
E	4,944	30	206,191	8	42
Total	16480	100	2,437,250	100	148

Table 15. Percent Distribution of Families and Incomes, by Socio-Economic Class, 2006
CLASS	Families		Cumulative Income		Average Income
	Number	Share	Amount	Share
	(x 1000)	%	(x PhP 1 million)	%	(x PhP 1000)
ABC	1,740	10	1,082,478	36	622
D	10,442	60	1,669,309	56	160
E	5,221	30	254,316	8	49
Total	17,403	100	3,006,104	100	173

Table 16. Percent Distribution of Families and Incomes, by Socio-Economic Class, 2009
CLASS	Families		Cumulative Income		Average Income
	Number	Share	Amount	Share
	(x 1000)	%	(x PhP 1 million)	%	(x PhP 1000)
ABC	1,845	10	1,343,697	35	728
D	11,071	60	2,117,478	56	191
E	5,536	30	343,150	9	62
Total	18,452	100	3,804,325	100	206

18.  When class ABC is further subdivided into class AB and class C, it becomes apparent that class AB could be the top 1 percent, with an income share equal to that of class E.

Table 16-A. Percent Distribution of Families and Incomes, by Modified Socio-Economic Class, 2009
CLASS	Families		Cumulative Income		Average Income
	Number	Share	Amount	Share
	(x 1000)	%	(x PhP 1 million)	%	(x PhP 1000)
AB	185	1	342,736	9	1,857
C	1,661	9	1,000,960	26	603
D	11,071	60	2,117,478	56	191
E	5,536	30	343,150	9	62
Total	18,452	100	3,804,325	100	206

19. In summary, the shares of income of class ABC ranged from 35-38, class D, from 54-56, and class E, from 8-9 percent during the past, nearly a quarter-century, period from 1985-2009.

20.  The good news is that the income distribution has not worsened.  The bad news is that it has remained essentially the same..

G.  Summary

21.  From the following data and discussion we can surmise that development efforts for the past five (5) decades have failed to effect an equitable/equal distribution of income.

• The median split has been at 82:18 to 80:20 in favor of the families at upper fifty (50) percent over the past fifty (50) years.
• The top one (1) percent families earned income equivalent to income earned by 32 percent of the families at the bottom of the income ladder in 1985.  This peaked to 38 percent in 2000, was replicated in 2003, and moved down to 30 percent in 2006 and 2009.  In twenty-five (25) years the top 1 percent gave up two (2) percent to the families at the bottom rungs.
• The CVs show very little variation at the percentiles except those at the extreme ends, indicating little spread of income across the entire distribution.
• The Gini coefficient, with its measure of inequality subject to misinterpretation, had moved up during the ‘Baht’ financial crisis, and down from then on.  The Gini ratio of the Philippines is neither among the highest nor the lowest in the world, including ASEAN.
• The shares of income of class ABC ranged from 35-38, class D, from 54-56, and class E, from 8-9 percent the past twenty-five (25) years from 1985-2009

22.  There is also utter lack of information on the distribution of family income which the government, particularly the National Statistics Office (NSO) and the statistical system, need to address.  Perhaps one of the reasons why the distribution has generally remained unchanged is because even if many think that this is so, there has been insufficient empirical evidence to establish its extent and chronicity.

23.  I also urge the government to come up with an official definition of the often-used ABCDE socio-economic classification and the ‘generic’ low-middle-high income classes.   in cooperation with the academe and private sector.  These are terms that many policy and decision-makers and the general public have come to accept and use rather than deciles, quintiles and percentiles and the government can respond by standardizing these and help improve the statistical literacy of society, in this case on income distribution.

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[2] On the basis of this observation, a review of the sampling scheme may be valid since it appears that the sampling size can be reduced with the very low CVs; this may be the case of surveying ‘more of the same’.  The soundness of sub-national results may also be evaluated by examining relevant CVs at the percentiles/ /quintiles/deciles.  The FIES questionnaire should also be reviewed in this light; it has 950 items, with 234 on income, 677 on expenditures and others, 39.

[3] It has been pointed out that Gini coefficients can be computed using income or expenditure /consumption data and this should be considered when comparing country coefficients.

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