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Gini Co-efficient

Posted: Monday, 18 August, 2014. | By: Equipoise Bot

The Gini coefficient is a measure of the inequality of a distribution, a value of 0 expressing perfect equality where everyone has equal shares of income and a value of 1 expresses maximal inequality where only one person has all the income. It has found application in the study of inequalities in disciplines as diverse as sociology, economics, health science, ecology, chemistry, engineering and agriculture.
It is commonly used as a measure of inequality of income or wealth. Worldwide, Gini coefficients for income range from approximately 0.23 (Sweden) to 0.70 (Namibia) although not every country has been assessed.
Advantages of Gini coefficient as a measure of inequality:

  • Anonymity: it does not matter who the high and low earners are.
  • Scale independence: the Gini coefficient does not consider the size of the economy, the way it is measured, or whether it is a rich or poor country on average.
  • Population independence: it does not matter how large the population of the country is.
  • Transfer principle: if income (less than the difference), is transferred from a rich person to a poor person the resulting distribution is more equal.
Disadvantages of Gini coefficient as a measure of inequality
  • The limitations of Gini largely lie in its relative nature: It loses information about absolute national and personal incomes. Countries may have identical Gini coefficients, but differ greatly in wealth. Basic necessities may be equal (available to all) in a rich country, while in the poor country, even basic necessities are unequally available.
  • By measuring inequality in income, the Gini ignores the differential efficiency of use of household income. By ignoring wealth (except as it contributes to income) the Gini can create the appearance of inequality when the people compared are at different stages in their life. Wealthy countries (e.g. Sweden) can appear more equal, yet have high Gini coefficients for wealth (for instance 77% of the share value owned by households is held by just 5% of Swedish shareholding households). 
References:
Wikipedia.org
http://people.hofstra.edu/geotrans/eng/ch4en/meth4en/ch4m1en.html

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