Inequality

Why is income inequality higher now than it has been? First, it is higher. But why is it higher now? The answer is simple. Income inequality is directly related to the level of unemployment. So if unemployment falls, as we all hope it will, inequality will decline. Unfortunately, it is becoming more likely that those who are poor will remain poor as a result of public subsidies intended to help the poor that have income tests keeping them trapped in poverty. More subsidies of this type mean more permanent poverty.

This might be a good opportunity to put in a good word for measuring income inequality carefully. It is measured by applying the Lorenz curve. This is a curve with the horizontal axis measuring the cumulative proportion of population and the vertical axis measuring the cumulative proportion of income. You always start with the lowest income group and progress to higher and higher income groups. This causes the Lorenz curve to always get steeper and steeper as one proceeds. The single number which indicates the level of inequality is called the Gini coefficient. The Gini coefficient is the number one minus twice the area under the Lorenz curve.