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Work and what it pays · 9 of 10

The Lorenz curve and the Gini coefficient

Read inequality off a Lorenz curve and say what a Gini number means

Key terms
Lorenz curve
A Lorenz curve is a graph comparing the cumulative share of income actually received with a perfectly equal distribution of income.
Line of perfect equality
The line of perfect equality is the diagonal where the bottom forty per cent of people get forty per cent of income, and so on for every share.

The curve plots running totals of income against running totals of people

Rank households from lowest income to highest and split them into quintiles: five equal groups, each a fifth of all households. The horizontal axis shows the cumulative share of the population and the vertical axis the cumulative share of income. The further the curve loops below the diagonal, the more unequal the distribution.

A Lorenz curve below the line of perfect equalityVertical axis: Cumulative share of income. Horizontal axis: Cumulative share of households. Equality: an upward-sloping line. Lorenz: an upward-sloping curve. A point at 30% on the vertical axis and 60% on the horizontal axis. Shaded area A: gap between equality and the Lorenz curve. Shaded area B: area under the Lorenz curve.AB60%30%EqualityLorenz
Here the bottom 60 per cent of households get 30 per cent of income. The bigger area A is, the more unequal the distribution.