DRAFT

EPD INCOME DISTRIBUTION PROJECT

DATA ON THEl DISTRIBUTION OF INCOME IN EL SALVADOR

Jong-goo Park

Divisi'on Working Paper No.1980-7

October 1980

Economic and Social Data DivisionEconomic Analysis and Projections DepartmentDevelopment Policy StaffThe World Bank

Division Working Papers report on work in progress and are circulatedfor Bank staff use to stimulate discussion and comment. The views andinterpretations in a Working Paper are those of the author and may notbe attributed to the World Bank or its affiliated organizations.

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DATA ON THE DISTRIBUTION OF INCOME

IN EL SALVADOR

This paper contains an evaluation of the data on the

distribution of income in El Salvador from a 1976/77 survey

of household budgets. The paper then adjusts data from the

survey, and derives a more representative distribution of

income for the country by household.

ECONOMIC AND SOCIAL DATA DIVISION

ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT

OCTOBER 1980

TABLE OF CONTENTS

Page

I. Introduction ........... ........................... 1

II. The 1976/77 Survey of Household Budgets (ENPF) . 2

III. Evaluation of the 1976/77 ENPF . . . . . . . . . .. . 2

IV. Data Adjustment and Estimation of HouseholdIncome Distribution. . .............. 4

Appendix Tables ............. . . . . .. .... ... 8

DATA ON THE DISTRIBUTION OF INCOME IN

EL SALVADOR

I. Introduction

1. This paper briefly reviews the data on the distribution of income

in El Salvador and evaluates the country's 1976/77 survey of household budgets.

It then derives an estimate of income distribution in El Salvador by household

for 1976/77.

2. There are two national surveys which provide information on income

distribution in El Salvador. One is the 1975 Encuesta Nacional de Mano de

Obra y Aspectos Demograficos (ENMOAD). It was a national survey on the labor

force and on demographics, and provides data on distribution of income for

individual income earners for the period April-June 1975 (Appendix Table A-1).

The second survey is the 1976/77 Encuesta Nacional de Presupuestos Familiars (ENPF),

a national surve' of household budgets which provides data on income distribution

by household for the whole country.

3. The final report on the ENPF survey has not yet been published. Pre-

liminary reports / include data on distribution of income by individual income

earner, by household, and by household member (per capita household income).

A summary of the data on per capita distribution of income (with households

classified into percentile groups and ranked according to per capita income)

/1 Ministerio de Planificacion y Coordinacion, Banco Central de Reserva andDireccion General de Estadistica y Census, Caracteristicas de los Hogares ydelas Viviendas, San Salvador, May 1979; "t Distribucion del Ingresopor Deciles de Perceptores," (mimeo), November 1978; "'Algunos Resultados dela Encuesta Nacional de Presupuestos Familiares (1976-77) y Calculo de Co-efficientes de Elasticidad-Ingreso del Gasto, de los Principales Subgrupos deArticulos Consumidos por las Familias Salvadorenas," (mimeo), undated;ttMuestra de Hogares," (mimeo), April 1978.

was published in the 1980 Social Indicators Data Sheets of the World Bank..

II. The 1976/77 Survey of Household Budgets (ENPF)

4. The 1976/77 ENPF was conducted by the Planning Ministry (Ministerio

de Planificacion y Coordinacion del Desarrollo Economico y Social) in

collaboration with the Central Bank and National Statistics and Census Office,

between August 1976 and July 1977. Its purpose was to obtain information on

household income and expenditures, consumption patterns, employment, levels of

education and characteristics of dwellings.

5. The survey sample contained 3,227 private house-holds, about 0.4%

of the total private households in the country. A household was defined as

including one or more persons, not necessarily related, sharing the same dwell-

ing and contributing to a common budget. Household income was defined as the

after-tax income of all members of the household, including income both in cash

and in kind, transfers, imputed rents from owner-occupied dwellings and produc-

tion consumed by the producer.

