Income Inequality
Lorenz Curve
Gini Coefficient
By
Mike Fladlien
Step 1—Raw Data
Adrian
$ 90.00
Bob
15.00
Cathy
70.00
Derek
200.00
Eddie
125.00
Step 2—Arrange in Ascending Order
Bob
$15.00
Cathy
70.00
Adrian
90.00
Eddie
125.00
Derek
200.00
Step 3—Find Total Income
Bob
$ 15.00
Cathy
70.00
Adrian
90.00
Eddie
125.00
Derek
200.00
Total
$500.00
Step 4-Find % of Income
Bob
15.00
15/500 = 3%
Cathy
70.00
70/500 = 14%
Adrian
90.00
90/500 = 18%
Eddie
125.00
125/500 = 25%
Derek
200.00
200/500 = 40%
Total
$500.00
Step 5 – Find Cumulative % of
Income
Bob
3%
3%
Cathy
14%
17%
Adrian
18%
35%
Eddie
25%
60%
Derek
40%
100%
Step 6 - Plot the Data
Lorenz Curve
Cumm Percent of Income
120
100
80
60
40
20
0
0
20
40
60
80
Cumm Percent of Households
100
120
Step 7 – Find Area Under Lorenz
Curve
Step 8a - Finding the Gini
Coefficient
• Subtract Area
under Lorenz
Curve from .5.
• .5 - .33 = .17
• This is the area
between perfect
equality and
Lorenz Curve
Step 8b – Find the Gini Coefficient
• The Gini Coefficient is found by taking the
ratio of the Area capsulated by the area of
the right triangle. In this case, .17/.50 or
.34.
• One could simply multiply by 2
Step 9a--Finding the Gini
Coefficient
• Gini shows income disparity
• A high Gini shows that wealth is
concentrated among a few
• A low Gini shows more equitable
distribution
Selected Gini Coefficients
The End
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