Measuring Inequality Identify and understand how income inequality is measured – the Lorenz curve & Gini coefficients

Gini Coefficient Named after the Italian statistician, Corrado Gini It aggregates the gaps between people’s incomes into a single measure. If everyone in a group has the same income, the Gini coefficient is 0; if all income goes to one person, it is 1.

Gini Coefficient The level of inequality differs widely around the world. Emerging economies are more unequal than rich ones. Scandinavian countries have the smallest income disparities, with a Gini coefficient for disposable income of around 0.25. At the other end of the spectrum the world’s most unequal, such as South Africa, register Ginis of around 0.6.

Gini coefficient UK

Trends in Gini coefficient On all measures there was a substantial increase in inequality between 1978 (the Conservatives came into office in 1979 under Margaret Thatcher) and 1990 http://www.economist.com/blogs/dailychart/2011/10/inequality-and-happiness

The Lorenz Curve A Lorenz curve shows the % of income earned by a given % of the population. A perfect income distribution would be one where each % of the population receives the same % of income. Perfect equality is,  for example, where 60% of the population gain 60% of national income.

In the above Lorenz curve, 60% of the population gain only 20% of the income; hence, the curve diverges from the line of perfect equality of income.

The further away the Lorenz curve is from the 450 line, the less equal the distribution of income. In the example, the curve for country Y is further away from the line of equal distribution than the curve country X, implying a wider distribution of income.

Debate To what extent is inequality necessary for a successful economy? Look up the inequality data for your developing and developed countries Read page 452 in the text book