The Gini-coefficient: How do we measure inequality?

The most common method used to measure inequality is known as the Gini coefficient.¹ This is a mathematical measure which looks at income distribution over a whole society, not just between different pre-defined groups. By lining up the whole population from poorest to richest and calculating the percentage of income each person has, this measure can show how far a society is from a perfectly equal one.

The problem with the Gini coefficient is that while it gives you a number to indicate how much inequality there is (0 = complete equality, 100 = very very unequal!), it won’t say anything about the nature of the inequality in a particular society. For example, relative inequality could stay the same, or even decrease, even when absolute poverty increased, so the Gini-coefficient would give the impression that things were getting more equal even though they weren't.

Another approach is to simply split the population into groups, look the ‘share of the pie’ — in other words, the proportion of the total wealth — held by each group, and compare across groups. Often people compare the very wealthy 1% and the remaining 99% (the rest of the population). In the US, this 1% group have 40% of the whole nation’s wealth.² On a global scale, 1% of the world's population hold over half of the world’s wealth — that means they have more than the remaining 99% of people in the world altogether.³

The problem with this measure is that it doesn’t take into account what kind of wealth people have, and how much opportunity they have available to them even without financial wealth. So for example, a university student in $100,000 of debt but with a well-respected degree and high-earning job would be seen as poorer than someone with no debt but barely making their monthly bills. This doesn’t mean inequality isn’t a huge issue - it just means that our measures of it don’t always accurately reflect the nuances of each individual situation.