Social Inequality

Social Inequality
• This is also known as Differentiation.
• Social inequality is found in almost every society.
• Social inequality occurs when resources in a given society are distributed unevenly.
• Economic inequality, usually described on the basis of the unequal distribution of income or
wealth, is a frequently studied type of social inequality.
• Social status is accorded to persons in a society on at least two bases: ascribed characteristics and
achieved characteristics.
• Ascribed characteristics are those present at birth or assigned by others and over which an
individual has little or no control. Examples include sex (male or female), skin color, eye shape, place
of birth, parentage and social status of parents.
• Achieved characteristics are those which we earn or choose; examples include level of education,
marital status, leadership status and other measures of merit.
• In most societies, an individual's social status is a combination of ascribed and achieved factors. In
some societies, however, only ascribed statuses are considered in determining one's social status
and there exists little to no social mobility and, therefore, few paths to more social equality. This
type of social inequality is generally referred to as caste inequality.

Patterns of Inequality
Gender Inequality
Racial and Ethnic Inequality
Age Inequality
Inequalities in Health

Effects of inequality on life

Being of low status may result in-
• One may get fewer opportunities for success.
• One may earn less money and have fewer of the good things he would like.
• One may have a shorter life and worse health.

People with low status

Generally people within the following categories experience low status in the society-
• The poor
• Unemployed
• Sick
• Disabled
• Mentally ill
• Ethnic minorities

Income Distribution

• The distribution of personal/individual income is generally known as the income distribution. It

does not include national income. It shows the individuals share in total goods and services.

• Generally income in any community is not equally distributed. This is due to social, political and
many other factors.
Example
Income Group Population (Frequency) Percentage
<10000 4 12%
10001-15000 6 18%
15001-20000 14 42%
20001-25000 5 15%
25001-30000 2 6%
30001+ 2 6%
33
Some Measures of Inequality
1. Relative Range: Difference in the incomes of the richest and the poorest individuals, divided
by the mean

𝑦𝑚𝑎𝑥 − 𝑦𝑚𝑖𝑛
𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒 𝑟𝑎𝑛𝑔𝑒 =
𝑦̅
∑𝑦
𝑤ℎ𝑒𝑟𝑒, 𝑦̅ =
𝑛
 Very crude measure of inequality

 Does not consider people between the richest and poorest on the income scale

 Need information on every individual’s actual income (not the guess)

2. The Coefficient of Variation: It shows the extent of variability in relation to the mean
of the population
 The coefficient of variation should be computed only for data measured on a
ratio scale
 For comparison between data sets with different units or widely different
means, one should use the coefficient of variation instead of the standard
deviation
𝑠
𝑐𝑣 =
𝑦̅
∑𝑘𝑖=1 𝑓𝑖 (𝑦𝑖 − 𝑦̅)2
𝑤ℎ𝑒𝑟𝑒, 𝑠 = √
𝑛−1

3. Lorenz Curve: Lorenz curve is a widely used method of graphically studying the distribution
of income. It shows the pattern of distribution of income/wealth or land. This is suggested
by Dr. Lorenz. He used it for representing inequality of the wealth distribution.

Construction of Lorenz Curve

• After arranging the incomes of n persons in increasing order and then plotting the
cumulative percentage of people along the horizontal axis x, and cumulative percentage of
income/wealth/land along the vertical axis y, we get the Lorenz curve or the Concentration
curve.

• Any point on the Lorenz curve tells us about the share of a certain ordinal group in
aggregate income.
4. Gini Coefficient/Lorenz Ratio:

• The Gini coefficient is a measure of inequality of a distribution.

• It is defined as a ratio with values between 0 and 1: the numerator is the area between the
Lorenz curve of the distribution and the uniform distribution line; the denominator is the
area under the uniform distribution line.

• The Gini index is the Gini coefficient expressed as a percentage, and is equal to the Gini
coefficient multiplied by 100.

• The Gini coefficient is often used to measure income inequality. Here, 0 corresponds to
perfect income equality (i.e. everyone has the same income) and 1 corresponds to perfect
income inequality (i.e. one person has all the income, while everyone else has zero income).

