Income Equality in Growth

Sustainable growth is the way for low-income groups of societies to move up to higher income groups in the long term. Income per capita increases in parallel with the growth rate achieved. However, in which income groups does income per capita increase at a higher rate? The fair distribution of the income increase created by growth in society is one of the elements that determines the "quality of growth".

The analysis of the relationship between income distribution and growth reveals extremely complex equations. There is no end to the debates about cause and effect relationships. For example, there are views that some deterioration in income distribution may be normal in the early stages of the transition to growth in economies emerging from periods of stagnation.

In order for income distribution imbalance to contribute positively to growth, certain conditions must exist. The economic, legal and social environment in a country that supports development and entrepreneurship, increases the savings and investment rates of upper income groups, the opening of new job opportunities, especially in poor countries, and the level of education exceeding a certain level can all contribute positively to growth for a while. However, what is important is the balanced and sustainable distribution of income that will be generated in the long term.

Arthur Okun argues that perfect equality and perfect efficiency cannot coexist. He argues that societies must decide how much perfect equality and perfect efficiency they will compromise to achieve balance.

In the long term, injustice in income distribution threatens growth. In most countries, it is preferred to offer low-income groups easy access to credit as a way to support them. This method has also been frequently used in Turkey in recent years. However, credit is not a source of income, it is a debt. In the long term, putting low-income groups in debt to support them may have negative effects on both the household and the potential growth of the country.

It has been proven by numerous academic studies that equality in income distribution has positive effects on growth. At this point, it is clear that political economy comes into play strongly. Because economic policies consist of a set of political choices and their impact on income distribution is great.

Within the framework of the above explanations, we observe that high inflation has disrupted income distribution in Turkey. However, this has not yet been reflected in the data. Because, the continuously rising inflation after September 2021, when the CBRT started reducing interest rates, leads us to predict that income distribution will start to deteriorate in 2022.

Income distribution is analyzed with a data called the Gini coefficient. The data ranges from 0 to 1, where zero indicates absolute equality, and equal to 1 indicates that all income is obtained by only one person.

The Gini coefficient for Turkey was estimated as 0.401 for 2021. No significant change has been observed since 2012. In other words, there is no deterioration or improvement in income equality. We will probably see the deterioration in income distribution that comes with high inflation in the data of the following periods.

In addition to income equity, how growth is reflected in personal income is also important. In dollar terms, personal income in Turkey has been on a downward trend since 2014. The fact that personal income in dollar terms has continuously decreased except for 2021 speaks of Turkey's structural disorders. In Turkish Lira terms, income is increasing. Therefore, do not think that there is a contradiction in the statement "per capita income increases in parallel with the growth rate" at the beginning of the article.

A country where personal income in dollar terms has fallen and income equity is probably on a negative course will pay the price in the future for the growth it has achieved today without relying on its own resources. Moreover, when the right things are done. Turkey should never forget this. The issue is very important politically as well as economically.