Measuring Income Inequality Princeton Williams Senior Economic Education Specialist The opinions expressed are solely those of the presenters and do.

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Presentation transcript:

Measuring Income Inequality Princeton Williams Senior Economic Education Specialist The opinions expressed are solely those of the presenters and do not reflect the opinions of the Federal Reserve Bank of Dallas or the Federal Reserve System.

Measures of Income Inequality Income inequality measures look at how income is being distributed across a population. Common measures Shares of aggregate household income by quintile Lorenz curve Gini index (coefficent)

Share of Income Divide population into 5 groups (quintiles) Measure the percentage of the nation’s total income that each group of households receives

Shares of Income in the U.S. 2007 2009 2010 Rounded Lowest quintile 3.4 3.3 3 Second quintile 8.8 8.6 8.5 9 Middle quintile 14.7 14.6 15 Fourth quintile 22.8 23.2 23.4 23 Highest quintile 50.3 50.2 50 Sum 100

Lorenz Curve Graphical representation of wealth distribution Developed by Max Otto Lorenz in 1905 On the graph Straight diagonal line shows an equal distribution of income Lorenz curve shows the actual income distribution

Lorenz Curve

Lowest quintile 3 Bottom 20% Second quintile 9 Bottom 40% Middle quintile 15 Bottom 60% Fourth quintile 23 Bottom 80% Highest quintile 50 100%

Lorenz Curve

Gini Index Summary measure of income inequality Developed by Corrado Gini in 1912 Indicates how much the income distribution differs from a proportionate distribution Varies from 0 to 1 0 indicates perfect equality (a proportional distribution of income) 1 indicates perfect inequality (where one person has all the income and no one else has any)

Gini Index

Gini Index for the U.S. 2007 2009 2010 0.467 0.468 0.469

U.S. States and Territories Lowest Gini Index Alaska 0.409 Utah New Hampshire 0.417 Hawaii 0.422 South Dakota 0.423 Iowa 0.426 Vermont 0.428 Highest Gini Index Texas 0.473 Louisiana 0.478 Mississippi 0.48 Connecticut 0.481 New York 0.5 D.C. 0.542 Puerto Rico 0.544

Global Data https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html

Next Steps Use groupings of countries to look for common characteristics. Look at what the number says and what it does not say.

Sources Bishaw, Alemayehu and Jessica Semega, U.S. Census Bureau, American Community Survey Reports, ACS-09, Income, Earnings, and Poverty Data From the 2007 American Community Survey, U.S. Government Printing Office, Washington, DC, 2008. DeNavas-Walt, Carmen, Bernadette D. Proctor, and Jessica C. Smith, U.S. Census Bureau, Current Population Reports, P60-239, Income, Poverty, and Health Insurance Coverage in the United States: 2010, U.S. Government Printing Office, Washington, DC, 2011.