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Chalkboard picture of an uneven scale visually representing financial inequality

Inequality is increasing

Apart from the GINI Coefficient, we can also evaluate inequality in terms of income ratios. This measures the gap between the rich and the poor.

A higher ratio value indicates a wider gap between rich and poor. For instance, S80/S20 is a commonly used ratio (there are others). It represents the average income of the 20% richest to the 20% poorest.

How do income ratios compare between various countries?

Let’s look at some examples:

  • Sweden 4.0
  • Australia 5.7
  • U.S.A. 8.6
  • China 73.4

How is inequality changing?

The best way to understand the dynamics of inequality is to look at how the GINI Coefficient and the S80/S20 income ratios have evolved over time. In the table further below, both the GINI coefficient and the S80/S20 ratio are reported for a group of industrial and emerging countries.

A note of caution!

It is difficult to access current inequality data. A large time lag usually exists. For example, the latest available data generally refers to 2014 and 2015. Also, changes in statistical definitions can make time comparisons difficult.

With this in mind, the table below can be used to draw some general conclusions.

  1. There are some countries (a minority) where either one or the other measure of inequality has been declining, but there is no country where both measures have declined.
  2. Conversely, in a majority of countries, there is evidence of increasing inequality along both dimensions.

The data would indicate that in several countries the distribution of income is becoming more dispersed, while the gap between the rich and the poor is progressively widening. Obviously, this conclusion is based on limited sample of countries.

Also, the extent to which inequality is increasing (if it is increasing at all) changes quite significantly across different countries. Yet, if one had to pick between “increasing” and “decreasing”, based on these data, the most likely choice would appear to be “increasing”.

  Gini coefficient       S80/S20    
Country Mid-1990s Mid-2005 Today % change Mid-2005 Today % change
Australia 0.31 0.32 0.34 9.1 5.1 5.7 11.8
Canada 0.29 0.32 0.31 8.3 5.2 5.2 0.0
Denmark 0.22 0.23 0.26 19.1 3.3 3.6 9.1
Finland 0.22 0.27 0.26 16.1 3.8 3.7 -2.6
France 0.28 0.29 0.30 7.2 4.2 4.5 7.1
Germany 0.27 0.30 0.29 8.6 4.2 4.4 4.8
Greece 0.35 0.35 0.34 -2.9 5.9 6.4 8.5
Hungary 0.29 0.29 0.29 -2.0 4.3 4.5 4.7
Israel 0.34 0.38 0.36 6.5 7.6 7.4 -2.6
Italy 0.33 0.32 0.33 -0.6 5.5 5.9 7.3
Japan 0.32 0.33 0.33 2.2 .. .. ..
Netherlands 0.30 0.28 0.30 2.0 4.2 4.6 9.5
New Zealand 0.34 0.34 0.35 4.2 5.6 5.8 3.6
Norway 0.24 0.28 0.26 5.8 4.1 3.9 -4.9
Sweden 0.21 0.23 0.27 29.9 3.3 4.1 24.2
UK 0.34 0.34 0.36 5.9 6.1 6 -1.6
US 0.36 0.38 0.39 7.8 7.8 8.7 11.5
China .. .. 0.56 .. .. 73.4 ..
India .. 0.48 0.50 .. 12.5 .. ..
Russia .. .. 0.38 .. .. .. ..
South Africa .. .. 0.62 .. .. 37.6 ..
Brazil .. 0.51 0.47 .. 15.3 12.5 -18.3

Notes on reading the table

  • The Gini coefficient is reported for three periods (mid-1990s, mid-200s, and latest available observation).
  • The S80/S20 is instead reported for two periods (mid-2000s and latest available observation).
  • For both measures, the table reports the percentage change between the first and the last period.

Your task

Considering that inequality only moves slowly over time, are “small” changes of a few percentage points in a period of 10 or 20 years cause for concern? What do you think?

See if you can you find your country in the table or conduct your own research.

Share your thoughts in the comments section below.


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This article is from the free online course:

Exploring Economics: Will the Next Generation Be Worse Off?

Griffith University

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