Income inequality

metrics i
Income inequality metrics

• Income inequality metrics or income distribution metrics are used by

social scientists to measure the distribution of income, and economic
inequality among the participants in a particular economy
• income inequality metrics simply provide a system of measurement used to
determine the dispersion of incomes.
• One form of income is the total amount of goods and services that a person
receives, and thus there is not necessarily money or cash involved.
• If a subsistence farmer in Uganda grows his own grain it will count as
income. Services like public health and education are also counted in.
• Often expenditure or consumption (which is the same in an economic
sense) is used to measure income. The World Bank uses the so-called
"living standard measurement surveys" to measure income.
Properties of inequality metrics

• Anonymity
• Scale independence
• Population independence
• Transfer principle
Common income inequality metrics

• The Gini index (also known as Gini coefficient)

• The Theil index, and
• The Hoover index
Gini index

(Gini coefficient)
• The range of the Gini index is between 0 and 1 (0% and 100%), where 0
indicates perfect equality and 1 (100%) indicates maximum inequality
Hoover index

• It is the proportion of all income which would have to be redistributed to

achieve a state of perfect equality.
• In a perfectly equal world, no resources would need to be redistributed to
achieve equal distribution a Hoover index of 0. In a world in which all
income was received by just one family, almost 100% of that income
would need to be redistributed (i.e., taken and given to other families) in
order to achieve equality. The Hoover index then ranges between 0 and 1
(0% and 100%), where 0 indicates perfect equality and 1 (100%) indicates
maximum inequality.
Theil index

• A Theil index of 0 indicates perfect equality.

• A Theil index of 1 indicates that the distributional entropy of the system
under investigation is almost similar to a system with an 82:18 distribution.
• This is slightly more inequal than the inequality in a system to which the
"80:20 Pareto principle" applies. The Theil index can be transformed into
an Atkinson index, which has a range between 0 and 1 (0% and 100%),
where 0 indicates perfect equality and 1 (100%) indicates maximum
inequality.
Thank you