An average and an income-distribution measure tell different stories.
A Lorenz curve plots the cumulative share of income against the cumulative share of the population, ranked from poorest to richest. The equality line gives each population share the same income share. A Gini coefficient nearer 0 indicates greater equality; nearer 1 indicates greater inequality. Use consistent income definitions and populations. Distribution alone does not tell you the level of income or poverty.
- Income shares
- A Lorenz curve shows how total income is shared, adding people from poorest to richest. At complete equality, the poorest half would receive half the income.
- Gini coefficient
- This number summarises inequality. On the 0-to-1 scale, 0 means complete equality; a value nearer 1 means greater inequality. Compare figures with the same definitions.
- Watch for this
- A larger percentage share is not necessarily a larger amount of real income. The total being shared may have fallen.
Read a Lorenz curve carefully
Axes
Horizontal: the cumulative percentage of people, adding them from lowest to highest income. Vertical: the cumulative percentage of income received by those people. Cumulative means the running total, not just the income of the last group added.
Equality line
At complete equality, the bottom 20% receives 20% of income, the bottom 50% receives 50%, and so on.
Whole-curve comparison
If one curve is everywhere closer to the equality line, it indicates less inequality. One point is not sufficient to rank crossing curves.
Gini limits
On the syllabus's 0-to-1 scale, 0 represents complete equality and 1 the limiting extreme of inequality. Some publications use a 0-to-100 scale; inspect the label.
Consistent definitions
Compare the same population, income definition and treatment of taxes and transfers. Income is received over a period; wealth is assets owned minus debts at a point in time. Income and wealth inequality are different measures.
Share versus amount
A group's total real income is its share multiplied by the economy's total real income. For example, 20% of 100 units is 20 units. Check both the share and the total before claiming that the group can buy more.
| Cumulative population | Curve A income share | Curve B income share | Equality line |
|---|---|---|---|
| 0% | 0% | 0% | 0% |
| 20% | 5% | 8% | 20% |
| 40% | 13% | 22% | 40% |
| 50% | 20% | 30% | 50% |
| 60% | 28% | 40% | 60% |
| 80% | 50% | 65% | 80% |
| 100% | 100% | 100% | 100% |
Worked example: Reading a Lorenz curve
At 50% on the population axis, curve A shows 20% of income and curve B shows 30%. B lies closer to the equality line throughout; the curves do not cross.
- Under A, the poorer half receives one-fifth of total measured income.
- Under B, the poorer half receives a larger share and the whole curve indicates less inequality.
- Without total real income, these shares do not reveal whether the poorer half can consume more.
Watch out for this
A lower Gini proves that poor households are richer.
It shows a more equal measured distribution. Absolute real incomes could still fall, including if higher incomes fall faster.
Check your understanding
Gini falls while total real income falls. What can you safely conclude?
- Income is more equally distributed under the same measurement basis.
- All low-income households have higher purchasing power.
- Every household now has the same income.