Income Inequality and Distribution Notes

Average Household Income

  • U.S. Average Household Income (2024): $65,425
  • Local BWSD (2024): $61,214

Income Inequality Distribution by Quintiles (2024)

  • Lowest 20%:

    • Percentage of Total Income: 3.4%
    • Upper Income Limit: $20,712

  • Second 20%:

    • Percentage of Total Income: 8.6%
    • Upper Income Limit: $39,000

  • Third 20%:

    • Percentage of Total Income: 14.5%
    • Upper Income Limit: $62,725

  • Fourth 20%:

    • Percentage of Total Income: 22.9%
    • Upper Income Limit: $100,240

  • Highest 20%:

    • Percentage of Total Income: 50.5%
    • Upper Income Limit: No Limit

  • Total: 100.0%

  • Source: Bureau of the Census

Lorenz Curve and Gini Ratio

  • Gini Ratio Formula:
    GiniRatio=AreaAAreaA+AreaBGini Ratio = \frac{Area A}{Area A + Area B}

  • Interpretation:

    • Lower Gini Ratios denote less inequality
    • Higher Gini Ratios indicate more inequality

  • Gini Coefficient Values:

    • Complete Income Equality: 0
    • Complete Income Inequality: 1

Understanding the Lorenz Curve

  • Lorenz Curve:

    • Graphical representation of income distribution
    • Shows the proportion of total income earned by cumulative percentages of the population

  • Areas in the Curve:

    • Area A: Area between the Lorenz curve and the line of perfect equality
    • Area B: Area under the line of perfect equality

  • Practical Implication:

    • The closer the Lorenz Curve is to the diagonal line, the more equal the distribution of income.

  • Gini Ratio Calculation:

    • The Gini Ratio is calculated using the area between the Lorenz curve and the diagonal divided by the total area below the diagonal, which visually represents income dispersion.

Summary of Gini Ratio and Lorenz Curve

  • Lorenz Curve: Illustrates the distribution of personal income across quintiles.
  • Gini Ratio: A numerical representation of income dispersion, indicating levels of income inequality in a society.