Tag: Lorenz Curve

Globalisation has reduced the bargaining power of unskilled workers and pushed up inequality in many western countries, the OECD said, urging governments to improve their social safety nets.” With the gap between rich and poor widening once again, the media have been considering the impact of widening income and wealth distribution. The articles below look at this widening gap and also at the ways in which the rich are using their money.

Gap between rich and poor widens Guardian (20/6/07)
For the super-rich it’s all give and take – at record levels Guardian (20/6/07)
Looking after the super-rich BBC News Online (Evan Davis blog) (9/8/07)

Questions

1. Define what is meant by the terms (i) Lorenz curve and (ii) Gini coefficient.
2. Using illustrations as appropriate, show how the Lorenz curve and the value of the Gini coefficient have changed in the past decade.
3. Assess the likely impact on the major macroeconomic targets of growing income inequality.
4. Discuss policies that the government could put in place to try to reduce the level of income inequality.

During the period that Mrs Thatcher was in office, the post-war trend towards greater equality of income was reversed. Although some of the changes the Labour government has made since 1997 have helped those on lower incomes, the rise in incomes at the top of the scale has meant that the gap between rich and poor has widened again. The article below from the Guardian looks at the latest figures on income inequality.

Inequality at same level as under Thatcher Guardian (18/5/07)


Questions
1. Define the terms (a) Lorenz curve and (b) Gini coefficient.
2. Given the changes in income distribution outlined in the article, discuss how the value of the Gini coefficient has changed since 1997.
3. Draw Lorenz curves to show the changes that have taken place in income distribution during Mrs Thatcher’s period in office and during Tony Blair’s time in office.
4. Analyse two policies that the government could introduce to reverse these income distribution trends.