It would, however, be useful to reduce income equality and inequality to a
single figure. This is done by the Gini coefficient.
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The Gini coefficient is the
ratio of two areas on a graph displaying income distribution. One is the area
between the Lorenz curve
of the distribution and the curve of the uniform
distribution; the other is the area beneath the uniform distribution. The
dividend is a number
between 0 and 1, where 0 corresponds to perfect
equality (everyone has the same income) and 1 corresponds to perfect
inequality (one person has all the income, and everyone else has zero income).
Alternativley the Gini coefficient can be expressed as a percentage where the
the Gini coefficient multiplied by 100. This version is referred to as the Gini
index.
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Poverty
Given that mass poverty and diminished welfare are two of the greatest
problems that the world now faces much research has been devoted into trying
to measure poverty and welfare. In this regard the economist Amartya Sen (b
1933) has been most innovative.
Sen has refined the measure of poverty. A common measure was designated
H
which showed the percentage of population below a fixed poverty line. One
of the defects of H
was that it did not measure degrees of poverty of those
below the poverty line. To rectify this Sen proposed five reasonable axioms.
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He used these to derive a new poverty index: P = H [I + G(1 - I)]. Here P is
the measure of poverty, H
is the the percentage of population below a fixed
poverty line, G is the Gini coefficient and I is a measure (between 0 and 1) of
the distribution of income, with both G
and I
computed only for individuals
below the poverty line.
Sen has done similar work to develop measures of welfare that also take
income differences into account. Like his work on measurement of poverty
this enables social scientists to measure welfare and welfare differences.
Other Measures
Some examples of other measures are as follows. Psychologists endeavour to
measure items such as personality, intelligence, and happiness. Scholars in
___________________
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It was developed by the Italian statistician Corrado Gini and published
in his 1912 paper "Variabilità e mutabilità".
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While the Gini coefficient is mostly used to measure income inequality, it
can also be used to measure wealth
This use requires that no one
has a negative net wealth.
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Three of these axioms have been used by some researchers, who have
proposed alternative indexes.
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