DP13211 Inequality as experienced difference: A reformulation of the Gini coefficient

Author(s): Samuel Bowles, Wendy Carlin
Publication Date: September 2018
Keyword(s): Gini coefficient, inequality, Lorenz curve, relative mean difference
JEL(s): D31
Programme Areas: Public Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13211

We represent a population as a complete undirected network, the edges of which are the fundamental data on experienced disparities. This yields a Gini coefficient (for wealth, say) for finite populations that is based on the mean wealth difference between all pairs of individuals relative to the mean wealth, which we demonstrate is not the case for the conventional Lorenz curve representation and the algorithm widely-used to calculate it. Our method also provides simple and intuitive explanations of the effects on the Gini coefficient of changes in the wage share, the employment rate, and other macroeconomic and demographic variables.