1. Inequality
OCR Year 2 Macro

2. The difference between income and wealth
Income is a flow of money going to factors of production:
Wages and salaries paid to people in work
Money paid to people receiving benefits such as the state pension and tax credits
Profits flowing to businesses / corporations
Dividends distributed to shareholders
Rental income to people who own and lease property
Interest paid to owners of capital who hold money in deposit accounts or who own bonds

3. The difference between income and wealth
Wealth is a stock concept
Wealth can be held in different ways:
Savings held in commercial bank deposits
Ownership of shares issued by stock-market listed companies and equity stakes in private businesses
Ownership of property / real estate
Wealth held in corporate bonds and government bonds
Wealth tied up in private (occupational) pension schemes and life assurance schemes
In terms of global income inequality, the poorest two- thirds of the world’s people are estimated to receive less than 13 per cent of world income, while the richest 1 per cent take nearly 15 per cent (Source: UNDP HDI report for 2014)

4. World's 80 Richest People Have Same Wealth As Poorest 50%

5. Richest 62 people compared to Africa's poorest GDPs
Branko Milanovic (City University, NY) has showed that a large part of global inequality depends on economic differences between countries rather than within them

6. The Kuznets Inequality Curve
Gini Coefficient
(Inequality)
Industrialization and urbanization
Tertiary-dominated economy + development of progressive tax and welfare systems
Per capita GNI (PPP)
The Kuznets Curve suggests that inequality often rises during a phase of rapid industrialisation and urbanization but there may come a point when increased welfare provision, progressive taxes and more balanced income growth across industries might lead to a fall in overall inequality at higher per capita incomes.

7. The Lorenz Curve Cumulative % of Income 100% Line of Equality
The Lorenz Curve gives a visual interpretation of income or wealth inequality.
The diagonal line shows a situation of perfect equality of income i.e. 50% of population has 50% of income
50% 0%
Poorest
Richest
Households by Income – Quintile Distribution

8. The Lorenz Curve with High Inequality
Cumulative % of Income
100%
Line of Equality
50%
Lorenz Curve (High Inequality) 0%
Poorest
Richest
Households by Income – Quintile Distribution

9. The Lorenz Curve with less Inequality
Cumulative % of Income
100%
Line of Equality
50%
Lorenz Curve (Low Inequality)
Lorenz Curve (High Inequality) 0%
Poorest
Richest
Households by Income – Quintile Distribution

10. Using the Lorenz Curve to measure Gini Coefficient
Cumulative % of Income
100%
Line of Equality
Gini coefficient =
Area A
Divided by
Area A + Area B A
Lorenz Curve B 0%
Poorest
Richest
Households by Income – Quintile Distribution

11. The Gini Coefficient
The Gini coefficient condenses the entire income distribution for a country into a single number between 0 and 1: the higher the number, the greater the degree of income inequality.
The Gini coefficient ranges from zero, when everyone has the same income, to 1, when a single individual receives all the income
A Gini coefficient above 0.4 is often seen as an important point. Inequality above this level is frequently associated with political instability and growing social tensions.

12. Countries with highest Gini Coefficient in 2012

13. Gini Coefficient for Household Income in the USA
The Gini coefficient measures the inequality among values of a frequency distribution (for example levels of income). A Gini coefficient of zero expresses perfect equality where all values are the same (for example, where everyone has an exactly equal income). A Gini coefficient of one (100 on the percentile scale) expresses maximal inequality among values (for example where only one person has all the income).

14. Gini Coefficient for China from 2005 to 2015
The Gini coefficient measures the inequality among values of a frequency distribution (for example levels of income). A Gini coefficient of zero expresses perfect equality where all values are the same (for example, where everyone has an exactly equal income). A Gini coefficient of one (100 on the percentile scale) expresses maximal inequality among values (for example where only one person has all the income).

15. Alternative Measures of Income Inequality
Quintile ratio
This is the ratio of the average income of the richest 20% of the population to the average income of the poorest 20% of the population
An alternative measure is the average income of the richest 10% of the population to the average income of the poorest 10% of the population
Palma ratio
This is the ratio of the richest 10% of the population's share of gross national income divided by the poorest 40%'s share
Gini coefficient
A Gini index of 0 represents perfect equality, while an index of 1 implies perfect inequality. Zambia has a very high level of income inequality measured this way

16. Countries with Highest Income Inequality (2014)
Quintile ratio 80th/20th
Palma ratio
Gini coefficient
Seychelles
18.8
6.4
65.8
South Africa
28.5
8.0
65.0
Namibia
19.6
5.8
61.3
Botswana
22.9
60.5
Haiti
26.6
5.5
59.2
Zambia
17.4
4.8
57.5
Honduras
23.5
5.0
57.4
Central African Republic
18.0
4.5
56.3
Lesotho
20.4
4.3
54.2
Colombia
17.5
4.0
53.5
Brazil
16.9
3.8
52.7
Chile
12.6
3.3
50.8
Rwanda
11.0
3.2
Costa Rica
12.8
2.9
48.6
Mexico
11.1
2.8
48.1
Paraguay
13.0
48.0
Kenya
47.7
Malawi
9.7
2.6
46.2

17. Countries with Lowest Income Inequality (2014)
Quintile ratio
80th/20th
Palma ratio
Gini coefficient
Hungary
4.5
1.0
28.9
Netherlands
Kazakhstan
4.0
28.6
Afghanistan
27.8
Finland
Romania
4.1
0.9
27.3
Denmark
26.9
Norway
26.8
Slovakia
26.6
Belarus
3.8
26.5
Czech Republic
3.9
26.4
Iceland
26.3
Sweden
3.7
26.1
Slovenia
3.6
0.8
24.9
Ukraine
3.4
24.8