Chapter 10 Lorenz Curve and Gini Coefficient Measure

Lorenz Curve and Gini Coefficient • Measure distribution of thing your interested in. •

Lorenz curve Percentage share of national income (cumulative) 100 80 Line of complete equality

INEQUALITY AND POVERTY • Distribution in the UK – size distribution – Looking at

Size distribution of UK income by quintile group of households: 1997/8 Bottom 20% Next

INEQUALITY AND POVERTY • Measuring the size distribution of income – Lorenz curves –

Lorenz curve and Gini coefficient 100 Percentage share of national income (cumulative) Gini coefficient

Gini coefficient Gini=0: Complete equality Gini=1: Complete inequality If the Gini coefficient increases, will

Inequality higher and Gini coefficient higher Percentage share of national income (cumulative) 100 80

Percentage share of national income (cumulative) Uncertain, poor worse off, higher incomes more evenly

Gini and Lorentz If the Lorentz curves “before” and “after” do not intersect and

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Chapter 10

Lorenz Curve and Gini Coefficient • Measure distribution of thing your interested in. • E. g. ²Share of largest firms in an oligopolistic industry, e. g share of top eight, sixteen etc ²distribution of income in an economy – Work with example of Distribution of Income

Lorenz curve Percentage share of national income (cumulative) 100 80 Line of complete equality 60 40 20 O O 20 40 60 Percentage of population 80 100

INEQUALITY AND POVERTY • Distribution in the UK – size distribution – Looking at Quintile Groups: ²Divide population into 5 equal groups (by number of people)

Size distribution of UK income by quintile group of households: 1997/8 Bottom 20% Next 20% 2% 7% Top 20% 51% 15% Middle 20% 25% Next 20% Income before taxes and benefits

Size distribution of UK income by quintile group of households: 1997/8 Bottom 20% Next 20% 2% 7% Top 20% 51% 15% Bottom 20% Top 20% 7% Middle 20% Next 20% 11% 44% 16% Middle 20% 25% Next 20% 22% Next 20% Income before taxes and benefits Income after taxes and benefits

Lorenz curve Percentage share of national income (cumulative) 100 80 Line of complete equality 60 40 Lorenz curve 20 O O 20 40 60 Percentage of population 80 100

INEQUALITY AND POVERTY • Measuring the size distribution of income – Lorenz curves – Gini coefficients

Lorenz curve and Gini coefficient 100 Percentage share of national income (cumulative) Gini coefficient = A / (A + B) 80 Line of complete equality 60 A 40 B Lorenz curve 20 O O 20 40 60 Percentage of population 80 100

Gini coefficient Gini=0: Complete equality Gini=1: Complete inequality If the Gini coefficient increases, will inequality always have increased ? Answer: We can’t say for sure…

Inequality higher and Gini coefficient higher Percentage share of national income (cumulative) 100 80 Line of complete equality 60 40 L 1 L 2 20 O O 20 40 60 Percentage of population 80 100

Percentage share of national income (cumulative) Uncertain, poor worse off, higher incomes more evenly spread. Gini Coefficient ? 100 80 Line of complete equality 60 L 1 40 20 L 2 O O 20 40 60 Percentage of population 80 100

Gini and Lorentz If the Lorentz curves “before” and “after” do not intersect and the Gini coefficient goes up, THEN there is an increase in inequality. But if the Lorentz curves intersect, we cannot say for sure what happened to inequality upon observing (only) that the Gini went up.