The analysis of disaggregated income data is valuable for analytic purposes because it provides a good indication of the main sources of livelihoods of households, from which they can finance their consumption or save. This remains the case even if total household income is often under- recorded in household surveys, as is also the case in Ghana. The GLSS surveys provide detailed information on incomes that households earn from different sources, including wage employment, agriculture, non-farm businesses, rent and transfers of different types. A total of 16 different sources are presented in table 21. The table gives the share of income from different sources as well as the marginal impact on income inequality of each source for all three years of data. We discuss here a few general findings and their relationship to the increase in income inequality over time.
The three dominant components of household income are earnings from employment, other agricultural income (with incomes from cash crops as well as from roots, fruits and vegetables accounted for separately), and profit from non-farm enterprises or business. Together these three income sources account for two thirds (65.4 percent) of total reported income in 2005/06. Although this is not shown in table 21, in that year, still nearly two thirds of Ghanaian households earned some income from agriculture (all agricultural income sources combined), a proportion substantially higher than that for the other two largest income sources, non-farm businesses and wages (44 percent and 28 percent of households respectively reporting income from these sources. A large majority of households also report having received, or sent, remittances, and a significant minority earn income from rent, but in both cases the average amounts and shares in total income are much smaller. Fewer households reported earning income from the public transfers and other elements included in the other income aggregate. In broad terms the income patterns for 2005/2006 are similar to those for earlier surveys, with however an increase in the share of income that comes from wage employment over time. However, there has been a sharp increase in income inequality, with the Gini index for per capita income increasing from 0.526 in 1991/92 to 0.573 in 1998/99 and finally 0.657 in 2005/06. Thus the increase in income inequality has been larger than that observed for consumption (see the discussion in Chapter 2).
As discussed in Wodon and Yitzhaki (2002), source decompositions of the Gini index have been used extensively to analyze how various sources of income affect the inequality in total income
(see Annex 3 for a methodological explanation of those decompositions). Results from the decomposition by source of the Gini index are also presented in table 21. For policy simulations, it is the marginal contribution of an income source that matters, and this marginal impact depends on the so-called source’s Gini Income Elasticity (GIE), as well as the share of total income from the source. When an income source has a GIE of one, it means that it moves perfectly in sync with total income, so that a change in the source does not affect the inequality in total income. A source with a GIE larger than one is affecting the richer part of the population more, while a source with a GIE smaller than one is affecting the poorer part more. Thus if an income source has a GIE larger than one, a marginal increase in the income from that source results in higher inequality. The larger the GIE is, the larger the increase in overall inequality will be. A source with a GIE equal to zero is not correlated with total income or consumption. For example, a universal allocation identical for all individuals would have a GIE of zero.
The results from source decompositions of the Gini index of inequality can be visualized graphically. In Figure 8, the share of income of a source is represented on the vertical axis. The GIE is represented on the horizontal axis. All sources on the left of an hypothetical vertical line that would cross the horizontal axis at a value of the GIE of one are inequality decreasing at the margin, while sources on the right side of the vertical line are inequality increasing. The more a source is on the left (right) of the vertical axis, the more it is inequality reducing (increasing) at the margin. A few important findings emerge from the analysis.
• Inequality neutral sources: Among the large income sources which represent a high share of total income, several have a GIE close to one and are therefore inequality neutral. This is the case for income from employment and income from roots/fruit/vegetables.
• Inequality increasing sources: the most inequality increasing source at the margin is net remittances (the difference between remittances received and sent). This means that a large share of remittances are received by comparatively richer households, so that the impact of remittances on poverty is likely to be limited (a more detailed discussion of remittances is given in section 5.3)
• Inequality decreasing sources: Two large income sources are inequality decreasing at the margin: income from cocoa production, and income from non-farm enterprises, many of which are informal and located in the service sector. A more detailed discussion of income from cocoa production is provided in the next section. This section confirms that even though the poor have comparatively less income from cocoa than the non-poor, cocoa is important to them, and their share of income from cocoa is higher than their share of other income sources, many of which are concentrated in richer urban areas.
Table 21: Income Sources Shares and Gini Income Elasticity, 1991-2006 1991/92 1998/99 2005/06 Income Share Gini Income Elasticity Income Share Gini Income Elasticity Income Share Gini Income Elasticity Income from employment 21,9% 1,12 22,8% 1,08 26,0% 1,03 Income from cash crop 6,3% 0,87 7,1% 0,77 6,6% 0,63 Income from roots/fruit/vegetables 8,8% 1,23 6,3% 1,30 8,6% 1,02 Other agric income 19,6% 0,54 23,5% 0,90 18,4% 0,86 Income from renting out land 0,1% 0,50 0,1% 0,69 0,0% 0,45 Income from sharecropping 0,4% 1,19 0,4% 0,95 0,2% 0,72 Income from renting out livestock 0,0% 0,40 0,0% -0,45 0,0% 0,18 Income from renting out agric. equipment 0,1% 1,48 0,1% 0,72 0,1% 1,18 Non-farm rent income 0,0% 1,17 0,1% 1,38 12,1% 1,52 Imputed rent - household owner 1,0% -0,01 1,3% 0,22 1,2% 0,20 Value of non-farm products consumed 4,0% 0,90 2,9% 0,77 1,9% 0,64 Profit from non-farm enterprises 31,4% 1,15 28,3% 0,96 21,0% 0,85 Net remittances 3,2% 1,08 4,8% 1,66 2,3% 2,04 Scholarship 0,1% 1,27 0,1% 0,69 0,0% 0,65 Income from water sold 0,1% 1,41 0,2% 1,20 0,2% 0,75 Miscellaneous income 3,1% 1,47 1,9% 0,98 1,5% 1,14 Gini index for total income per equivalent adult 0,526 0,573 0,657
Source: Authors using GLSS data.
Figure 8: Gini Decomposition by Income Source, 2005/06
Source: Authors using GLSS data. Renting livestock Imputed rent Renting land Cash crop Non-farm Autoconsumption Scholarship Sharecropping Water sale
Profit from non farm
Other Agric
Roots/fruits/veg Employment
Miscellaneous Renting agric eq.
Non farm renting
Net remittances 0 .05 .1 .15 .2 .25
Share of Per Capita Income
0 .5 1 1.5 2