How did income distribution change in 2020

data shows whether the distribution of GINI COEFFICIENT income is balanced among citizens in a country. This coefficient is valued between 0 and 1. As Gini gets closer to 1, the distribution of income deteriorates. That means the wealthy are getting wealthier and the poor are getting poorer. Conversely, when the value approaches 0, it means that fairness in income distribution increased and the difference between different income groups has narrowed.

The Gini coefficient was slightly below 0.5% in Turkey in the 1990s. During the recovery period following the 2001 crisis when Turkey entered the steady growth period with lower inflation, the distribution of income improved. The Gini coefficient declined to 0.4 before the 2008-2009 crisis. In 2014, it decreased to 0.39, the lowest in the history of Turkey.

In the following years, things began to go out of hand. The best years in the Gini coefficient were over now with various indicators. But although the recovery halted, the coefficient did not increase that much. The Turkish Statistical Institute (TurkStat) will announce the Gini coefficient and how the distribution of income performed in 2020 this week.

2020 was a year of crisis for all countries. Although various countries saw economic recoveries by the end of the year, it cannot be denied that last year was the year of losses.

There are various studies looking at how the Gini coefficient changes during periods of crisis. Three mutual outcomes emerge in the majority of these studies:

1-Economic crises have different impacts on the income distribution based on their fundamentals.

2- The level of income distribution deteriorates is related to the depth of the crisis.

3- Following the crisis, the distribution of income recovers.

Turkey’s past experiences reflect these outcomes. Although we didn’t see a huge increase in unemployment in 2020 due to the ban on layoffs, we know that the level of income of employees decreased. The long period of lockdowns has also created a serious burden on income in the services sector. Due to these reasons, we can expect a disruption in the distribution of income and an increase in the Gini coefficient. We’ll know for sure on Tuesday.

Meanwhile, the most important agenda of this week is the interest rate decision to be announced on Thursday. Despite President Erdogan’s guidance regarding the interest rate, the Central Bank is expected to hold the rates unchanged. But what’s important is the statements on the MPC minutes. While it’s obvious that even the implication of a rate cut harms the markets, it may have destructive consequences if the Bank decides to do otherwise.