Social And Employment
The Gini Index: How Unequal Is Too Unequal?
What It Is and Why It Matters
Consider the following: a nation has an average income of $1,000,000 per individual. Sounds good, doesn't it? But now consider that one individual has an income of $100,000,000, while the other 99 individuals have nothing. Same average, but a rather different reality.
That's why economists don't only consider averages. They also examine how income is distributed throughout society. One of the most widely used instruments for doing that is the Gini Index, which is named for the Italian economist Corrado Gini.
The Gini Index (or Gini coefficient) is a measure of inequality. It tells us if income in a society is distributed evenly or piled up in the hands of a small group of people.
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How It Works
To calculate the Gini Index, we start by ordering everyone's income from lowest to highest. Then we divide the population into 10 equal groups, called “deciles.” Decile 1 is the poorest 10 percent, and decile 10 is the richest 10 percent.
Next, we look at how much of the total income each decile receives. The distribution would be perfectly equal if every group received exactly 10 percent of the total income.
We can visualize this using something called a Lorenz Curve. This curve shows the cumulative share of income received as we move from the poorest to the richest groups. If there were perfect equality, the curve would be a straight diagonal line. But in real life, the curve usually bows below that line, showing that the richest take a larger share.
The Gini Index is calculated by measuring the area between the Lorenz Curve and the line of perfect equality. A score of 0 means complete equality. A score of 100 means total inequality, where one person has everything and everyone else has nothing.
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Why Inequality Matters for Policy
Most capitalist economies have some level of inequality, but high inequality can create serious social and economic problems. It can lead to worse health outcomes, lower educational achievement, and even social unrest. It may also slow economic growth by reducing overall demand, as the wealthy tend to spend a smaller share of their income than lower-income households.
Governments have several tools to reduce inequality. These include progressive taxation, income transfers (like social security or unemployment benefits), and public services such as healthcare, education, and affordable housing. Well-designed policies can help ensure growth benefits more people, not just a small elite.
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Real World Examples
Gini Coefficient by Country (2025): A regularly updated list comparing levels of income inequality across countries.
Read more: World Population Review
Why Inequality Matters – Branko Milanovic (2024): A look into extreme inequality's more profound social and economic consequences.