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The Gini Coefficient Explained in One Minute
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- the genie coefficient is an indicator used by economists and policy makers to determine if a country has an income inequality problem it got its name after
- Italian statistician corado geni and basically quantifies income inequality within a country the Gen coefficient is a number between 0 and one with zero
- representing perfect equality so if literally everyone were to have the exact same income and one representing perfect inequality so if one person
- earns a gazillion dollars and everyone else nothing at all we calculate it by step one Gathering income data from every person and sorting it from lowest
- to highest step two creating a graph where we have a the cumulative percentage of people on the x-axis and remember that it's from poorest to
- richest B the cumulative percentage of the total income on the Y AIS see the actual income data which will form a curve line called The lence Curve named
- after us Economist Max Lawrence each point represents the percentage of total income earned by x% of the population again ordered by income step three
- identifying three important elements a the line of perfect equality basically a 45 degree diagonal since 1% of the population will earn 1% of the income 2%
- of the population will earn 2% and so on because everyone has the same income B the line of perfect inequality basically an L since everyone earns zero aside
- from the richest person who earns 100% see the aforementioned Lawrence curve step four imagining a right triangle with the line of perfect equality as the
- hypothenuse the line of perfect inequality as one side and the x-axis as the other step five the Lawrence Curve will divide that triangle in two with
- the Gen coefficient representing the ratio between the area of the part between the line of perfect equality and the Laurence curve and the total area
- finally please note that the genie coefficient does not measure differences in wealth only income nor can it address underlying causes of inequality such as
- access to education or basic necessities
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