Statistically Speaking by Dr. Romulo A. Virola1
HOW RICH IS RICH?
A month after the historic automated national elections, we are pleased to note the many good things that happened: the orderly and peaceful conduct, the relatively high turnout of voters, the quick count and the fact that many politicians learned to conceive, este concede! We truly deserved to have been congratulated by the PCOS machines, didn't we?
And as the new leaders take their respective places in government and in governance, it can be expected that poverty reduction will continue to be the overarching concern in the development agenda.
To respond to the growing demand for statistical information relevant to local level planning and sectoral targeting, the National Statistical Coordination Board (NSCB) 2 has been releasing official poverty statistics at various levels of disaggregation 3. Aside from these, we are often requested to generate statistics on the bottom deciles (e.g., bottom 30%, 20%, or 10% ) of the income distribution to provide information on the characteristics of the poor.
And of course, the NSCB has pro-actively generated statistics, not only on the country's "mahihirap" but also on families who may be vulnerable to becoming mahirap! In 2007, the NSCB, through a paper presented during the 10th National Convention on Statistics 4 and a Statistically Speaking article 5, examined the middle-income class, specifically, whether it has been expanding or shrinking over time whether we are losing them to low-income families.
Around this time last year, in response to the growing interest on the vulnerability of the middle-income class, Statistically Speaking 6 updated the 2007 study to incorporate the results of the 2006 Family Income and Expenditures Survey (FIES) of the National Statistics Office (NSO).
But the rich are also part of our society. During the last elections, we heard some of them complaining that almost every politician was talking about taking care of the poor! What about us, the rich ululated! Lest they feel so aggrieved and marginalized, this month, Statistically Speaking will, for a change, focus on the high-income class of Philippine society. Yes, indeed, isn't it high time we looked at the characteristics of the high-income class of our society? Malay natin, understanding their income and expenditure patterns might give us tips on how to become rich like them! Kidding aside, while the Gini coefficient 7 has been showing steady gains towards a more equitable distribution of income from 0.4822 in 2000 to 0.4605 in 2003 to 0.4580 in 2006, a study focusing on the high-income class will enrich our appreciation of the gap between the rich and poor.
So who are the rich? Sila ba yung may kaya lang pumunta kay Belo for specialized services? Driving a Lexus, BMW, and the like? How rich is rich? Do they also eat galunggong and NFA rice like most of us? And do they pay taxes? How much?
This article will determine the high-income class using empirical results, following the same methodology developed by Virola and Addawe in 2007 and 2009. The earlier studies defined the middle-income class in two ways: Method 1 based on income cut-off 8 using cluster analysis; and Method 2 based on socio-economic characteristics (using the results of Method 1), through regression analysis. For this study, for Method 1, we maintained the results of the cluster analysis in the previous studies and straightforwardly updated the income cut-offs using the Consumer Price Index (CPI). For Method 2, on the other hand, we performed new runs of the regression analysis to determine the significant predictors of income of the high-income class. Since the results of the 2009 FIES have not been released, this study will use the results of the 2000, 2003, and 2006 FIES and Labor Force Survey (LFS).
And now, for the rich and the famous of Philippine society. In 2010, to be counted in the high-income class, a family should earn at least PhP 2,393,126 a year or PhP 199,927 a month compared to PhP 2,000,073 a year or PhP 166,673 a month in 2006! (Table 1)
In 2006, the rich numbered 19,738 families or 0.1% of the estimated 17, 403,483 families in the country. Just like the middle-income class, the rich in our society have been dwindling, from 0.3% in 2000 (51,160 families) and 0.2% in 2003 (25,849 families). Kawawa naman sila! (Table 2)
It would have not been so bad if the decrease in the share of the high-income class families actually translated to an expansion of the middle-income class. However, as pointed out in the Statistically Speaking articles previously cited, only the share of the low-income class families, consistently expanded between 2000 and 2006! (Table 2) Bakit ganon?
In current prices, the average 9 monthly income of high-income class families was PhP 194,965 in 2006 up by 7% from PhP 181,504 in 2003 but still lower by 8% than the level of PhP 211,579 in 2000. Assuming the income of the rich grows at the same rate as the CPI inflation, their average monthly income in 2010 would amount to about PhP235,155. Based on salary alone, even the President of the Philippines would not qualify! (Tables 3 and 4)
On the other hand, the average monthly expenditures of the rich consistently increased from PhP 78,475 in 2000 to PhP 96,807 in 2003 and PhP 114,035 in 2006. In fact, from 2000 to 2006 the average monthly spending of all families, regardless of income class, increased faster than their average income. It may be noticed however, that the increase in spending of the rich decelerated from 23% during the period 2000 to 2003 to 18% between 2003 and 2006, while that of the middle-income and the low-income classes accelerated. So after their income went down between 2000 and 2003, natuto ring magtipid pati mga mayayaman! (Tables 3 and 4)
The income difference between the high-income class and the rest of society has been narrowing! In 2006, the average income of the rich was about 6.4 times that of the middle-income class and about 26.0 times that of the low-income class, down from 9.4 times and 36.7 times, respectively, in 2000 and 7.2 times and 28.6 times, respectively, in 2003!
It may be noted that this is in consonance with the findings of an earlier Statistically Speaking article10 that growth had been pro-poor11 between 2000 and 2003! (Table 5)
In terms of difference in expenditure, the situation has not changed much, and as may be expected, is lower than in the case for income. In 2006, the rich spent about 4.6 times and 16.5 times the amount spent by the middle-income class and the low-income class, respectively. (Table 5)
Are the rich getting richer?
