A Gini coefficient measures the degree of income inequality in an economy. It measures the changes in the distribution of income over time. But it is not an accurate measurement of the degree of equality in society. Hence, the Gini index can misrepresent the degree of inequality in a society.
The Gini coefficient is a point estimate of inequality over a specific period. However, it does not consider life-span changes in income and wealth. For example, it seems like inequality would grow if the number of young and old people in society went up. This is because the incomes and wealth of young people tend to be lower than those of older adults. Age and income mobility within income classes also create the appearance of inequality.
Besides these two measures, there are other measures of inequality. Other measures, such as the Palma ratio, can also measure inequality. This share ratio compares the income of the wealthiest 10% to that of the bottom 40%. It is more sensitive to changes at the bottom and top parts of the distribution than in the middle.
This means that income distribution is not necessarily as smooth as theoretical models suggest. The Gini index and log income variance peak around 1994 and then start to decline. The degree of inequality also depends on which measure is used. In addition, the source of income is more important than wages.
The Shorrocks index is another measure of income inequality. It compares the degree of inequality in annual household income and short-term earnings. Both measures measure income inequality, which can indicate whether it is permanently fixed or not. The Shorrocks index can also reveal whether there is economic mobility.
Income and wealth are often confused with wealth. While income refers to the flow of money in an economy, wealth is the stock of all the assets in a person’s life. These assets can include bonds, stocks, property, and savings. They also include benefits from welfare, state pensions, and government transfers.
A common way to show the problem of inequality is by using a Lorenz curve to show the difference in income. The poorest 10% of people in the United States earn 1.6% of total income. Norway and Brazil have more equally-distributed income.