III. Evaluation of the 1976/77 ENPF

Under-Reporting of Income

6. The 1976/77 ENPF data on distribution of per capita household income

shows that El Salvador's total household income amounted to 3,658.4 million

colones for an estimated population of 4.29 million in 1976/77./2 The popula-

tion estimates derived from the survey is comparable to that of 4.11 million

derived from other official sources. /3 As a rough check on the total household

/1 Shail Jain's Size Distribution of Income (World Bank, 1975) includes afew estimates of El Salvador's income distribution for earlier years. Dataused for these estimates were not available Lor evaluation of the estimates.

/2 See the Appendix, Tables A-2, A-3 and A-4 for the original ENPF data.

/3 Ministerio de Planificacion y Coordinacion and Latin American Demographic Center.

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income yielded by the survey, that figure was compared with private consumption

expenditures derived from the country's national accounts. The former was 83

percent of the latter. This implies that income was under-reported in the

survey, since private consumption expenditures are expected to be less than

aggregate personal income in El Salvador (see Table 1, below).

7. Because of the lack of data on average household income by income

class, it was not possible to assess directly the under-reporting of income by

different income classes. Preliminary data obtained for only a part (August-

October 1976) of the whole survey period provide average household income and

expenditures by broad income classes. These data show that as average household

income increases, the expenditure-income ratio decreases until there is a

sudden rise in the 'top" income class (average monthly income of over 1,000

colones) (Table 1). There is no evidence of under-reporting of expenditures by

the "top" income class. This suggests relatively greater under-reporting of

income by this class, since its average savings ratio is normally expected to be

the highest (or the expenditure-income ratio the lowest) of the classes in the

country.

/1 A more proper comparison would have been between total household incomederived from survey data and personal income from the national accounts.There were not enough data to derive the latter in El Salvador. Sincein the national acconts, private consumption expenditures are normallyless than personal income, certainly household income, which is less thanprivate consumption expenditures, will also be less than the nationalaccounts personal income.

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Table 1: AVERAGE HOUSEHOLD MONTHLY INCOMEAND EXPENDITURES, 1976/77

Income Class Percentage of Average Average(colones) Households Income (Y) Expenditure (C) C/Y

0 - 99 12;6 67.5 101.1 1r50100 - 199 28.7 146.8 155.0 1.06200 - 299 18.6 244.8 238.2 0.97300 - 599 24.5 406.7 341.8 0.84

600 - 999 9.6 746.3 594.2 0.801,000 + 6.0 1,621.8 1,453.3 0.90TOTAL 100.0 358.0 325.5 0.91

Source: Encesta Nacional de Presupuestos Familiares,first trimester (August-October 1976), preliminary results.

8. Zero income was reported by 1,736 urban households (0.5% of total

urban households)./- However, the data show that 590 out of the 1,738 households

owned an automobile, refrigerator and telephone, indicating quite comfortable

living. This, together with the fact that household income in the survey included

transfers and income in kind, implies non-reporting of income.

IV. Data Adjustment and Estimation of Household Income Distribution

9. The 19.76/77 ENPF data on income distribution by household include only

distribution of households by income classes (Appendix, Table A-5). For all

income classes except the lowest and the highest, average household income was

assumed to be equal to the median of the corresponding income range (Appendix,

Table A-6).

/1 Caracteristicas de los Hogares y de las Viviendas, op. cit., Tables N4, N5and N6.

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10. For thre highest and open-ended class of urban households, average

household income was derived by the use of an estimated Pareto coefficient.

Multiplying this average income by the ratio between average incomes of rural

and urban high income classes, the average income of the highest rural income

class was derived. This average income ratio was derived from survey data

for the three months, August - October 1976.'!

