1. Income inequality
Dr.Naheed Sultana

2. • The unequal distribution of household or
individual income across the various
participants in an economy. Income inequality
is often presented as the percentage of
income to a percentage of population. For
example, a statistic may indicate that 70% of a
country's income is controlled by 20% of that
country's residents

3. Lorenz curve
• economics, the Lorenz curve is a graphical
representation of the cumulative distribution
function of the empirical probability
distribution of wealth. It is often used to
represent income distribution, where it shows
for the bottom x% of households, what
percentage y% of the total income they have

4. Lorenz curve

5. • Percent Distribution of Aggregate Household Income in
1978, by Fifths of Households
• Households Percent of Income
• Lowest Fifth
(under $6391) 4.3
• Second Fifth
($6392 - $11955) 10.3
• Third Fifth
($11956 - $18122) 16.9
• Fourth Fifth
($18122 - $26334) 24.7
• Top Fifth
($26335 and over) 43.9

6. How to build Lorenz Curves
• Individual Income
• 1 2,417
• 2 7,800
• 3 8,489
• 4 10,072
• 5 12,957

7. • In this income distribution, individual 1 owns
US$2,417/year (he/she is the poorest),
• while individual 5 owns US$12,957/year
(he/she is the richest). below, we
• illustrate the process to build the Lorenz Curve

10. Example 2

16. Gini coefficient
• In Figure 1, as OP is the equi distribution
line, ORP is the area defined by the Lorenz
Curve of the standard income distribution and
the equi distribution line, called the
concentration area. OPQ is the area of
maximum concentration, i.e the area between
the Lorenz Curve of income distribution C and
theequidistribution ine.

17. • G = concentration area/
maximum concentration are
G = ORP/OPQ

18. Coefficient of Variation (CV)
• A measure of dispersion common
in statistics, the CV, is simply the
sample SD divided by the sample
mean

19. Functional distribution
• The functional or factor share distribution of
income, attempts to explain the share of total
national income that each of factor of
production receives .The theory of functional
income distribution represents the percentage
that labor receives as a whole and compares
with the percentages of total income
distributed in the form of rent, interest and
profit .

20. Functional income distribution

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22. Measuring Absolute Poverty
• A population or sections of population living
below a specific minimum level of real income
measures the magnitude of absolute poverty.
• Absolute poverty is measured using
• Headcount(H)
• Headcount Index (H/N)
• Poverty Gap (total income shortfall)

23. The headcount index
• The headcount index is the
proportion of the population for
whom consumption is less than the
poverty line.

24. The headcount index

25. The headcount index

26. Advantages and disadvantages of HCI
• Advantages:
• simple to construct
• easy to understand.
• Disadvantages:
• It ignores differences in well-being between
different poor persons
• the index does not change if income
inequality increases or decreases

27. Poverty gap “PG”
• The poverty gap is the average, of
the gaps between poor people’s
living standards and the poverty line.
It indicates the average extent to
which individuals fall below the
poverty line. The poverty gap index
expresses the poverty gap as a
percentage of the poverty line

28. Poverty gap “PG”

30. Poverty gap (PG) and PG index
• The poverty gap index (PGI) is
defined as the ratio of the
Poverty Gap (PG) to the poverty
line. It is the poverty gap
expressed as a percentage of the
line

31. PGI

32. • The PG or the PGI can be interpreted
as the average shortfall of poor
people. They show how much would
have to be transferred to the poor to
bring their expenditure up to the
poverty line

33. Foster-Greer-Thorbecke Index
• It is generalized measure of poverty within an
• economy. It combines information on the
extent of poverty (as measured by the
• Headcount ratio), the intensity of poverty (as
measured by the Total Poverty Gap) and
• inequality among the poor (as measured by
• the Gini and the coefficient of variation for the
poor).

35. • Where z is poverty line, N is the number
of people in an economy, H is the
number of poor ,those with incomes at
or below z, Yi are individual incomes and
α is a "sensitivity" parameter. The higher
the FGT statistic, the more poverty there
is in an economy.

36. Economic Characteristics of Poverty
Groups
• Rural poverty
• Women and poverty
• Ethnic minorities and poverty