The Basics
- Simple definition: The Lorenz curve graphs cumulative income share against population share; the Gini coefficient summarizes inequality in a single number from 0 to 1.
- Core idea: Visual and numerical measures of how unequal a society is.
- Think of it as: A picture (Lorenz) and a score (Gini) of income inequality.
What It Actually Means
Lorenz curve: Plot cumulative percentage of population (lowest to highest income) on the x-axis, cumulative income share on the y-axis. Perfect equality = 45-degree line. More curve bows away, more inequality. Gini coefficient: ratio of the area between the Lorenz curve and the equality line to the total area under the equality line. 0 = perfect equality (everyone same); 1 = perfect inequality (one person all income). Typical values: 0.25-0.35 (Europe), 0.4-0.5 (Latin America), 0.3-0.4 (South Asia).
Example
If Pakistan’s poorest 20% earn only 5% of income (instead of 20% under equality), the Lorenz curve dips. Gini calculated from this curve – say 0.35. Comparing over time shows whether inequality is rising or falling.
Why It Matters
These are standard tools for comparing inequality across countries and time. Used by the World Bank, UNDP, and governments. Understanding them helps interpret development reports and policy debates.
See also
Income Distribution • Poverty • Quintiles • Deciles • Palma Ratio
Read more about this with MASEconomics: