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Reviewing the Facts on Top Incomes and Inequality in Egypt

Paolo Verme's picture

One of the puzzling aspects about Egypt is that income inequality measured through household surveys before the revolution was very low compared to the perceptions of inequality and injustice voiced by the people of Egypt during the revolution. A recent book on Egypt has tried to explain this apparent mismatch and found several leads that could explain why both the data and the people of Egypt may be right. Household data in Egypt are of good quality and measure income inequality well relative to other comparable surveys worldwide and the people of Egypt had good reasons to complain about social injustice as real incomes declined, prices increased and jobs and opportunities were scarce before the revolution.

This finding should not please believers of low inequality nor upset believers of high inequality. As shown by several recent studies*,  low inequality in Egypt is a byproduct of widespread misery, low incomes, lack of jobs and generally lack of opportunities. Inequality is lower where poverty is higher across Egypt, especially in rural areas and Upper Egypt. This fact can also co-exist with high aversion to inequality. GDP growth in Egypt did not translate into household incomes growth, labor demand has been sluggish, new job market entrants have drifted toward informal, subsistence jobs and equality of opportunities has not materialized. Historically, inequality measured with household income data tends to increase when many start to do well and their incomes increase and spread apart. This is a phenomenon observed in many countries that started to grow rapidly such as post-war Europe, South Korea or more recently China and India. In these countries, GDP growth trickled down to households and many profited from growth, albeit unevenly. Unfortunately, Egypt is not in this class of countries today and low inequality should be interpreted as a sign of economic stagnation rather than of successful redistributive policies. Data would suggest that Egypt’s priority today is not reducing inequality further but making GDP growth more inclusive and creating jobs and income growth opportunities for the many. This is the real challenge for the new government of Egypt.

Yet, the sense of distrust toward the authorities and the sense of social injustice remain high in Egypt and these two factors make trust in official data and trust in inequality figures understandably low. In a recent press article featured in May 2014 in the Al Shorouk newspaper,  Egyptian scholars argued that believing that inequality in Egypt was low before the revolution amounts to supporting the former regime. This distrust is also common among international observers. In a study published in May 2014, Alvaredo and Piketty suggested that Egyptian household survey data should not be trusted and that inequality in Egypt should be expected to be much higher than that estimated using household surveys.  This claim has been subsequently reported in the weekly on-line magazine Al-Ahram confirming the skepticism that reigns around inequality figures in Egypt. 

It is important therefore to review the available evidence on income inequality in Egypt so as to give to this issue the proper weight when it comes to economic reforms. The available evidence indicates that the Egyptian household survey data are of good quality and that inequality and top incomes shares are low in Egypt by regional and world standards. 

The Egyptian household survey data measure top incomes better than other comparable surveys worldwide. The 2009 Egyptian Household Income, Expenditure and Consumption Survey (HIECS), the latest survey administered before the revolution, is one of the largest of its kind worldwide, covering 48,000 households. It is representative of the underlying population and has very low rates of item and unit non-response (households who do not reply to selected questions or to the whole questionnaire) across all regions of the country. Comparing the income distribution with that of expenditures in the HIECS or with income distributions of other countries suggests that incomes in the HIECS are measured well and better than in most emerging economies. The Egyptian Central Agency for Public Mobilization and Statistics (CAPMAS) exerts considerable effort to minimize non-response rates, and uses comparable replacement households to fill in for hard to reach units. The CAPMAS also provides researchers with data in raw format without systematically truncating or top-coding incomes,  as the US Census Bureau, for instance, does with the Current Population Survey. Sampling weights in the HIECS are the original sampling weights, unlike, say, the EU Statistics on Income and Living Conditions survey, in which weights are top-coded (artificially changed to avoid household identification, or to make individual households too influential for survey-wide results). By world standards, the HIECS is a good survey. We know that household surveys tend to underestimate inequality worldwide. But the Egyptian survey is less likely to suffer from this problem when compared to other household surveys worldwide. 

The evidence on income inequality in Egypt is consistent across studies and surveys and shows that income inequality and top incomes shares are lower in Egypt as compared to other countries in the region and in the world. Egyptian scholars have found inequality in Egypt to be low since the 1950s and this finding has been persistent across scholars, time and data sources. Recent World Bank studies have found inequality to be low and declining in the 2000s**. A study by Branko Milanovic on spatial inequality in Egypt found inequality to be low by world standards. A recent paper on top incomes and inequality in Egypt by Hlasny and Verme (2013) used newly developed techniques to correct the measurement of inequality for various problems related to top incomes. The paper found income inequality to be underestimated because of systematic non-response by top-income households, but by a small amount (1.3 percentage points), and confirmed that income inequality is low as compared to other countries in the region and other countries in the world.  The paper also found that the distribution of top incomes in the HIECS follows rather closely the Pareto distribution observed worldwide in comparable surveys, and the shape parameter of this distribution is typical of those in other national surveys. The most recent paper on top incomes in Egypt  by Alvaredo and Piketty (2014) found that inequality and top income shares in Egypt are lower than in the MENA region as a whole, lower than in other countries in the region and lower than in other regions of the world. 

Of course, no one can claim to know the right answer to the inequality question and better future data and research may show otherwise, but there is very little inconsistency across studies on inequality and top incomes in Egypt. All studies show that, by regional and world standards, inequality and top incomes shares are relatively low in Egypt. If income inequality alone would explain the revolution, then Egypt should have been the least likely country in the MENA region to experience a revolution. This is why it is important not to overemphasize the role of income inequality and try to seek the roots of social discontent in those factors that prevent the Egyptian economy from delivering jobs and better living conditions to the population at large.

*World Bank, (2012) Reshaping Egypt's Economic Geography Domestic Integration as a Development Platform Volume 1; El-Tawila, S., Gadallah, M. and Enas Ali A.El-Majeed (2014) Poverty and Inequality in the Arab’s Republic of Egypt’s Poorest Villages. In Verme et al. (2014).
** World Bank (2007). Arab Republic of Egypt, Poverty Assessment Update, Report No. 39885 – EG, Vols 1 and 2; World Bank (2011). Arab Republic of Egypt. Poverty in Egypt 2008-09, Report No. 60249-EG

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