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Income Inequality

Learn how to calculate Lorenz curve and Gini coefficient to measure income inequality. Follow 9 easy steps and interpret the results.

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Income Inequality

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  1. Lorenz Curve Gini Coefficient By Mike Fladlien Income Inequality

  2. Step 1—Raw Data

  3. Step 2—Arrange in Ascending Order

  4. Step 3—Find Total Income

  5. Step 4-Find % of Income

  6. Step 5 – Find Cumulative % of Income

  7. Step 6 - Plot the Data

  8. Step 7 – Find Area Under Lorenz Curve

  9. Step 8a - Finding the Gini Coefficient • Subtract Area under Lorenz Curve from .5. • .5 - .33 = .17 • This is the area between perfect equality and Lorenz Curve

  10. Step 8b – Find the Gini Coefficient • The Gini Coefficient is found by taking the ratio of the Area capsulated by the area of the right triangle. In this case, .17/.50 or .34. • One could simply multiply by 2

  11. Step 9a--Finding the Gini Coefficient • Gini shows income disparity • A high Gini shows that wealth is concentrated among a few • A low Gini shows more equitable distribution

  12. Selected Gini Coefficients

  13. The End • Please Visit Me at: www.mikeroeconomics.blogspot.com • Please visit: http://teachingapeconomics.blogspot.com

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