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Lorenz Curve-Presentation1

The document describes how to calculate the Gini coefficient using a Lorenz curve. It provides income distribution data showing the percentage of total wages earned by different population percentages. A Lorenz curve is constructed from this data and used to calculate the Gini coefficient. The Gini coefficient is a number between 0 and 1, where 0 represents perfect equality and 1 represents perfect inequality. For the given data, the Gini coefficient is calculated to be 0.48.

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Leo Suing
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238 views8 pages

Lorenz Curve-Presentation1

The document describes how to calculate the Gini coefficient using a Lorenz curve. It provides income distribution data showing the percentage of total wages earned by different population percentages. A Lorenz curve is constructed from this data and used to calculate the Gini coefficient. The Gini coefficient is a number between 0 and 1, where 0 represents perfect equality and 1 represents perfect inequality. For the given data, the Gini coefficient is calculated to be 0.48.

Uploaded by

Leo Suing
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Lorenz Curve and

Gini Coeffieicnt
Suppose you are given data like this:

 The lowest 10% of earners make 2% of all wages


 The next 40% of earners make 18% of all wages
 The next 40% of earners make 30% of all wages
 The highest 10% of earners make 50% of all wages

The Gini coefficient requires you to construct a Lorenz curve


that would look like this:

Fraction of income
Fraction of % of Population
Fraction of Income Population that is Richer Score

0.02 0.10 0.90 0.038

0.18 0.40 0.50 0.252

0.30 0.40 0.10 0.180

0.50 0.10 0 0.050

Score = Fraction of Income (Fraction of Population + [2 x % of Population Richer])

Add up all the terms in the “Score” column.

In this example, we get a Total Score of 0.520

Gini Coefficient/Index = 1 – Total Score

In this example, we get 1 – 0.520 = 0.480

Conclusion: The Gini Coefficient/Index is 0.480


Fraction of income

50 100

Cumulative income

30 50

18 20
2 2

Fraction of population 10 40 40 10
Cumulative population 10 50 90 100
Organize our Table
Individual Cumulative
Population (%) Income (%) Population (%) Income (%)
10 2 10 2
40 18 50 20
40 30 90 50
10 50 100 100

Gini Index = A/A+B


Gini Index = ½ (base of the triangle) (height of the triangle)
Gini Index = ½ (100) (100) = 5,000 or ½ (1) (1) = .5

Gini Index = A/5,000 or A/.5


100 50 50 100

50 30 30 50

20 18 18 20
2 2 2 2

10 40 40 10
10 50 90 100
100 50 50 100

50 30 30 50

20 18 18 20
2 2 2 2

10 40 40 10
10 50 90 100
Computation
Individual Cumulative
Population (%) Income (%) Population (%) Income (%)
10 2 10 2
40 18 50 20
40 30 90 50
10 50 100 100

A1 = ½ (base1 – height1) x % individual dist. of population


= ½ (10 – 2) x 10 = 40
A2 = ½ (base1 – height1) + (base2 – height2) x % ind. dist. of population
= ½ (10 – 2) + (50 – 20) x 40 = 760
A3 = ½ (base2 – height2) + (base3 – height3) x % ind. dist. of population
= ½ (50 – 20) + (90 – 50) x 40 = 1,400
A4 = ½ (base3 – height3) + (base4 – height4) x % ind. dist. of population
= ½ (90 – 50) + (100 – 100) x 10 = 200 or A4 = ½ (90 – 50) x 10 = 200
A = 40 + 760 + 1,400 + 200 = 2,400
Gini Index = A/(A+B) = A/5,000
Gini Index = A/5,000 = 2,400 / 5,000 = 0.48

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