Department of Sociology
 

Measuring Inequality of Household Income

 

3. Lorenz curve and Gini Coefficient

  • The Lorenz curve is obtained by plotting the cumulative percentages of household income against the cumulative percentages of the numbero fhouseholds, starting from households with the lowest income. Chart 1 is an example of the Lorenz curve. The Lorenz curve would be a line of equality if there is an absolutely equal distribution of income. The degree of income disparity is reflexted by the extent to which the Lorenz curve is concave against the line of equality. In other words, the closer the Lorenz curve is to the lineof equlaity , the samlller is the degree of income disparity.
  • Gini Coefficient, which takes a value between zero and one, is calculated by taking the area "ABC" between the Lorenz curve and the line of equlaity and dividing it by the total area "ABD" below the line of equality. A value of "zero" means absolute equality in the housedhold income distribution, or every household has an equal share of the total household income. A value of "one" indicates one household earn the total household income and the remining households earn nothing.

 

Table 3.1: Gini Coefficient, 1991 to 2001

Population Census or By-Census
Gini Coefficient
1971
0.430
1976
0.429
1981
0.451
1986
0.453
1991
0.476
1996
0.518
2001
0.525

Source: Table 6, Census and Statistics Department (2001).

View Polygon

 

  • According to the results of the 2001 Population Census, the Gini coefficient based on houshold income is 0.525. The corresponding figures for 1996 and 1991 were 0.518 and 0.476 respectively. These figures suggest that there has been an increase in the extent of income inequality. The Lorenz curves for 1991 , 1996, and 2001 are shown as below:

  • The effect of social mobility should be taken into account in studying income distribution. For instance, some households falling in the low income decile groups in 1996 might have moved up teh social ladder to higher income decile groups in 2001. Their positions in the low income decile groups might have been repalced by households newly formed by members who have just entered the labour force.
  • Moreover, the structural changes in an economy adn the consequential transformation to occupational patterns should be noted. Over the past decade, rapid structural transformation in the Hong Kong economy has led to a strong and increasing demand for managers, administrators, professional and associate professionals, and hence faster increases in salaries and wages for people working in these jobs than those woking in other jobs which require lower level of knowlege and skill. Their salaries has increased in a different speed and income inequality is thus widen.
  • Finally, it should be noted that there is no direct relationship between the extent of poverty and the Gini coefficient. An increase in the Gini coefficient implies rising income inequality which does not necessarily indicate worsening of the poverty. For example, when the rich become richer while the poor also become richer, the Gini coefficient may still increase as theer may be differential degree of improvement in income for different groups of people. Hence, in order to clarify the degree of poverty of an economy, reference should also be made to other income statistics in addition to the Ginin coefficient (e.g. median monthly household income, monthly household income per capita, and percentage distribution of monthly household income by decile groups of domestic households).

 

Table3.2: Comparsion of Gini Coefficient between Hong Kong and Other Countries, 2000-2001
Countries
Gini Coefficient
Finland
0.226
Indan
0.297
Indonesia
0.303
Canada
0.315
China
0.400
U.S.A
0.435
Philippine
0.461
Russia
0.518
Hong Kong
0.525
Ethiopia
0.572

Source: Human Development Report 2003 and Table 6, Census and Statistics Department (2001).
Gini coefficient in Central and Eastern Europe

   


Back to Home

The Chinese University of Hong Kong Department of Sociology Department of Sociology, CUHK Education and Manpower Bureau The Social and Economic Policy Institute