Measuring Inequalities - GINI Coefficient

We have arrived at the point where we know that in order to see the full picture of the country's prosperity, we not only need to take into account the average level of income but also measure the inequality of income across the households and people within the country we are interested in. 

So how do we do that?

There are multiple ways to measure the inequality of income within the country but the one I would like to focus on today is the GINI Coefficient. The general assumption behind this method is that 0 means perfect quality (everybody has the same income), whereas 1 means complete inequality (such that one person in the country owns everything). Both of the extremes are of course unrealistic and all of the countries find themselves somewhere in between.GINI Coefficientis used to measure the distribution of an income or wealth within a country but is not a measurement of an absolute wealth of a country. 

Closest to 0 and thus the lowest inequality level tends to be in Western Europe and especially in Scandinavia (around 0.25). Countries like Sweden, Norway and Denmark have relatively equal income distribution and therefore a broad middle class. There are relatively little devastating differences within the society like super rich and very poor. USA on the other hand is quite unequal in income distribution when we compare it to Canada or Western Europe and especially countries in Scandinavia. Here we have many billionaires compared to a lot of very poor people so the gap between them is really vast. Of course the poverty levels in US are not extreme, to the extent like we see in developing countries, but if we compare it to the top 20%, the difference is devastating. 

As it was perfectly put by Professor Jeffrey Sachs from the University of Columbia in New York 'Getting richer doesn't mean necessarily becoming more equal'. We can see it very clearly if we compare the map of GDP and GINI Coefficient distribution in the world. According to Professor Sachs there is no one pathway for development. He concluded that Northern Europe has chosen a pathway of becoming wealthier with a lot of social equality which is indeed true for Scandinavia but the same cannot does not apply to Poland for example. Right on the other side of the ocean,  in the United States, the path of rising incomes alongside rising inequality is prevailing and the gap between very rich and very very poor widening. 

Where do these inequalities come from?

• Government policy (corruption; the way the government's revenue is allocated).
• Education level (higher education translates to higher income and thus improved economy).
• Geography (landlocked vs. coastal locations and the transition from rural to urban areas).
• History (ex. the legacy of indigenous people displacement leaving some people with huge land holdings and other landless).
• Gender discrimination (women around the world are not given equal chances and so many countries loose the skills, knowledge and potential coming from all members of the society).

Why is education so important in closing the gap of social inequality? 

The answer to this has many layers and you will find them in many of my posts depending which aspect of social justice or gender equality we will be currently discussing. For now however, we need to remind ourselves that attaining higher education almost alway translates to higher income which in turn to the successful contribution to the modern economy. Young people who have the chance to attain it either by means of their own hard work or family's support and material situation will play important role in country's economic development in the future. Those who are less lucky are often stuck in their own communities, with no access to adequate training and in turn balancing at the very low income level employment. 

There are other inequalities of course such as race, gender, religion etc. All of them lead to massive discrimination in the labor market and has an adverse effect on the country's economy. The origin and consequences of the above however will be discussed in more detail in future posts as they are complex and extremely important to understand in order to find the way to fight them and finally achieve the complete social inclusion without which sustainable development will not be possible.