What Is the Gini Index?
The Gini index (or Gini coefficient) evaluates a nation’s level of income inequality by analyzing income distribution across its population. Developed in 1912 by Italian statistician Corrado Gini, it remains a pivotal tool for understanding economic disparities.
The Gini coefficient ranges from 0 (representing perfect equality) to 1 (indicating perfect inequality). With a ranking of 63.0%, South Africa has the most pronounced income inequality according to current data. In contrast, Norway boasts one of the lowest levels at 22.7%. The U.S., with a Gini index of 39.8%, showcases a significant but moderate inequality.
Key Takeaways
- The Gini index measures the distribution of income within a population.
- A higher Gini index signifies greater inequality, where high-income individuals command a significant proportion of total income.
- Global inequality has surged over recent centuries and saw an uptick during the COVID-19 pandemic.
- The Gini index has limitations, potentially overstating inequality and omitting nuanced data on income distribution.
Understanding the Gini Index
Imagine a country where every resident earns an identical income; this would produce a Gini coefficient of 0. On the other hand, a scenario where one individual earns all the income while others earn nothing would score a Gini coefficient of 1.
This metric primarily concerns income distribution, rarely extending to wealth distribution, which is harder to quantify. Typically, wealth Gini coefficients are higher than those for income due to concentration among fewer people.
Even prosperous countries focus on net income rather than net worth when calculating Gini coefficients, allowing scenarios where a nation’s wealth is concentrated even if incomes seem distributed fairly.
Despite imperfections, the Gini coefficient is a critical tool for analyzing income or wealth distribution, albeit not a precise measure.
Countries with differing economic conditions can have similar Gini indices, exemplified by the United States and Turkey, which share almost identical coefficients despite vast differences in GDP per capita.
Visualizing the Gini Index: The Lorenz Curve
Graphically, the Gini index is often represented via the Lorenz curve, plotting income distribution against population percentiles. The Gini coefficient corresponds to the area between the line of perfect equality and the Lorenz curve.
Global Gini: A Historical Perspective
Over the 19th and 20th centuries, global income inequality has escalated, as reflected in the Gini coefficient—rising from 0.50 in 1820 to 0.67 in 2020.
The COVID-19 pandemic further exacerbated income inequality, increasing the global Gini coefficient by 0.5 points from 2019 to 2020.
Gini Within Countries
Exploring Gini coefficients within various nations reveals some of the highest levels of inequality in the world’s poorest countries and some of the lowest in wealthier European nations. Still, the correlation between income inequality and GDP per capita is complex and variable over time.
Comparison of Gini coefficients and GDP per capita over time.
Limitations of the Gini Index
Despite its utility, the Gini coefficient has shortcomings, primarily its reliance on accurate income data. Informal economies, especially prevalent in developing nations, distort measurements and overstate inequality. Tax havens further complicate data on true wealth distribution.
Moreover, identical Gini coefficients can represent vastly different income distributions, simplifying complex economic landscapes into one-dimensional figures.
The Highest and Lowest Gini Coefficients
South Africa, with a Gini index of 63.0%, has the highest income inequality globally, attributed to various social and economic factors, including racial disparities.
A Gini index of 50 signifies moderate inequality, equidistant from perfect equality and perfect inequality. Only 14 nations surpass this metric as of 2024.
The American Inequality Scenario
The U.S. Gini coefficient stands at 39.8, denoting high inequality relative to other developed nations. Factors such as technological advancements, globalization, union declines, and static minimum wage contribute to this scenario.
The Bottom Line
Rising wealth disparities underscore the importance of assessing income gaps, where the Gini index serves as a valuable, though imperfect, indicator. While it sheds light on distribution trends, it cannot entirely capture the multifaceted realities of economic inequality.
Related Terms: Gini coefficient, income distribution, wealth Gini coefficient, Lorenz curve, net income, net worth.
References
- Lidia Ceriani and Paolo Verme, via ResearchGate. “The Origins of the Gini Index: Extracts from Variabilità e Mutabilità (1912) by Corrado Gini”, The Journal of Economic Inequality, September 2012, vol. 10, no. 3, Pages 1–23.
- U.S. Census Bureau. “Gini Index”.
- The World Bank. “Gini Index”.
- The World Bank. “GDP Per Capita (Current US$)—Turkiye”.
- Organisation for Economic Co-operation and Development. “OECD Income (IDD) and Wealth (WDD) Distribution Databases”.
- Food and Agriculture Organization of the United Nations. “Inequality Analysis: The Gini Index”. Pages 6–9.
- World Inequality Lab. “Global inequality from 1820 to now: the persistence and mutation of extreme inequality”.
- World Population Review. “Gini Coefficient by Country 2024”.
- The World Bank. “Poverty and Shared Prosperity 2022: Correcting Course”. Page 83.
- U.S. Central Intelligence Agency, The World Factbook. “Gini Index Coefficient—Distribution of Family Income”.
- Organisation for Economic Co-operation and Development. “How Was Life? Global Well-Being Since 1820”. Page 210.
- The World Bank. “Gini Index”.
- Pew Research Center. “Trends in Income and Wealth Inequality”.
