Measuring Regional Disparities Measuring income disparities We need

Measuring Regional Disparities

Measuring income disparities • We need to quantify whether incomes in a region are moving closer together or further apart. • When there are many regions, some moving one way, and some another, eyeballing diagrams is inadequate. • Some measures of income more together more quickly than others.

Personal Disposable Income: moving together

Market income: more dispersed than disposable income

Gross Domestic Product: • The total market value of all final goods and services produced in an economy in a year. • It measures the value of all the goods and services produced in a nation, regardless of whether a local person or a non-resident receives it.

Gross National Product: • The aggregate final output of citizens and businesses of an economy in a year. – More simply: it is the income earned by the residents of a region, whether from production in the region or elsewhere.

GDP AND GNP COMPARED • Newfoundland’s GDP (more properly PDP) includes the profits earned from its oil but paid to non-residents. • Newfoundland’s GNP (PNP) excludes profits on oil production paid to nonresidents, but includes the income a Newfoundlander collects on investments in corporations operating in Alberta or the U. S.

Other income definitions • Personal Income: Income paid to persons. – Includes transfers payments – Excludes undistributed corporate profits • Personal Disposable Income: Personal income net of income taxes, CPP and EI deductions. • There are less disparities in these, since we use transfers and taxes to equalize incomes.

More income definitions • Earned Income: Income earned from economic activity. – Includes Wages, salaries, military pay, farm income and income from unincorporated business • Market Income: Income from market activity. – Earned income plus income from miscellaneous investments, such as bonds.

Measuring the degree if difference • Index of Variation. – It measures an average of the difference if each variable from the mean, then divides the average by the mean. The result is a measure that is independent of the units chosen. – It is the standard deviation of a set of numbers divided by the mean of those numbers.

Calculating the index of variation – Take the difference between Yi and the mean Y, and then square it. Add the squares up for each region, divide by the number of regions, and take the square root of the result. That gives you the standard deviation. – Then divide the standard deviation by the mean Y. The result is the index of variation.

Example Y A 120 B 110 C 100 D 90 E Y- Ymean 80 Diff. squared 20 10 400 100 0 -10 -20 0 100 400 Su m Sum sqroot gives stdev Index of variation Mean 1000 /5= 0 200 14. 142/ 100 0. 141

Index of variation: independent of scale Y Y- Ymean Diff. squared A 240 40 400 B 220 20 100 C 200 0 0 D 180 -20 100 E 160 -40 400 Mean S um Sum 200 0 4000 /5= 800 sqroot gives stdev Index of variation 28. 28/ 28. 284 200 0. 141

Convergence of Incomes

Employment