The Gini coefficient is a statistic which quantifies the amount of inequality that exists in a population.
The Gini coefficient is a number between 0 and 1, with 0 representing perfect equality and 1 perfect inequality. Sometimes these statistics are reported in terms of percentages, with numbers between 0 and 100. It is typically used to quantify income inequality in human populations, and in that case a gini index of 0 would mean that everyone earns exactly the same, while 1 would mean that one person earns all the money there is. A country like the United States has a gini index of 0.45.
Calculating the Gini Coefficient.
The Gini coefficient is derived from the Lorenz curve, a graphical depiction of societal inequality which was published by Max Lorenz in 1905. A Lorenz curve is generated by plotting the cumulative population income on a vertical axis and population percentile on the horizontal axis; a straight 45 degree line represents total equality.
The Gini index is the ratio of the area below the ‘equality line’ (an area which is exactly 0.5) minus the area below the Lorenz curve to the area below the ‘equality line’. If the area below a specific Lorenz curve is given by 0.20, the Gini coefficient will be (0.5 – 0.20)/(0.5) = 0.6.
Weaknesses of the Gini Coefficient
Fifty years after it was first introduced, the Gini index is still the primary measure of income inequality in large populations, and is used by both national record keeping as well as international entities like the UN. While it is very useful for highlighting differences in equality levels between populations, it is not perfect. The primary weakness of the Gini coefficient is that it tends to under-emphasize changes in the top 10% or lower 40% of the population, and emphasize changes in the middle.
Calculating the Gini index also relies on collecting accurate population data, which may be more easily done in developed than in underdeveloped countries.
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Brooks, W. Notes on how to compute the Gini Coefficient. Retrieved from https://www3.nd.edu/~wbrooks/GiniNotes.pdf on August 19, 2018.
Brown, Robert. The Gini Index. Published February 11, 2016. Retrieved from http://www.math.ucla.edu/~rfb/gini.pdf on August 19, 2018.
Stokelwalker, Chris. Who, What, Why: What is the Gini coefficient? BBC Magazine Monitor: A collection of cultural artifacts. Published March 12, 2015. Retrieved from https://www.bbc.com/news/blogs-magazine-monitor-31847943 on August 19, 2018.