Glamor Economics

Chapter 152

Chapter 19, Section 7 A curve reflecting the difference between the rich and the poor—the Lorenz curve
The gap between the rich and the poor is a common social phenomenon, and it is also a livelihood issue that sociologists and economists pay more attention to.There are many indicators in economics to measure the income gap between the rich and the poor, and the Lorenz coefficient (also known as the Gini coefficient) is the most commonly used one.

At the beginning of the 20th century, the Italian economist Gini, based on the Lorenz curve, found an index for judging the degree of distribution equality. The Gini coefficient is often used to analyze the average degree of property distribution.Since the Gini is based on the Lorenz curve to establish this indicator, the Gini coefficient is also called the Lorenz coefficient.

The Lorenz curve diagram is as follows:

As shown in the figure, the horizontal axis OH represents the cumulative percentage of the population (grouped by income from low to high), the vertical axis OM represents the cumulative percentage of income, and the arc OL is the Lorenz curve.

Generally speaking, the Lorenz curve reflects the degree of inequality in income distribution.The greater the curvature, the more unequal the income distribution.In particular, if all income is concentrated in the hands of one person, and the rest of the people get nothing, the distribution of income reaches complete inequality, and the Lorenz curve becomes a broken line OHL.On the other hand, if any population percentage is equal to its income percentage, so that the cumulative percentage of population is equal to the cumulative percentage of income, then the income distribution is completely equal, and the Lorenz curve becomes the 45-degree line OL passing through the origin.Generally speaking, the income distribution of a country is neither completely unequal nor completely equal, but somewhere in between.The corresponding Lorenz curve is neither the broken line OHL nor the 45-degree line OL, but the arc OL protruding toward the horizontal axis as shown in the figure, although the degree of prominence is different.

The part A between the Lorenz curve and the 45-degree line is called the "unequal area". When the income distribution reaches complete inequality, the Lorenz curve becomes the broken line OHL, and the area between OHL and the 45-degree line is A+B It's called the "perfectly unequal area".The ratio of the area of ​​inequality to the area of ​​complete inequality is the Gini coefficient.Expressed in a formula, the Gini coefficient = A/A+B.Obviously, the Gini coefficient cannot be greater than 1, nor can it be less than zero.

If A is equal to zero, the Gini coefficient is zero, and the income is absolutely average; if B is equal to 0, the Gini coefficient is 1, and the income is absolutely uneven.The Gini coefficient is generally between 0 and 1.The smaller the Gini coefficient, the more average the income.

At present, there are many methods and indicators used internationally to analyze and reflect the income distribution gap among residents.Since the Gini coefficient gives a quantitative boundary that reflects the degree of difference between the rich and the poor, it can objectively and intuitively reflect and monitor the gap between the rich and the poor, and forecast, warn and prevent the polarization of the rich and the poor among the residents. It has been widely recognized and adopted by countries all over the world.

Internationally, 0.4 is usually regarded as the warning line of the income distribution gap.Generally, the Gini index of developed countries is between 0.24 and 0.36, and the United States is relatively high at 0.4. In 2007, China's Gini index reached 0.48, exceeding the warning line of 0.4.

The World Bank published a data showing that the average income of the top 20% of the population and the average income of the bottom 20% of the population, the ratio of these two figures is 10.7 times in China, 8.4 times in the United States, 4.9 times in India, and 4.5 times in Russia. It is 3.4 times, the lowest is Japan, only [-] times.

Since the reform and opening up, the gap between the rich and the poor has gradually widened while China's economy has grown. It is an indisputable fact that the Gini coefficient has crossed the warning line in terms of the income of various residents.The gap between the rich and the poor in Chinese society has broken through a reasonable limit. The income share of the lowest 20% of the total population is only 4.7%, while the share of the total income of the highest 20% of the total population is as high as 50%. It is prominently manifested in the further widening of the income share gap and the income gap between urban and rural residents, the excessive income gap of residents in the eastern, central and western regions, and the large gap between high and low income groups.Narrowing the income gap is a prominent issue before the government.

Using a Gini coefficient of 0.4 as the warning line for monitoring the gap between the rich and the poor should be said to be an abstraction and generalization of the practical experience of many countries, and has certain universal significance.However, the specific conditions of different countries and regions vary widely, and residents' tolerance and social values ​​are also different. Therefore, this quantitative limit can only be used as a frame of reference for macro-control, and cannot become a prison and a dogma.

[links to related words]

Growth rate of money wages Western economics divides the growth rate of money wages into non-inflationary money wage growth rate equal to the growth rate of labor productivity, and inflationary money wage growth rate exceeding the growth rate of labor productivity.The difference between the growth rate of money wages and the growth rate of the marginal product of labor is the growth rate of the price level.

(End of this chapter)