L
ECTURE
9:
I
NCOME
I
NEQUALITY
1 
P a g e
A.
I
NTRODUCTION
B.
M
EASURING
I
NCOME
I
NEQUALITY
C.
T
HE
K
UZNETS
H
YPOTHESIS
D.
S
OURCES OF
I
NCOME
I
NEQUALITY
E.
E
FFECT OF
I
NCOME
I
NEQUALITY ON
G
ROWTH
F.
E
CONOMIC
M
OBILITY
G.
R
ELATED
L
ITERATURE
A.
I
NTRODUCTION
How GDP is Divided among Households?
source:
L
ECTURE
9:
I
NCOME
I
NEQUALITY
2 
P a g e
A.
I
NTRODUCTION
B.
M
EASURING
I
NCOME
I
NEQUALITY
C.
T
HE
K
UZNETS
H
YPOTHESIS
D.
S
OURCES OF
I
NCOME
I
NEQUALITY
E.
E
FFECT OF
I
NCOME
I
NEQUALITY ON
G
ROWTH
F.
E
CONOMIC
M
OBILITY
G.
R
ELATED
L
ITERATURE
Unequal distribution of income
Income Inequality
We have so far been concerned with what determines the average
level of
income
per capita in a country
But
how
a country’s total income is distributed amongst its
population
is also important
Why do we pay attention to income inequality?
L
ECTURE
9:
I
NCOME
I
NEQUALITY
3 
P a g e
A.
I
NTRODUCTION
B.
M
EASURING
I
NCOME
I
NEQUALITY
C.
T
HE
K
UZNETS
H
YPOTHESIS
D.
S
OURCES OF
I
NCOME
I
NEQUALITY
E.
E
FFECT OF
I
NCOME
I
NEQUALITY ON
G
ROWTH
F.
E
CONOMIC
M
OBILITY
G.
R
ELATED
L
ITERATURE
Income inequality is linked to several economic variables
Income
Inequality
Poverty
Growth
Policy
L
ECTURE
9:
I
NCOME
I
NEQUALITY
4 
P a g e
A.
I
NTRODUCTION
B.
M
EASURING
I
NCOME
I
NEQUALITY
C.
T
HE
K
UZNETS
H
YPOTHESIS
D.
S
OURCES OF
I
NCOME
I
NEQUALITY
E.
E
FFECT OF
I
NCOME
I
NEQUALITY ON
G
ROWTH
F.
E
CONOMIC
M
OBILITY
G.
R
ELATED
L
ITERATURE
B.
M
EASURING
I
NCOME
I
NEQUALITY
2 simple approaches to look at income inequality
Household Income in the United States by Quintiles, 2009
Approach 1
Divide the population into several
equalsized groups
and measure how
much income each group earns
L
ECTURE
9:
I
NCOME
I
NEQUALITY
5 
P a g e
Income Distribution in the United States, 2009
Approach 2
Divide the population into several categories of income and look at the
fraction of population in each
Mode = $20k$25k
Median = $49,777
Mean = $67,976
Mean > Median
(common outcome)
skewed
The income
distribution has a
long right tail
(rather than being
symmetric around
the mean)
Notes: the figure
does not include the
3.8% households
with income
>$200,000
L
ECTURE
9:
I
NCOME
I
NEQUALITY
6 
P a g e
A.
I
NTRODUCTION
B.
M
EASURING
I
NCOME
I
NEQUALITY
C.
T
HE
K
UZNETS
H
YPOTHESIS
D.
S
OURCES OF
I
NCOME
I
NEQUALITY
E.
E
FFECT OF
I
NCOME
I
NEQUALITY ON
G
ROWTH
F.
E
CONOMIC
M
OBILITY
G.
R
ELATED
L
ITERATURE
Measuring income inequality
G
INI
C
OEFFICIENT

summarizes the degree of income inequality in a country

useful for comparing inequality among countries or examining
inequality trends in one country over time

households are ordered according to their levels of income

then we ask: “what fraction of income is earned by the poorest 1%,
2%, 3%, … of households”

graphing these data produces a
Lorenz curve
Corrado Gini [
BIO
]
[18841965]
L
ECTURE
9:
I
NCOME
I
NEQUALITY
7 
P a g e
Gini Coefficient Index World Map (2014)
Source: The World Bank (2014)
L
ECTURE
9:
I
NCOME
I
NEQUALITY
8 
P a g e
The Lorenz Curve for the United States, 2009
You've reached the end of your free preview.
Want to read all 23 pages?
 Summer '19