• The Gini coefficient can also be used to measure wealth inequality. This use requires that
no one has a negative net wealth. It is also commonly used for the measurement of
discriminatory power of rating systems in the credit risk management
Calculation

For a random sample S consisting of values yi where i=1 to n, that are indexed in non-decreasing
order (𝑦𝑖 ≤ 𝑦𝑖+1)

1 ∑𝑛𝑖=1(𝑛 + 1 − 𝑟𝑖 )𝑦𝑖
𝐺= [𝑛 + 1 − 2 × ]
𝑛−1 ∑𝑛𝑖=1 𝑦𝑖

2 ∑𝑛𝑖=1 𝑟𝑖 𝑦𝑖
𝑂𝑟, 𝐺 =1− (𝑛 − 𝑛 )
𝑛−1 ∑𝑖=1 𝑦𝑖

Where, n= Sample Size

yi= Income of ith individual
ri= rank of the income of ith individual

Steps to Calculate Gini Index

1. If not already sorted, sort the income distribution by income levels in ascending order.
2. Find the rank of the individual income levels. If there are two or more individuals with same
income level, then use their average rank.
3. Apply the formula to calculate Gini Index.
Example 1:

Income of 5 individuals are 4000, 1000, 5000, 2000, 3000 (in taka) Calculate Gini Index and draw the
Lorenz curve.

Solution: Arrange the income in ascending order,

Individual S.N. (i) Rank (ri) Income (yi)

1 1 1000
2 2 2000
3 3 3000
4 4 4000
5 5 5000
Total 15000

2 ∑𝑛𝑖=1 𝑟𝑖 𝑦𝑖
𝐺 =1− (𝑛 − 𝑛 )
𝑛−1 ∑𝑖=1 𝑦𝑖

2 (1 × 1000) + (2 × 2000) + (3 × 3000) + (4 × 4000) + (5 × 5000)

=1− [5 − ]
5−1 15000
= 0.333333 = 33.33%
So there are 33.33% income inequality in the society.

Table for constructing Lorenz curve

Individual Income Percentage Cumulative Percentage of Cumulative

S.N. of income percentage people (%) percentage of
(%) of income people (%)
(%)
1 1000 6.67 6.67 (1/5)×100=20 20
2 2000 13.33 20 (1/5)×100=20 40
3 3000 20 40 (1/5)×100=20 60
4 4000 26.67 66.67 (1/5)×100=20 80
5 5000 33.33 100 (1/5)×100=20 100
Total 15000 100 100
In this graph, it shows that below 80% people have 66.67% share of income (or top 20% people have
33.33% share of income). We also see that, below 20% people have 6.67% share of income.

Other methods:

Individual Income, y ̅|
|𝒚𝒊 − 𝒚 ̅)𝟐
(𝒚𝒊 − 𝒚
1 1000 2000 4000000
2 2000 1000 1000000
3 3000 0 0
4 4000 1000 1000000
5 5000 2000 4000000
Total 15000 6000 10000000

∑𝑦
 𝑦̅ = = 3000 (taka)
𝑛
𝑦𝑚𝑎𝑥 − 𝑦𝑚𝑖𝑛 5000 − 1000
𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒 𝑟𝑎𝑛𝑔𝑒 = = = 1.3333
𝑦̅ 3000
∑𝑘 ̅)2
𝑖=1(𝑦𝑖 −𝑦 10000000
 𝑠=√ 𝑛−1
=√ 5−1
= 1581.139

𝑠 1581.139
𝑐𝑣 = = = 0.527046
𝑦̅ 3000
Lower values indicate lower inequalities.

Example 2:
Cumulativ
Cumulativ Perfect
Percentag e
Individua Ran Incom Percentag e equality
F e of percentag
l SN k e e of percentag line (CP riyi
i income e of
(i) (ri) (yi) people (%) e of of
(%) income
people (%) Income)
(%)
16.6666
1 1.5 1000 1 16.66667 16.66667 4.166667 4.166667 1500
7
33.3333
2 1.5 1000 1 16.66667 33.33333 4.166667 8.333333 1500
3
3 3 4000 1 16.66667 50 50 16.66667 25 12000
66.6666
4 5 6000 1 16.66667 66.66667 25 50 30000
7
83.3333
5 5 6000 1 16.66667 83.33333 25 75 30000
3
6 5 6000 1 16.66667 100 100 25 100 30000
10500
Total 24000 6
0

2 ∑𝑛𝑖=1 𝑟𝑖 𝑦𝑖
𝐺 =1− (𝑛 − 𝑛 ) = 0.35
𝑛−1 ∑𝑖=1 𝑦𝑖
 LORENZ CURVE
Perfect equality line (CP of Income) Cumulative percentage of income (%)

CUMULATIVE PERCENTAGE OF INCOME 100

80

60

40

20

0
0 16.67 33.33 50.00 66.67 83.33 100.00
CUMULATIVE PERCENTAGE OF PEOPLE

Assignment

Q1:
Household Group Country A Annual Income ($) Country B Annual Income ($)
1 20,000 9,000
2 30,000 40,000
3 40,000 48,000
4 50,000 48,000
5 60,000 55,000
Total Income $200,000 $200,000
Calculate & compare the followings:
1. Relative Range
2. The Coefficient of Variation
3. Draw Lorenz Curve
4. Calculate Gini’s coefficient