The savings ratio12 of the high-income families decreased from 50% in 2003 to 47% in 2006. For the middle-income class, the savings ratio remained at 20% from 2003 to 2006 while for the low-income class families, it went down from 4% to 2%. (Table 6)
We do not know how it feels to save close to 50% of our income, but let us try to look more closely on how rich families spend. Saan ba napupunta ang limpak limpak na salapi ng mga rich?
From 2000 to 2006, the high-income families spent about 75% of their total expenditures on basic needs 13 compared to about 85% among the middle-income class and 90% among the low-income class. (Table 7)
And how do the rich spend on basic expenditures?
It may be expected that the biggest share of expenditures would go to food. Indeed this was so in 2006 when the high-income families spent close to 30% on food while the middle-income spent at least 40% and the low-income close to 60%. In 2000 and 2003, while the middle-income class and the low-income class also spent the most on food, the high-income families spent relatively more for rental (imputed value when owned) of their occupied dwelling units. Could this be because in the earlier years, the rental cost of living in mansions and first-class condominiums was higher compared to 2006 after real estate had boomed with double digit growth in GVA 14 resulting in the decline of rental values? (Table
Across all income groups, the top four basic expenditure items in 2006 were food, rent/rental value of occupied dwelling units, transportation and communication, and fuel, light and water.
For all families combined, education ranked 6th, but for the low-income class, education only ranked 7th. Indeed, if we are to inject new vigor to our human capital, subsidy for the education of our poor is a must! (Table
For the non-basic expenditures, high on the list across all families in 2006 are expenditures on special family occasion 15 like birthday, wedding and baptismal parties, other expenditures,16 which include life insurance and retirement premiums as well as interest payments on loans and durable furnishings. But of course! NSCB studies 17 have shown that the most important source of happiness for many Pinoys is the family! (Table
Rounding up the top four among the high-income and middle-income classes was taxes 18 (isn't that nice to know?)
while for the low-income class, unfortunately, it is tobacco ! (Table
In terms of levels of expenditures by expenditure item:
In 2006, the average monthly food expenditure of a high-income class family was PhP 21,184; this is 2.4 and 5.7 times the amount spent by middle- (PhP 8,702) and low-income class families (PhP 3,687) , respectively! Ano kayang kakaiba sa mga kinakain ng mga high-income families? (Tables 3 and 5)
For transportation and communication, high-income class families were spending, on the average, PhP 12,694 per month while middle- and low-income families spent PhP 2,212 and PhP 305, respectively, in 2006! Malaki siguro ang matitipid nila kung matututo silang mag MRT o pedicab! (Table 3)
For fuel, light, and water, high-income families were spending PhP 6,175 monthly, which is 3.3 times and 12.7 times more than what were spent by middle- (PhP 1,865) and low-income families (PhP 485), respectively, in 2006! (Tables 3 and 5)
And do the rich engage in conspicuous consumption of non-basic commodities? Do they pay taxes? The FIES public use files (PUFs) may not be able to provide all the answers but here are some.
In 2006, the high-income families spent, on the average, PhP 9,583 monthly on durable furnishing, which is 9.6 and 33.8 times what the middle- (or PhP 1,000) and low-income (or PhP 283) families spent! (Tables 3 and 5)
But while the proportionate share of expenditures of the high-income class that goes to taxes is relatively high, the median amount of taxes paid by these families is low! The amount of monthly taxes paid by the rich amounted to only PhP 1,803 in 2006, PhP 6,269 in 2003 and PhP 4,682 in 2000. On an annual basis the tax payments amounted to PhP 21,634 in 2006, PhP 75,226 in 2003 and PhP 56,182 in 2000. This low median amount of taxes paid indicates a low level of tax collection from the high-income class! Indeed, managing the budget deficit may be better addressed thru more effective implementation of existing tax laws than by imposing new ones! (Table 3)
However, it is also worth noting that in 2006, our high-income families spent PhP 2,800 monthly on gifts and contributions, up from PhP 767 in 2000 and more than double the PhP 1,300 in 2003. This includes gifts and assistance to private individuals outside the family, contributions to church and religious institutions, and contributions and donations to other institutions. The grouchy may consider this a pittance, but it must indicate the growing conscientization of the rich! Don't you agree Dona Buding? Kc, d lhat ng myaman ay k2lad ni Wuwa! (Table 3)
Talking about conscientization, if the rich families sampled in the FIES would tithe their savings towards poverty reduction, the family with median savings among the rich would be able to deliver 5 families from poverty. (Table 9)
As mentioned earlier, not only will we look at the income and expenditure of high-income class families, we shall also try to describe their socio-economic characteristics.
Three predictors of income were found to be consistently significant for the high-income class for 2000, 2003, and 2006: a) household head working as corporate executives, managers, managing proprietors, supervisors, officials of government and special interest organizations; b) owns at least three air conditioning units; and c) owns at least three cars/vehicles. Sa mga naghahangad na maging "June bride" or "June bridegroom" with a "good catch", dapat alam nyo na kung sino ang hahanapin!
Six other variables had positive effect on income in some but not for all three years: 1) household head is a college graduate; 2) household head has a postgraduate degree; 3) number of employed household members is greater than three; 4) ownership of a house; 5) household head is an employer in his own family-operated farm or business; and 6) household living in urban areas