• investigate recent trends in the distribution of income in Australia and identify the impact of specific economic policies on this distribution • analyse the economic and social costs of inequality in the distribution of income
Apply economic skills
• interpret a Lorenz curve and a Gini coefficient for the distribution of income in an economy
You will learn about:
Distribution of income and wealth • measurement – Lorenz curve and Gini coefficient • sources of income as a percentage of household income • taxation, transfer payments and other assistance • sources of wealth • dimensions and trends, according to gender, age, occupation, ethnic background and family structure • economic and social costs and benefits of inequality
A major challenge for governments is to ensure that wealth and economic opportunity is distributed evenly across sectors and groups throughout an economy. Factors such as age, gender, ethnicity and geography can affect the distribution of wealth and income, but it is sluggish wage growth that has been a sticking point for workers for a number of years, and coupled with the Coronacession, inequality is growing.
What is the Gini Co-efficient?
Definition of Income inequality Ref: OECD (2021), Income inequality (indicator). doi: 10.1787/459aa7f1-en (Accessed on 28 March 2021) Income is defined as household disposable income in a particular year. It consists of earnings, self-employment and capital income and public cash transfers; income taxes and social security contributions paid by households are deducted. The income of the household is attributed to each of its members, with an adjustment to reflect differences in needs for households of different sizes. Income inequality among individuals is measured here by five indicators. The Gini coefficient is based on the comparison of cumulative proportions of the population against cumulative proportions of income they receive, and it ranges between 0 in the case of perfect equality and 1 in the case of perfect inequality. S80/S20 is the ratio of the average income of the 20% richest to the 20% poorest; P90/P10 is the ratio of the upper bound value of the ninth decile (i.e. the 10% of people with highest income) to that of the first decile; P90/P50 of the upper bound value of the ninth decile to the median income; and P50/P10 of median income to the upper bound value of the first decile. The Palma ratio is the share of all income received by the 10% people with highest disposable income divided by the share of all income received by the 40% people with the lowest disposable income.
OECD (2021), Income inequality (indicator). doi: 10.1787/459aa7f1-en (Accessed on 28 March 2021)
CLICK on the image below. In this project you will:
draw Lorenz curves
calculate and interpret the Gini coefficient
interpret alternative measures of income inequality
research other dimensions of inequality and how they are measured.
More resources available. Download the file and follow the links.