Unit 1
Unit 2
The Distribution of Income and Wealth
Decile: This is the name given to a group which represents 10% of the population
Quintile: The most common grouping used when analysing income distribution; this represents 20% of the population.
Quartile: Perhaps not surprisingly, this represents a quarter (25%) of the population.
Once the groupings have been determined, preparing the Lorenz Curve is made possible. After generating this graph, it is possible to perform one further calculation for analysis. Economists often use the Gini co-efficient to assess equity.
The Gini co-efficient is a measure which tells us the proportion of a graphed area which is between a line and a curve. In Economics it is used to assess the area between the egalitarian line and the Lorenz Curve. Let’s look at the Lorenz Curve again.
The Gini co-efficient can be calculated using the following formula:
| Gini Co-efficient = | Area of section A |
| Area of section A + Area of section B |
Once we have this information, we can perform an analysis.
The Gini co-efficient is always expressed as a number between 0 and 1. The closer the number is to 1, the more inequitable the distribution of income is in that economy. For example, if the Gini co-efficient for disposable income in one country is 0.44, and in another country it is 0.37, we can conclude that the distribution of disposable income is more equitable in the second country than it is in the first.
It is also worth noting that this measure can be used to assess the effectiveness of a policy that is used to make the distribution of income more equitable. We would expect the distribution of factor income to be relatively inequitable, because not everyone has a job. On the other hand, the distribution of gross income would be slightly more equitable, and for disposable income the Lorenz Curve should move even closer to the egalitarian line.
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