11. For the lowest rural income class (monthly income less than 50

colones), the. estimate of average household income was based on the median

income of the next lowest income class (between 50 and 99 colones) and the

reported average income (68.4 colones) for a class combining the two. For

the urban area, the 590 households reporting zero income but owning automo-

biles were reclassified into the 300 - 599 colon income class where private

automobile ownership became apparent. The average income of the remaining

1,146 households reporting zero income was assumed to be equal to that of

the lowest income urban class, in turn assumed to be equal to the average

earnings of a worker in the lowest paid urban job (the latter was estimated

using data from the 1975 national employment survey CENMOAD), taking into

account increases in domestic food prices between 19.75 and 1977).

12. Using the average household incomes as derived in paragraphs 9 to

11 above, income distribution was estimated for 1976/77 (Appendix, Table A-8). "

Income distribution by decile household groups was then derived in addition,

as follows:

/1 See the Appendix,Table A-7 for survey data on average household income byurban and rural areas for the period August-October 1976.

/2 Total household income derived from these adjusted data was 88 percent ofthe private consumption expenditures in the national accounts for 1976/77,

Table 2: HOUSEHOLD INCOME DISTRIBUTION,1976/77 ADJUSTED

Cumulative % Cumulative % of Household Income/aoL Households Urbani Rural National

10 1.7 2.3 1.7

20 4.4 5.8 5.0

30 7.9 11.2 8.7

40 12.4 16.6 12.4

50 19.8 22.0 18.3

60 27.8 29.4 24.6

70 35.8 38.4 35.7

80 48.7 51.5 46.8

90 65.0 67.7 63.1

(95) (78.4) (77.1) (75.2)

100 100.0 100.0 100.0

Gini Coefficient 0.58 0.42 0.48

/a Derived from the Appendix Table A-8,by linear interpolationbetween two adjacent income classes.

13. The adjusted data on which the estimates of income distribution

are based may be open to some criticisms. Notwithstanding these critic'sms,

the following conclusions about income distribution can be safely made:

- Household income is distributed more equally in rural

than in urban areas (Table 2); and

- The inequality in the distribution of income appears to be

greater when households are ranked by income for the

entire household, as opposed to per capita household income

(Table 3). The latter approximates income distribution by

household when adjusted for differences in household size,

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Table 3: INCOME INEQUALITY MEASURESFOR 1976/77

- Income Share (%) Income Share (M)Gini of Lowest 20% of of Highest 20% of

Data Source Coefficient Income Group Income Group

Adjusted ENPF(distribution of householdsranked according to house-hold income) 0.48 5.0 53.2

Original ENPF (Social Indi-cators Sheets)(distribution of householdsranked according to percapita household income) 0.40 5.8 47.7

Table A-1:-EL SALVADOR--TOTAL EMPLOYMENT BY SECTORS AND INCOME LEVELS, 1975(in percentages)

Electrici- Transp,ortIncome level ty, Gas Construc- and Commu- Financial Serxvices Unspe-

(colones) Agriculture Mining Industry and Water tion Commerce nications Services cified

w/o renumneration 147.4 23.1 9.4 1.9 4.2 8.h 1.2 0.0 3.2 50.1

I - 39 3.7 0.0 12.8 0.0 3.0 14.0 1.9 0.0 i6.O 3.2

40 - 99 29.7 23'.l 21.5 8.7 18.8 27.3 14.14 2.8 26.9 27.4 1

100 - 100 15.2 23.1 36.6 28.3 48.6 24.5 34.3 17.8 19.0 11.0

200 - 299 1.5 15.4 10.7 23.1 i8.6 10.4 18.5 18.3 12.5 4.1

300 - 399 0.7 15.3 3.8 11.1 4.0 .7.0 17.2 18.4 10.5 0.0

40O - 599 o.6 o.o. 2.7 15.8 1.2 3.8 8.3 17.2 6.2 4.1

6oC - 999 0.3 0.0 1.1 8.3 0.9 2.4 1.7 11.9 2.9 0.0

1000 - 1999 o.6 0.0 0.9 . 2.8 0.5 1.4 2. 8.5 1.5 0.0

2000 and Over 0.3 0.0 0.5 0.0 0.2 0.8 0.4 5.1 0.5 0.0

TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Total Prequency 586,016 1,742 120,650 4,307 48,,853 - 212,155 29,663 6,998 207,011 2,888(No. of wor-kers)

~t

Note: Columns may not total because of rounding.

