Income Distribution: GINI Index
Definition
"The Gini index measures the extent to which the distribution of income (or, in some cases, consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution.
The Gini index measures the area between the Lorenz curve and the hypothetical line of absolute equality, expressed as a percentage of the maximum area under the line.
A Gini index of zero represents perfect equality and 100, perfect inequality."
The question of income distribution and wealth is an ongoing political challenge. The discussions have been determined by the general hypothesis: the rich getting richer, income inequality getting worse, and the number of poor growing. One reason is that the economies have changed permanently. Increased productivity, automation, the shift of jobs to other countries etc. can change the skills requested by the employers while former well-paid jobs have been cut. A further thesis is that when the rate of return on capital is greater than the rate of economic growth, the result is the concentration of wealth (e.g. Thomas Piketty).
Economic politics can react by implementing systems of progressive income and wealth taxes, e.g. to compensate the costs of unemployment and to improve education (there is a strong statistical correlation between education levels and income and wealth), and finally to reduce inequality to an accepted level again.
The GINI-coefficient is an important statistical reference to make all these economic outcomes visible and comparable to alternative social approaches.
Update 2016:
Sources
The GINI Index has been calculated by various sources, e.g the World Bank's "World Development Indicators".
References
Thomas Piketty, Capital in the Twenty-First Century, 2013, 2014 (in English)
Related ATS topics
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