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| Teacher's Notes | Student Activities |
| Introduction |
Different people have different incomes. A shop assistant might earn $25 000 per annum, a chef $40 000, an architect $80 000, while the chief executive of a large company might be paid $500 000 or more each year.
Just as individuals have different levels of income so do countries. Some countries we would recognise as rich with a high total income (for the country as a whole) and high per capita income (per head of population), while others are poor with low levels of income. When we talk about the income of a country we mean the value of that country's production or output. Dividing this by population gives per capita income.
| Table One: Total output and income per capita for selected countries | ||
| Country | Total output/income (GNP $US billions 1998) | Income per capita (GNP per head of population $US 1998) |
| Switzerland | 284.8 | 40 080 |
| USA | 7 921.3 | 29 340 |
| Australia | 380.6 | 20 300 |
| PNG | 4.1 | 890 |
| Bangladesh | 44.0 | 350 |
| Vietnam | 25.6 | 330 |
| Cambodia | 3.0 | 280 |
| Ethiopia | 6.1 | 100 |
(World Bank - World Development Report 1999/2000 World Bank Publications 1999)
| Measurement of global income |
The standard measure of a country's income is based on Gross National Product (GNP) per capita or per head of population.
GNP is a measure of a country's total income. It measures the total income earned by the citizens of a nation. Sometimes Gross Domestic Product, which measures a country's production or output is used as an indication of total income. The two produce slightly different results but are the best indicators available to economists and statisticians of a nations' income.
FIGURE ONE
| Australia's income per capita (GDP)1997/98 = | 565 881 000 000 Australian dollars |
| ----------------------- | |
| 18 000 000 (population) | |
| Vietnam's income per capita (GDP) 1998 = | 368 692 000 000 000 Vietnamese dong |
| ----------------------- | |
| 77 000 000 (population) |
These figures use each nation's own currency. This makes it impossible to compare one country with another. International comparisons require conversions into a common currency, for example, $US, or other statistical measures that allow comparison.
| Measurement problems |
There are a number of difficulties in comparing income data from one country to another. For example:
| Global statistics |
The World Bank measures global income distribution based on GNP per capita in both $US and Purchasing Parity Power (PPP$). It classifies nations into low, lower middle, upper middle and high income groups.
| Table Two - Country classification on income | |
| Low Income | Less that $765 per capita |
| Lower Middle | $766 to $3 035 |
| Upper Middle | $ 3 036 to $9 385 |
| High | Above $9 386 |
(Figures in $US for 1995, The World Bank - World Development Indicators 1997)
Study World Bank world development indicators income table. (http://www.worldbank.org/data/wdi2000/pdfs/tab1_1.pdf)
The statistics (from the above website) show the differences between countries' income distribution. Ethiopia, for example, has the lowest income at $US 100 per capita. The highest is Switzerland at $US 40 800 per capita. That is, in 1998 the per capita income in Switzerland was 408 times that of Ethiopia. In 1998 the 20% of the world's people who live in the high-income countries had 82 times the income of the lowest 20%. Statistics show 60% of the world's population receive only 6% of world income. The high-income nations contain 17% of the world's population yet receive 78% of world income.
| Income, poverty and human development |
The World Bank defines poverty as the inability of people to attain a minimum standard of living. We probably all have a sense of what poverty is but actually measuring poverty is much more difficult. The United Nations and World Bank use $1-$2 (PPP) per day as an international poverty line, indicating a lack of access to basic sustenance. In 1998 1.2 billion people had consumption levels less that $1 per day and 2.8 billion less than $2 per day.
Using a single financial indicator of poverty may not give a real picture of the quality of life people are leading. Per capita income may be the same in two countries but people may experience quite different living conditions because the way income is translated into human development varies from one country to another.
To gain a better picture of living standards the United Nations has constructed two indicators:
| Conclusion |
The uneven distribution of global income and world poverty are the most significant issues facing the world today. Improvements have occurred with real income per capita growing, infant mortality and malnutrition declining and life expectancy increasing. Australia's aid program aims to assist developing countries to reduce poverty through sustainable economic and social development.
© Commonwealth of Australia
Source: http://www.globaleducation.edna.edu.au/archives/secondary/casestud/economics/1/glob-inc.html.