Source: Encuesta Nacional de Manio de Obra y Aspectos Demograficos, April-July, 1975.

Appendix

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Table A-2 DISTRIBUTION OF URBAN HOUSEHOLD INCOME, BY PERCENTILEHOUSEHOLD GROUPS, RANKED ACCORDING TO PER CAPITAHOUSEHOLD-INCOME, 1976/77

Per Capita Total Household IncomeHousehold Income Households (1,OO. - -(coloties/month) No. % colones/month) %

0.0 - 27.7 36,104 10 4,116.7 2.1

27.7 - 42.1 36,120 10 6,473.6 3.4

42.1 - 55.0 36,118 10 9,876.9 5.1

55.0 - 70.0 35,972 10 11,100.9 5.8

70. 0 86.6 36,138 10 14,034.0 7.3

86.6 - 109.3 36,219 10 17,401.3 9.1

109.3 - 140.0 35,856 10 20,424.5 10.6

140.1 - 182.3 36,207 10 24,389.6 12.7

182.3 - 262.5 36,053 10 26,396.0 13.7

262.5 - 1,885.5 36,364 10 57,890.2 30.1

TOTAL 361,151 100 192,103.3 100

Source: "Muestra de Hogares," op. cit. p.11.

Appendix

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Table A-3 DISTRIBUTION OF RURAL HOUSEHOLD INCOME, BY PERCENTILEHOUSEHOLD GROUPS, RANKED ACCORDING TO PER CAPITAHOUSEHOLD INCOME, 1976/77

Per Capita Total Household IncomeHousehold Income Households (1,000-(colones/month) No. % colones/month) %

0.0 - 14.0 43,554 10 3,092.1 2.7

14.0 - 19.6 43,762 10 5,156.*6 4.6

19.6 24.4 43,629 10 6,306.5 5.6

24.4 - 29.1 43,699 10 7,520.0 6.7

29.1 - 36.0 43,695 10 8,923.7 7.9

36.0 - 42.4 43,695 10 10,064.0 8.9

42.4 51.2 43,813 10 11,570.7 10.3

51.2 - 66.3 43,660 10 13,240.3 11.7

66.3 - 96.5 43,658 10 16,170.3 14.3

96.5 -3,458.2 43,890 10 30,721.7 27.2

TOTAL 437,055 100 112,765.9 100

Source: "Muestra de Hogares," op. cit.

Appendix

11 -

Table A-4 DISTRIBUTION OF NATIONAL HOUSEHOLD INCOME, BY PERCENTILEHOUSEHOLD GROUPS, RANKED ACCORDING TO PER CAPITAHOUSEHOLD INCOME, 1976/77

Per Capita Total Household IncomeHousehold Income Households (1,000(colones/month) No. Colones/mor.th) %

0.0 - 17.1 79,795 10 6,401.0 2.1

17.1 - 24.6 79,810 10 11,182.7 3.7

24.6 - 32.4 79,677 10 14,075.2 4.6

32.4 40.5 79,865 10 16,453.7 5.4

40.5 - 50.6 79,910 10 20,526.7 6.7

50.6 - 64.3 79,701 10 24,323.6 8.0

64.3 - 85.0 79,784 10 27,712.5 9.1

85.0 - 120.0 79,763 10 38,669.4 12.7

120.0 - 187.5 79,909 10 50,074.3 16.4

187.5 -3,458.2 79,992 10 95,450.2 31.3

TOTAL 798,206 100 304,869.3 100

Source: "Muestra de Hogares," op. cit. p.6.

