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OCR for page 62
/ Will slower population
I growth decrease the degree
~ of inequality in the
distribution of income?
Given a certain level of per capita income, greater variance in the
distribution of income generally entails a larger percentage of a population
living below whatever absolute income standard defines the poverty line.
Consequently, a reduction of income disparities has become a widespread
goal of development policy. These disparities can be measured with respect
to identifiable characteristics such as occupation or region or with respect
to income itself. In the latter case, standard measures such as the Gini
coefficient express the amount of inequality in income distribution. Measures
of income inequality are to be sharply distinguished from measures of poverty,
which focus on households and persons with incomes below some defined
income level. From the perspective of developing countries, the likely effect
of changes in population growth on poverty is far more important than the
effect on inequality, but in this discussion we confine our attention to income
inequality.
Although the distributional measures are standard, there is considerable
ambiguity about their interpretation. One important question is whether
inequality should be measured on a per capita basis or on a per household
basis. Since larger households in developing countries tend to have higher
total incomes but lower per capita incomes (Snnivasen and Bardhan, 1974;
Kuznets, 1976), results can be quite sensitive to the choice of the unit of
measurement. Further ambiguity is present because measures of income
This chapter is based heavily on Lam (1985)
62
OCR for page 63
DISTRIBUTION OF INCOME
63
inequality can actually increase as a result of poorer households suddenly
becoming richer. Also, some economic decisions (e.g., the decisions of low-
income families to have another child) can result in both increased welfare
and increased income inequality.
When inequality is measured with respect to income itself, very little of
a general nature can be said about the effects of population growth (i.e.,
higher levels of fertility). Lam (1985) discusses why empirical time-series
and cross-national analyses have not been and are not likely to be fruitful
in this area. Nevertheless, some relatively straightforward conclusions can
be drawn from theoretical analyses on the assumption that fertility change
in a household does not alter its total income.
In the short term, the effects of fertility change depend heavily on the
class distribution of that change. If the fertility change is differentiated by
income class, per capita measures of inequality can change even in the short
term. If lower income groups have proportionally larger fertility declines,
then per capita income inequality will decrease. (This relationship holds
generally but not universally; Lam, 1985.) If higher income groups have
proportionally larger declines, as is often observed in the early stages of
a fertility decline (Poker, 1978), then per capita income inequality will
increase. When a fertility change is induced by a government-sponsored
family planning program, the effects just described will be exaggerated:
subsidized family planning services are themselves a form of income to
the household, and whichever income groups take greater advantage of the
services will have not only higher per capita incomes in the short term, but
also greater increases in imputed income from increased service availability.
On the other hand, if the fertility decline is induced by setting quantity
limits on the number of children per couple, the unmeasured effect of the
policy could offset measured changes in income distribution: for example, if
high fertility is a greater economic benefit to poorer classes, the imposition
of quantity limits could aggravate the* poverty (Rodgers, 1984:171~.
Longer term effects of fertility change on income distributions are far more
complex. They depend on the income-class distribution of the "extra" births
and on Me income classes of those children when they become adults. They
also depend on the impact of those births on aggregate rates of return to
venous factors of production. On this matter, economic theory is relatively
clear, and evidence supports the theoretical predictions: increases in the
supply of labor relative to over factors of production (capital and natural
resources) are expected to reduce the rate of return to labor and increase the
rate of return to over factors of production, other things being equal. Since
high-income groups generally own a disproportionate amount of the other
factors of production, their incomes can be expected to rise disproportionately,
making the population's income more unequally distributed. These effects
OCR for page 64
64
POP Ul~TION GROWTH AND ECONOMIC DEVELOPMENT
are expected so long as a decrease in the ratio of wage rates to We price
of another factor results in a less-than-proportional substitution of labor for
the other factor (see Lam, 1985~. Evidence suggests that this is the case
(Lam, 1985~. Eventually, the greater returns to capital induced by higher
fertility can lead to more investment and lower returns to investment, so
that effects in the very long term, after all adjustments are completed, can
be moderated.
