Wednesday, May 23, 2012

Income Inequality in America

Something that caught my eye in a blog post by Paul Krugman:

This is not an unfamiliar graph, but it is always a bit startling to see it. Income inequality is soaring in the US. The Gini coefficient is the most popular measure of income inequality and ours is growing quite rapidly.  What does this mean from a relative perspective? Here is a table I put together from data amassed in the CIA World Factbook:
The US is 98 out of 140 in this measure of income inequality and keeping company with such countries as Uganda, Cambodia, Uruguay and Bulgaria.  Yeay.  Most of the high income world has Gini coefficients below 35.  Ours is 45.

Aside from any moral and ethical interpretations, what of the economic implications?  What do we know about the relationship between inequality and growth in the data?  Not much.

Here is a nice graphic from Wikipedia that shows how the Gini is calculated from a Lorenz Curve - the Gini is A/(A+B):

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