SOCIAL inequality is likely to be lower in the Falkland Islands than in countries with similar incomes according to the Chief Executive – so the people here are better off he says.
But he also suggested commonly used tools for measuring social inequality in larger countries might not be appropriate for the Falklands.
He stated he believed any analysis of Falklands statistics should remove “anomalous data or statistical outliers” because the top 1% – about 20 earners in the Falkland Islands – “disproportionately affect the income distribution curve for the nation.”
However in Legislative Assembly on Thursday MLA Teslyn Barkman cautioned against stepping too far away from internationally recognised coefficients that can expose income inequality – although agreed the top 1% did distort the picture. She said however, “you don’t want to come under criticism for stepping away [from common metrics for measuring inequality] because “it just looks bad, and currently ours is bad and that is what the previous state of the economy has shown.”
MLA Mark Pollard was clear on this issue: “We have to be careful manipulating statistics. For example when selling the Falklands as a place to live we may be tempted to keep the 1% in when talking about average wage, but take it out when talking about income inequality. We have to fully explain when we manipulate statistics and why.”
MLA Leona Roberts said: “I too feel cautious about extracting the top 1% of our earners from our statistics. And I know our statistics – you can make them look like whatever you want really. But I would hate to see this work at least risk having the appearance of being engineered to suit a particual view…”
Question background
At Legislature Assembly this week MLA Teslyn Barkman asked what work had been achieved into understanding income inequality including discussions on housing prices, wages and taxation.
Acting Chief Executive Colin Summers speaking on behalf of Chief Executive Andy Keeling in responding to the question said FIG had put in place a number of temporary and permanent measures, agreed by ExCo over the last 9 months that currently helped address income inequality, with further measures announced in the coming budget.
The analysis which prompted the debate in the House last April came from the last State of the Economy report and FIG was looking to update the report soon and a new economist was in place.
Mr Summers said as discussed in that report, the analysis considered only statistics about income distribution. He described that as “a bit tricky in small places like the Falkland Islands, as the earnings of a very few individuals have a much larger impact on the overall results than they do in a bigger place.”
He said the analysis “really should remove anomalous data or statistical outliers because the top 1% – about 20 earners in the Falkland Islands – disproportionately affect the income distribution curve for the nation. “
Mr Summers said it was also important to bear in mind that the analysis accounted for individual incomes, and not household incomes, which had overestimated the extent of income inequality.
“We know that individuals may be part of a household which allows them to choose not to work or only work part-time, or a person may be in education or training and not have an earned income. A more useful approach to examining income inequality would be to calculate the distribution of household income instead.
“Further, the report does not include any information on factors related to social inequality. Our Government services and subsidy, particularly in areas such as health, education, transport and social benefits are generally higher in the Falkland Islands than in most other high-income countries. Therefore, social inequality is likely to be lower in the Falkland Islands than in countries with comparable levels of income inequality.
“Social and income inequality measures should be looked at together, though this can often be quite difficult,” the Acting Chief Executive read, “the Policy and Economic Development Team regularly monitor cost of living increases and use this information along with household data to update not just the Minimum and Living Wage rates, but also to inform the redistribution of wealth via means-tested transfers through our system of social allowances and measures such as the recent cost of living packages.
“Governments around the world use various metrics for measuring income inequality,” the Chief Executive explained, listing a number of measures – including the Gini Coefficient which FIG used in the State of the Economy Report.
“While these are some of the standard instruments used to measure income inequality, we must be careful in how we apply them – these tools are more appropriate for use in countries with large populations where relatively small numbers of outliers, such as those in the top 1%, are less likely to skew the overall distribution and the resulting validity of the analysis.
“Work to refine our understanding of social and income inequality is underway in the Policy Team, both in terms of the methodologies we use to calculate those measures, and also by collecting new data on the living standards experienced by different groups in the community, which will take place this year and in 2024.”
He said that as part of that work, FIG will “look at the most appropriate and applicable methods for identifying and addressing income inequality at both macro and microeconomic levels.”
He stated the “levers the MLAs have available to them to address income and social equality are” the “system of taxation, the social allowances and payments system, what services are subsidised and to what extent, by providing direct income supplements as well as the range of fees, charges and grants across government.”
Several MLAs contested whether the list was an exhaustive means of controlling inequality.