Income Inequality (1): Gini

Corrado Gini

The inequality of wealth or income in a particular country is traditionally measured by the Gini coefficient (named after Corrado Gini). This coefficient is the result of a comparison of the percentage of the population and the percentage of the total income of the population. E.g. 80% of the population earns 50% of the total income, and the remaining 20% earns the other half.

You can see this on the graph below. The diagonal 45° line represents the fictional state of equal income: 5% of the population earns 5% of the income, 10 earns 10, 20 earns 20 etc. In reality, income distribution is of course unequal and is somewhere along the curved line, the Lorenz curve, with the majority of the population earning the minority share of the national income, and a minority earning the majority.

The more curved this line, the more unequal the income. The Gini coefficient is the surface between the diagonal and the curved line, divided by the whole surface under the diagonal.

This is then expressed as a value between 0 and 1 (following a complicated mathematical formula which I will not inflict on you). 0 corresponds to perfect equality: everyone having exactly the same income, = diagonal. And 1 corresponds to perfect inequality where one person has all the income, while everyone else has zero income. There will be no curve in this case as the curve comprises the horizontal axis and the right-hand vertical axis. Both extremes obviously being impossible. In real life, the lowest is 0.23 in Sweden; the highest is 0.7 in Namibia (most recent data).

(source)

A complete list of countries’ performances is here. (Sometimes you’ll also find the Gini index, when the coefficient is multiplied by 100 and hence expressed as a percentage).

Of course, the Gini coefficient is a measure of relative poverty: the people on the wrong side of inequality in a rich country with a relatively high Gini can be better of then the people on the wrong side of inequality in a poor country with a relatively low Gini. The coefficient remains useful because the way individuals or households perceive their position in a given society, compared to the other people of their society, is an important aspect of their welfare.

In any case, there seems to be a correlation between relative poverty and absolute poverty: countries with relatively unequal income distribution don’t score well on absolute poverty measures either:

Now, human rights do not require perfect income equality. Such a kind of equality would even be damaging since if would destroy all incentives for economic productivity. It would lead to economic ruin and hence gross violations of human rights. However, extreme inequality of income also leads to violations of human rights: it creates hunger and poverty, unequal education and unequal participation in political and cultural life etc. More about equality here.