Careful with the Gini

It now stands at 0.472 – which is roughly the same as the US at 0.469. But take this number with a pinch of salt, it has some serious drawbacks.

(a) Singapore is a country but it is also a financial centre, there should therefore be no surprise at the greater income disparity. The City of London recently paid out record bonus, and a Hyde Park apartment recently sold for S$250 million, no typo here. On the other hand, London also has some of the most deprived neighbourhoods. When you mix bankers with workers into the calculation, is there any surprise at the Gini outcome? Global city, global disparity. If one could compute the Gini for London or New York, my guess is that it would show far greater income disparity than their respective national averages.

(b) Non-income redistribution is not effectively factored into the calculations. HDB, healthcare, and education policies for example can lead to sizeable fiscal transfers between income groups – since the higher income group pays more taxes but uses proportionately less government services. Social provision of key services matter as much as income differences.

(c) Gini is a snapshot of the income disparity today. It says nothing about social mobility, which I argue has far more important social consequences.

Income differences are essentially market outcomes. Insofar as society is not destablised by the income differences, there is no right and wrong about it unless one prescribes a certain political view. However, there is a real market failure if good people become less productive or fail to fulfil their potential because they are weighed down by their parents’ circumstances. I am therefore arguing that we should care less about present income disparity than whether the next generation of the lower income group becomes trapped there. The more long-term concern is that Singapore may have become a less mobile society compared to a generation ago.