3b. Inequality

Inequality

Inequality is an unequal distribution of resources. This could be of income or wealth.

• Income is a flow. It measures the receipt of money per period of time (e.g £200 a week)

• Wealth is a Stock. It measures the value of a person’s wealth at a given point of time e.g. property valued at £150,000

Lorenz curves

The Lorenz Curve plots the cumulative % of the population and plots this against the cumulative % of income. This is then compared to a line of perfect equality where the poorest 10% would have 10% of the income, the poorest 20% would have 20% of the income etc.

In this example the poorest 60% only have 20% of the income.

Lorenz curves

The further away from the line of perfect equality a county is, the more unequal it has become.

Gini co-efficient

The Gini index measures the area between the Lorenz curve and a hypothetical line of absolute equality, expressed as a percentage of the maximum area under the line.

A low Gini coefficient indicates a more equal distribution, with 0 corresponding to complete equality, while higher Gini coefficients indicate more unequal distribution, with 1 corresponding to complete inequality (this is sometimes shown from 0 to 100)

UK Lorenz Curves- Why the difference between income and wealth?

Causes of income inequality within countries

• Education

  • Higher skilled workers tend to attract higher pay

• Wages

  • Depends on the strength of trade union power and levels of discrimination (e.g. female pay gap or Indian caste system)

• Unemployment

  • High unemployment leads to greater disparities in income

• Low Benefits

• Regressive Taxation

• Wealth

  • The owners of wealth normally receive an income stream e.g. rent or dividends from their assets