The Lorenz curve, named after statistician Max Otto Lorenz, shows the portion of total money INCOME accounted for by different proportions of the nation’s households. The Lorenz curve displays the cumulative percentage of households on the horizontal axis and cumulative percentage of household income on the vertical axis. If income were distributed equally among all households, the Lorenz curve would be a straight line at a 45-degree angle, but since income is not equally distributed in any country, the Lorenz curve is bowed or curved, falling below the 45-degree line and creating what is called the inequality gap. The Lorenz curves for countries with greater income disparities have greater curves representing larger inequality gaps in those countries.
In the United States, the disparity between rich and poor households has increased. In 1947 the lowest quintile (20 percent group) of Americans received 5.1 percent of MONEY income, while in 1998 the same group received only 3.6 percent of income. During the same period, the richest one-fifth of American households received 44.3 percent of money income in 1947 and 49.4 percent in 1999. These figures can also be used to create a ratio of income of the richest 20 percent to the poorest 20 percent. In 1998 the U.S. ratio was 13.7, higher than any other develop country in the world.
Critics note that the Lorenz curves
• do not include income in kind, such as government food stamps, public housing, or education
• do not take into account differences in the size of households or number of wage earners
• do not take into account age differences
• measure income before taxes, not disposable income
• do not include the value of household labor and unreported income
Lorenz-curve statistics are often used to justify greater government intervention to reduce income inequality in the United States. Americans’ attitudes toward incomeinequality programs have changed over time, but they continue to be less supportive of such programs when compared to other industrialized countries. Current figures for U.S. income distribution can be found on the U.S. Census Bureau website.