Measuring Inequality in Income Distribution

The Lorenz Curve construction also gives us a rough measure of the amount of inequality in the income distribution. The measure is called the Gini Coefficient. Computation of the Gini Coefficient is illustrated by Figure 11 below.

Figure 11. Lorenz Curve and Gini Coefficient

To compute the Gini Coefficient, we first measure the area between the Lorenz Curve and the 45 degree equality line. This area is divided by the entire area below the 45 degree line (which is always exactly one half). The quotient is the Gini coefficient, a measure of inequality. In other words, the Gini coefficient is the area shaded in pink divided by the total of the areas shaded in pink and light blue-green.

For a perfectly equal distribution, there would be no area between the 45 degree line and the Lorenz curve -- a Gini coefficient of zero. For complete inequality, in which only one person has any income (if that were possible) the Lorenz curve would coincide with the straight lines at the lower and right boundaries of the curve, so the Gini coefficient would be one. Real economies have some, but not complete inequality, so the Gini coefficients for real economic systems are between zero and one.

The Gini coefficient for the United States in 1994 (according to the Census Bureau) was 0.456.