Inequality in Asia and the Pacific in the era of the 2030 Agenda for Sustainable Development

Inequality in Asia and the Pacific is on the rise. Many countries, including those held up as models of dynamism and prosperity, have experienced a widening of gaps, along with environmental degradation. Market-led growth alone is not sufficient to deliver a prosperous, sustainable future for all.

The theme study for the 74th session of the Economic and Social Commission for Asia and the Pacific entitled “Inequality in Asia and the Pacific in the era of the 2030 Agenda for Sustainable Development” explores these trends following a novel approach: it focuses on multiple aspects of inequality – inequality of outcomes, inequality of opportunities and inequality of impacts. It also examines the potentially transformative role of technological innovation and the impact that the incipient Fourth Industrial Revolution may have on inequality.

The ESCAP study finds that unequal access to basic opportunities has left large groups of people behind and contributed to widening inequalities of outcomes, particularly in income and wealth. In turn, these inequalities have aggravated inequalities in access to health care, education, technology, and protection from natural disasters and environmental hazards – creating hardship for communities and families over generations. Written against the backdrop of the 2030 Agenda for Sustainable Development and its pledge to “leave no one behind”, the report puts forward an eight-point policy agenda for shaping a more inclusive, prosperous and sustainable future for all in Asia and the Pacific.

Since 1990, income inequality, as measured by the market Gini coefficient, has increased in 40 per cent of Asia-Pacific countries and fallen in the rest, but the population-weighted income inequality for the whole region has increased. This aggregate increase is driven by the region’s most dynamic and populous economies: Bangladesh, China, India and Indonesia. In countries that saw a reduction, inequality often fell from very high starting levels.

The economic costs of inequality cannot be ignored. The study finds that a 1 percentage point increase in the Gini coefficient reduces the GDP per capita, on average, by US$154 for the countries in Asia and the Pacific region.

The report also finds that in ten countries of the region for which inequality increased over the period studied – Bangladesh, China, India, Indonesia, Lao People's Democratic Republic, Republic of Korea, Singapore, Sri Lanka, Tajikistan and Viet Nam – an additional 153 million, representing about 5 per cent of their combined population, could have been lifted out of poverty if inequality had not increased.

Changes in income inequality by country, 1990 and 2014.

Note: Labels next to each bar show each country’s average market income Gini coefficient for 2010-2014.

Compared to 15-20 years ago, more people have on average access to basic opportunities in Asia and the Pacific. Yet average progress conceals large inequalities among different groups in access to education, health care, full-time employment, and basic household services. This inequality of opportunity perpetuates inequality of outcome. For example, women with no education have between 20 and 100 per cent higher chances of having stunted children.

Impact of mother’s education (secondary) in reducing stunting among children, selected Asia-Pacific countries

Stunting affects cognitive capacities and stunted children struggle to complete education. When they enter the workforce, they have much lower chances of being in full-time employment than their counterparts who have completed secondary or higher education.

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Education, when viewed as a “circumstance” matters in different ways depending on the opportunity: for children’s nutrition, it is the education of a mother; for securing decent work, it is the own individual’s level of education. The highest education level in the household is also important for determining access to all basic household-level services, but mostly associated with ownership of a bank account. Given that basic literacy is necessary for accessing, understanding and operating banking or telecommunications services, this association is not surprising.

Impact of education in getting full-time employment

Inequality of outcome and of opportunity hampers efforts to protection of the environment. Generally, societies with higher levels of inequality show less public support for policies protecting the environment and regulating common goods. Inequality in the ownership of land and natural resources provides unchecked freedom for the advantaged to cut, mine and farm lands in ecologically unsustainable ways. For the disadvantaged, social resentment and lack of education can then lead to widespread free-riding and the overuse of natural resources.

This study, however, goes a step further. It shows that environmental degradation can also further increase inequality. The mechanism is as follows: being less able to protect themselves from pollution, poor and disadvantaged people are more exposed and vulnerable to the pernicious impact of pollution and their health and productivity suffer disproportionately. Overall data show that inequality is reduced when levels of particulate emissions are lower. However, this relationship turns positive once aggregate PM2.5 emissions cross a threshold, suggesting a sharp rise in inequality is associated with increases in damage from particulate emissions.

Inequality and environmental degradation, within countries

Countries with high inequality of opportunities are also more vulnerable to natural disasters. This pattern is worrisome because it implies that the most vulnerable and marginalized people in these countries face not only a higher risk of being affected by a disaster but also lower access to basic services, making inequality of impact more severe. With the impacts of climate change expected to intensify in the future, policies need to increase the resilience of the poor and marginalized. A social protection floor, for example, could constitutes a buffer for the most vulnerable populations.

Inequality of outcomes and opportunities, and their relation to vulnerability to natural disasters

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Robotics and artificial intelligence (AI) tend to augment the tasks of high-skilled professionals such as engineering, customer-problem solving, management, medical diagnosis, software development, etc. New technologies also have the capability to take over routine tasks, for example manufacturing assembly and back-office work, which fall under the middle-skilled category.

As a result, automation can create employment polarization by “hollowing out” jobs at the middle of the employment distribution. In Asia-Pacific countries, the unbalanced shift in the composition of job markets (from middle-skilled to low skilled, accompanied by an increase in high-skilled jobs) can translate into rising income inequality as high-skilled workers will see higher wages while low-skilled workers will have to compete with displaced middle-skilled workers.

Taxes and transfers have an important equalizing effect, seen more clearly in the region’s developed countries. The Gini coefficient of net (or after-tax) income for seven developed countries, which are members of ESCAP, was 33.8 compared with 49 when income is measured on a gross or market basis.

Similarly, the average Gini coefficients for five countries in the region included in the OECD database – China, India, People’s Republic of Korea, Russian Federation and Turkey – were 41.7 for net income, compared with 46.2 for gross income. These findings highlight both the important role of fiscal policy as a tool for redistributing income in developed and developing countries and the potential for taxes and transfers to play a larger role in reducing inequality of outcomes in the region.

Inequality, gross versus disposable income, in selected countries, 2014 or latest available years

The study shows that social protection policies, including access to health-care services, are central to closing the gaps in access to most opportunities, while also increasing prosperity, resilience and empowerment. Expanding social protection to low-income families through cash transfers, or other income-support mechanisms also tends to have strong multiplier effects, as these groups typically spend their extra income on domestic goods and services.

In the example of health-care, countries that expanded basic health-care services were much more successful in closing the gaps between the furthest behind and the country average, compared to those who did not.

Distance between the worst-off groups and the average in access to professional help during childbirth for women aged 15 to 49, Asia-Pacific countries, earliest and latest

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