1. 1 Udviklingsøkonomi - grundfag Lecture 12 Inequality - measurement 1

2. 2 Inequality - introduction Why do we need to bother about inequality? Moral/ethical reasons Functional aspects of inequality Functional aspects of poverty Concepts Functionel distribution Personal distribution.. Of income.. Of consumption.. Of assets, incl land Inequality discussions always focus on 1.Who owns the factors of production? 2.How are the factors of production paid?

3. 3 Measurement of inequality Next lectures: consequences and causes of inequality This lecture: measurement of inequality We will consider The most common measures of inequality  Lorenz curve  Gini coefficient  Kuznets ratio (top quintile/bottom quintile)  Principles for an ideal measure of inequality  Anonymity principle  Population principle (neutrality to population size)  Relative income principle (neutrality in the size of income)  Dalton, or transfer principle

4. The personal distribution of income Example of an inequality measure: 20% richest over 20% poorest = 51/5 =10.2 4

5. Entirely equal distribution Entirely unequal distribution A A measure of inequality can be calculated as : Gini-coefficient = B D C Areal of A Area of BCD Lorenz curve og Gini-coefficient The Lorenz curve depicts the distribution of income Lorenz kurven Percent of population Percent of income, accumulated That is, the Gini-coefficient lies between 0 and 1 -the smaller the more equal. 5

6. 6 The lorent curve as an inequality measure  Lorenz curves are a brilliant graphical representation!  but often we need a number  and Lorenz curves may cross.....

7. 7 An extension: incidence of school participation in Mozambique

8. Examples of Gini coefficients (income/consumption) Source: TDR, UNCTAD, 1997 8

9. Examples of Gini coefficients (land) Source: TDR, UNCTAD, 1997 9

10. 10 Data  http://www.worldbank.org/research/growth/ http://www.worldbank.org/research/growth/  http://www.wider.unu.edu/wiid/wiid.htm http://www.wider.unu.edu/wiid/wiid.htm  Household survey data with information on income, expenditures, assets and other for a representative sample of households are available for more and more countries: see www.worldbank.org/lsms www.worldbank.org/lsms

11. 11 Properties of an ideal measure of distribution Properties of an ideal measure of inequality 1.Anonymity principle 2.Population principle (neutrality to population size) 3.Relative income principle (neutrality in the size of income) 4.Dalton, or transfer principle (regressive transfers  inequality  ) 1.Lorenz criteria: Distribution A is more unequal than B when its Lorenz curve never lies above that of B. 1+2+3+4=5! But Lorenz curves sometimes cross!? -that is why we need measures such as Gini coefficients and other for inequality comparisons. Compare over time/country/region -which measures are best…?

12. 12 Inequality measures Kuznets ratios  for example top quintile/bottom quintile  Data: need only summary data, eg from a table Range, R=(y max – y min )/y gns  Individual data Coefficient of variation = standarddeviation/mean  Need individual data Gini coefficient: A/BCD – the share of total income/expenditures that would need to be redistributed to achieve total equality  Data: need data on income/expenditures/assets for a representative sample of individuals or households