General knowledge · Economics & society

The Gini coefficient

Proposed by Corrado Gini, 1912

Economics — measuring inequality in one number

The standard single-number measure of inequality in a distribution, usually of income or wealth. It runs from zero, where everyone has exactly the same, to one — or a hundred, when quoted as an index — where one person has everything. Geometrically it is the area between the line of perfect equality and the Lorenz curve, divided by the whole area beneath that line. The Italian statistician Corrado Gini proposed it in 1912. Its great virtue is comparability across countries and years; its great weakness is that very different distributions can yield the same figure, which is why it is usually read alongside measures that say where in the distribution the inequality lies.

How to spot them

▸A number between 0 and 1, or an index from 0 to 100
▸The area between a diagonal line of equality and a sagging curve below it
▸Proposed in 1912 by an Italian statistician in a work on variability and mutability
▸Scandinavia and Slovenia near the bottom; South Africa consistently at the top

Key facts

Proposed in a 1912 Italian monograph titled 'Variabilità e mutabilità' (1912)

Corrado Gini, then a young statistician at Cagliari

The sagging curve it is measured against, plotting cumulative population against cumulative income (1905)

The Lorenz curve, devised by the American economist Max O. Lorenz in 1905

Zero means everyone identical; one means a single person holds everything

Real national values for disposable income run roughly from 0.24 to 0.63

South Africa records the highest national value in the world, above 0.6

The clearest statistical legacy of apartheid; the Nordic countries and Slovenia sit at the other extreme

Its inventor headed the Central Institute of Statistics under Mussolini

Corrado Gini's association with Fascist demography and eugenics is a standard footnote to his name

The ratio of the richest tenth's share to the poorest four tenths', proposed as a more legible alternative (2011)

The Palma ratio, named after the Chilean economist José Gabriel Palma

Simon Kuznets's hypothesis that inequality rises then falls as a country industrialises, drawn as an inverted U (1955)

The Kuznets curve — influential for decades, and much disputed since the 1980s

Key ideas

Two countries can share a figure while being quite different: one unequal because of a very rich top, the other because of a very poor bottom. The measure is most sensitive to changes around the middle of the distribution.
It matters enormously whether the figure is for market income or for disposable income after taxes and transfers. Most rich countries look far more unequal before redistribution than after, and comparisons that mix the two are meaningless.
Alternatives each emphasise something different: the Palma ratio the top and bottom, the Theil index decomposability between groups, the Atkinson index an explicit judgement about how much inequality aversion to build in.

Quick-fire facts

•Corrado Gini lived from 1884 to 1965 and introduced the measure in Variabilità e mutabilità (1912)
•It is derived from the Lorenz curve, devised by Max O. Lorenz in 1905
•It equals half the relative mean absolute difference of the distribution
•Values run from 0, perfect equality, to 1, perfect inequality; it is often multiplied by 100 and quoted as an index
•South Africa has the highest recorded national figure, around 0.63; Slovakia, Slovenia and the Nordic countries are among the lowest, around 0.24 to 0.27
•The United Kingdom's figure for disposable income is around 0.35 and the United States' around 0.40
•Gini was president of Italy's Central Institute of Statistics under the Fascist regime and a prominent writer on population and eugenics
•The Palma ratio, proposed by José Gabriel Palma, compares the income share of the top ten per cent with that of the bottom forty
•Simon Kuznets hypothesised in 1955 that inequality follows an inverted U as economies develop; Thomas Piketty's Capital in the Twenty-First Century (2013) argued the postwar levelling was exceptional rather than a norm

Drill it — 8 cards

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Sources

OECD — Income inequality (indicator) and Income Distribution Database Source of standard cross-country Gini figures for market and disposable income; cited without URL.
Thomas Piketty — Capital in the Twenty-First Century 2013; English translation 2014