Gini ratio

A Gini ratio is a measure of the distribution of INCOME in an economy. A Gini ratio (also called Gini coefficient) can range between 0 and 1. Zero means all families have the same income; 1 means one family has all of the income. Gini ratios are used in conjunction with LORENZ CURVEs. Lorenz curves plot the cumulative income by quintiles (one-fifths) of the population in an economy. If each fifth of the population had 20 percent of the income, the Lorenz curve would be a 45-degree line and the Gini ratio would be 0. Since no economy has an equal distribution of income, the Lorenz curve, with quintiles on the horizontal axis and cumulative percent of income on the vertical axis, is a bowshaped line beneath the 45-degree line. The Gini ratio measures the gap between the Lorenz curve and the 45-degree line. The higher the Gini ratio, the greater the disparity of income in an economy. Since the area between the 45- degree line and the Lorenz curve is an irregular-shaped half ellipse, calculating the area requires a complex mathematical formula. See “Gini says: measuring income inequality” in the Left Business Observer (October 18, 1993) for details. The Census Bureau calculates the Gini ratio for the U.S. economy. As the table below shows, income inequality decreased for approximately two decades after World War II, but beginning in the 1960s it has steadily increased. Economists suggest stagnant and declining minimum wages (in real terms) and increased executive compensation explain much of the changing distribution of income. Government Gini ratios are calculated using cash income and therefore do not take into account changes in tax laws and noncash benefits such as food stamps, AID FOR FAMILIES WITH DEPENDENT CHILDREN, and employer-provided noncash benefits. Opponents of government WELFARE programs suggest that when noncash benefits are included in income-distribution statistics, lower income groups are receiving an increased share of national income. U.S. Gini Ratios for 1967 to 2000