3.4.3—Measuring inequality

Inequality can be described with income shares, percentiles, Lorenz curves and the Gini coefficient.

Each measure summarises a distribution differently; the Gini can hide where in the distribution change occurred.

Match the measure to the question and identify its limitations.

A lower Gini suggests a more equal distribution, but does not show whether all incomes rose.

A single index is not a complete welfare judgement.

A Lorenz curve plots cumulative population from poorest to richest on the horizontal axis and cumulative income on the vertical axis. The 45-degree line represents perfect equality; a curve farther below it indicates greater inequality. If one curve lies everywhere closer to equality, its distribution is less unequal. The Gini coefficient is the area between the equality line and Lorenz curve divided by the total area below the equality line, ranging from 0 (perfect equality) toward 1 (greater inequality). Crossing curves cannot be ranked unambiguously from the diagram alone.