In our discussion of renewable resources (Question 2), historical evidence
from England was cited that suggests that population growth had the predicted
effects of driving down wages and raising returns to owners of land. Evenson's
(1984b) results for northern India suggest the same effect there. Khan (1984)
finds evidence that population growth has reduced agricultural wages in
Bangladesh. leading to a sharp increase in landlessness and agricultural
· .
_ ~ __ , ~ car ~ ~
poverty; in other Asian countries, the effects were not nearly so apparent,
probably because industrialization proceeded at a more rapid pace in those
countries than in Bangladesh. Unless population growth slows the rate of
investment substantially, the"Bangladesh effect" need not arise.
Similar mechanisms can be expected when workers are disaggregated
into skilled and unskilled groups, educated and uneducated groups, or finer
categories. Because workers of different Apes are not perfect substitutes for
. · .
one another (see Kelley and Williamson, 1984y, relative increases in one type
of worker would decrease wages for that type relative to workers of another
type. Williamson and Lindert (1980) examine evidence on inequality in the
United States and find that changes in measured inequality reflect closely
the changes in wage differences between skilled and unskilled workers,
which in turn are a positive function of the rate of population grown.
They conclude that faster population grown has produced greater income
inequality in the United States, with a major role played by faster population
growth depressing relative wages. Behrman and Birdsall (1985) find similar
_
~ , ~ _
~ · ~ ~ ~ a ~ ~ ~ ~ ~ ~ _ ~ _ 3 1 _ ~= _ _ ^~ _ _ ~
effects in Bail: wages of unskilled workers are lower, ail otner Snags
being We same, if they are members of an unusually large cohort. Relative
to the wages of unskilled workers, earnings of well-educated workers are
increased by membership in a large cohort.
In addition to these effects, which essentially operate through private
markets, the effects of population growth on income inequality may also
be mediated by government programs. Many government programs are
redistributive in their net tax and expenditure effects. If population growth
alters the scope or characteristics of these programs, it can change income
distribution. Lithe is known about these relationships. In a cross-national
study, K`>lley (1976) finds that total government expenditure as a share
of GNP is insignificantly affected by the relative size of the your cohort
but singly and positively associated with the relative size of the elderly
OCR for page 65
DISTRIBUTION OF INCOME
65
cohort. Total expenditure is also negatively but weakly related to the total
size and density of the population, perhaps because only central government
expenditures are included, and they can be expected to decline as a fraction
of all government expenditures when a country's population grows larger. In
any event, the net implication of Kelley's results seems to be that government
expenditures as a fraction of GNP will rise as population growth declines.
In the preceding chapter, we reviewed evidence suggesting that government
school expenditure per school-aged child rises when fertility falls, which
supports the notion that there may be redistributional gains from declining
fertility that are mediated by government programs.
Population growth can affect inequality as measured in other dimensions.
For example, intergenerational inequality can be altered by varying levels of
fertility. In one sense, all the questions we consider in this volume bear on
the issue of intergenerational equality, since we are asking how the future
will differ from Me present when fertility is lower instead of higher. The
fact that the number of members of the next generation is being jointly
determined (in part) with its average level of welfare adds great ambiguity to
the issue of intergenerational equality. Few people would consider a future
generation to be better off if it consisted of only one member with princely
weals; a discussion of the difficulty of making social choices when both
numbers and conditions are involved can be found in Dasgupta (1985~.
A more tractable issue relates to inequality by sex. In most countnes,
women bear most of the time, health, and energy burdens of bearing and
raising children. When this burden is increased by unwanted children, there
is probably a greater welfare loss for women than for men. Programs to
improve contraception are thus likely to raise the welfare of women relative
to men; in most societies, such a change would produce a reduction in
sewal inequality.
CONCLUSIONS
So long as the process of income generation is independent of fertility,
the short-term effects of altered fertility on per capita measures of income
inequality depend primarily on differences in the amount of fertility change
by income class. These differences cannot be predicted a priori. To the
extent that publicly supported family planning programs are targeted at
the poor and permit them to exercise greater fertility control than they
otherwise might, per capita income inequality will be reduced. Longer term
effects, which have mainly been investigated in the economic histories of
now~eveloped countries, tend to confirm theoretical predictions that slower
population growth will decrease income inequality by increasing the rate of
return to labor relative to returns to other factors of production.
Representative terms from entire chapter:
income inequality
