Income Inequality Lorenz Curve

Charting income inequality the lorenz curve 3 figure 1 below illustrates the shape of a typical lorenz curve.

Income inequality lorenz curve. A lorenz curve is a graphical representation of income inequality or wealth inequality developed by american economist max lorenz in 1905. The graph plots percentiles of the population on the. A conventional summary measure of inequality based on lorenz curve is the gini coefficient named after the italian economist who first suggested it in 1912. In such case the lorenz curve is away from horizontal axis.

Gini coefficient as a measure of inequality. The greater inequality of the u s. Charting income inequality 5 the lorenz curve table 2 calculating lorenz curves 1 individual 1 3 5 discussion 5 1 the lorenz curve to describe inequality the lorenz curve is a very useful way to calculate income inequality. Since the lorenz curve records cumulative proportions it.

The degree of inequality is often measured with a gini coefficient the ratio between the lorenz curve and the 45 line and the total area under the 45 line the smaller the gini coefficient the more equal the income distribution. 65 2 the lorenz curve h represents greater inequality in income distribution than lorenz curve l. Conversely as a nation moves towards absolute inequality of the income distribution the lorenz curve approaches the boundaries of the rectangle and the area b grows smaller and smaller. Larger gini coefficients mean more unequal distributions.

2 we have lorenz curve which shows relatively greater equality in the distribution of income. At the extreme of complete inequality the area b disappears so the ratio is equal to a a or one. Income distribution between 1980 and 2013 is illustrated in this figure because the lorenz curve for 2013 is farther from the 45 degree line than the lorenz curve for 1980. As you can see in the graph the curve starts from coordinates 0 0 as a zero fraction of the population owns a zero fraction of income.