Appendix

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-able A-S: DISTRIBUTION OF HOUSEHOLDS BY INCOME CLASSES, 1976/77

Monthly Urban Rural NationalIncome Class -Nor of % of No. of % of No. of % of(colones) Households Households Households Households Households Households

0 1,736 0.5 - - 1,736 0.2

1 - 49 5,390 1.5 18,532 4.2 23,922 3.0

50 - 99 18,925 5.2 55,908 12.8 74,833 9.4

100 199 64,840 17.9 163,521 37.4 228,361 28.6

200 - 299 60,560 16.8 87,252 20.0 147,812 18.5

300 - 599 109,202 30.2 85,740 19.6 194,942 24.4

600 - 999 58,049 16.1 18,679 4.3 76,728 9.6

1,000 - 1,999 32,400 9.0 5,309 1.2 37,709 4.7

2,000 - 3,999 8,574 2.4 1,451 0.3 10,025 1.3

4,000 + 1,475 o.4 663 0.2 2,138 0.3

LOTAL 361,151 100 437,055 100 798,206 100

Source: Caracteristicas de los Hogares y de las Viviendas, op. cit.,Tables N.1 - V.1.

Appendix

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Table A-6: DISTRIBUTION OF HOUSEHOLDS BY LEVEL OF AVERAGEHOUSEHOLD MONTHLY INCOME, 1976/77 (ADJUSTED)

Urban Rural NationalAve. Income No. of Ave. Income No. of Ave. Income No. of

(colones) Households (colones) Households (colones) Households

62 6,536 49 18,532 52 25,068

75 18,925 75 55,908 75 74,883

150 64,840 150 163,521 150 228,361

250 60,560 250 87,252 250 147,812

450 109,792 450 85,740 450 195,532

800 58,049 800 18,679 800 76,728

1,500 32,400 1,500 5,309 1,500 37,709

2,500 8,574 2,500 1,451 2,500 10,025

6,692 1,475 6,933 663 6,767 2,138

Note: The average household income was derived from Table A-5, except for thelowest and highest classes. For those, see paragraphs 11 and 12 in the text.

Appendix

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Table A-7: AVERAGE HOUSEHOLD INCOME BY URBAN ANDRURAL AREAS, AUGUST - OCTOBER 1976

Monthly Urban RuralIncome Class Percentage of Ave. Income Percentage of Ave. Income

(colones) Households (c;olones/month) Households (colones/month)

0 -~ 99 6.3 64.6 17. 2 68.4

100 - 129 17.8 148.3 388.4 146.3

200 - 299 19.8 243.6 22.1 245.7

300 599 29.1 425.5 17.6 382.4

600 - 999 15.2 751.2 2.8 725.66

1,000 + 11.8 1,574.8 1.9 1,846.6

TOTAL 100 502.0 - 100- 245.4

Source: "Algunos Resultados de la Encuesta Nacional de PresupuestosFamiliares (1976-1977) .... ," op. cit., Tables 1-A and 1-B.

Table A-8: DISTRIBUTION OF HOUSEHOLD INCOME, 1976/77'- (ADJUSTED)

URBAN RURAL NATIONAL% of % of % of

Average % of Household Average % of Household Average % of HouseholdIncome Households Income Income Households Income Income Households Income

62 1.8 0.2 49 4.2 0.7 52 3.1 0.4

75 5.2 0.7 75 12.8 3.5 75 9.4 1.8

150 18.0 4.8 150 37.4 20.2 150 28.6 10.6

250 16.8 7.5 250 20.0 18.0 250 18.5 11.4

450 30.4 24.4 450 19.6 31.8 450 24.5 27.2

800 16.1 22.9 800. 4.3 12.3 800 9.6 19.0

1,500 9.0 24.0 1,500 1.2 6.6 1,500 4.7 17.5

2,500 2.4 10.6 2,500 0.3 3.0 2,500 1.3 7.7

6,692 0.4 4.9 6,933 0.2 3.8 6,767 0.3 4.5

TOTAL 100.0 100.0 100.0 100.0 100.0 100.0

/a Derived from Table A-7.

Note: Columns may not total because of rounding