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Gini: A Measure of Inequality

Written By: - Date published: 10:30 am, February 25th, 2014 - 12 comments
Categories: Economy, tax - Tags: , ,

In my previous post “UBI: Addressing Inequality” on how a UBI would address inequality,  it turns out I figured out something that is already known as a measure of inequality called the Gini coefficient and the Lorenz curve.

A lower Gini coefficient is better and represents a more equal society. It is a recognised way of measuring and comparing inequality between countries, changes in equality overtime and for the effects of taxation proposals.

Below is the graph for NZ over time.

Gini Coefficient2

Source Child Poverty Monitor: Technical Report.

The graph speaks for itself but to state the obvious, successive governments in the last 35 years have not done much to shift inequality since rogernomics and the 1987 crash which raised it dramatically. Boy was that ever a hand out to the wealthy. It helps explain why there is such a feeling amongst older people that society was fairer in the past.

There is no reason to think it is OK to have a coefficient of above 30? Surely we’d want to reduce this? Perhaps NZ should target a Gini coefficient of for example around 25 and tax and adjust social and economic policy to achieve that level. This is just as valid measure of a country’s performance as GDP or any other measure and infinitely more preferable for society than many of the obscure measures currently used. We currently control for inflation so there is no reason not to control for inequality. The effects of controlling for this would be numerous but maybe incomes would adjust to being fairer as it would be known that ridiculously high incomes would simply be redistributed via tax more fairly.  Fiddling with the OCR clearly only goes so far in managing the economy.

I’d suggest that governments performance in addressing inequality can be measured thus. I’d expect the next government to make a significant shift in this before I believe they are interested in address inequality. Clearly the last labour government failed to address inequality and nor has the current government. If a left government wants to have power in NZ and genuinely wants to fix the 1980’s shafting of NZ society they better do something about it.

The debate is carried on here

Other links

Parliamentary research paper 2011: Household Incomes, Inequality and Poverty

A report that is worth a read as it frames the debate in NZ in this MSD report.

Gini Coefficient

In it they seem to imply that the OECD average is an acceptable level. Comparatively to US, UK and Australia we have a more equal society. Why anyone thinks we are like those countries in the 21st century or want to be like them is beyond me. Targeting the OECD average is hardly aspirational for NZ society.

The rising inequality levels are unacceptable in a civilised country for a whole lot of reasons. The greater the measure (like the Gini coefficient) of the equality of a society  the greater the level of civilisation. NZ can lead the world in civilisation as opposed to descending into the barbaric and competitive nature of the US economic system and its followers. The politicians who articulate a vision of a society with a more equal distribution of income to me are worthy of voting for.

12 comments on “Gini: A Measure of Inequality”

  1. One Anonymous Bloke 1

    We could be a fast follower behind the current leaders and we’d still do better than the OECD average.

  2. Ad 2

    Go and have a good chat with Dr Elizabeth Craig at the University of Otago (and also Labour’s Clutha-Southland candidate). She will give you chapter and verse on GINI coefficients to whole rafts of epidemiological measures. Plenty of datasets stretching back a few decades now.

    • karol 2.1

      Liz Craig as in this article, 2012?

      If New Zealand wanted to see the rates of other conditions such as skin infections and rheumatic fever drop, it needed to reduce child poverty and other wider environmental causes, such as the quality of housing.

      She said high rates of these conditions were partly a result of benefit cuts made in 1991 and if New Zealand wanted to see these numbers come down, the amount parents received on benefits needed to be looked at.
      […]
      Dr Craig said it was also concerning that deaths from assault had remained static since 2000, with on average eight children dying every year after being assaulted.

  3. Tom Gould 3

    Was talking to a woman in her late 50s the other day who told me she was now widowed and had 3 grown children living overseas, was working in an office earning an average wage, living in a home for the past 30 years in Auckland, mortgage paid off, that was now worth around $1.5m. She has no super savings, just a few thousand ‘put aside’ for a rainy day. She says that ‘on paper’ she is considered one of the rich. She doesn’t think she is. Is she?

    • karol 3.1

      I’d say she isn’t so much as rich, as well-off. She could sell her house if necessary – and/or downsize. She’s reasonaby secure I would have thought.

      • Zorr 3.1.1

        Agreed.

        In my opinion, even if you had to sell your house to do it, it is the ability to change/respond to change that separates the poor from the rich and that as you travel the spectrum between the two, the ability to cope with change increases.

    • Stephanie Rodgers 3.2

      It depends what you mean by “an average wage” (mean or median? :P ) but it would certainly be a lot easier to get by without the costs of rent or a mortgage (or a student loan!). Probably not rich, but probably in a far better position than a lot of others.

  4. Tracey 4

    labour and greens need to stick to the mediam and start sentences with ” half of all new zealanders”

    counter nationals penchant for averages.

  5. adam 5

    Thank you FLIP – So we have a structural issues on going. It has another name, systemic decline. Labour won’t do a dam thing to change the structure – why because like liberal elites the globe over, they are chicken shit wimps. They know helping the 1% will mean they will get into the gated communities, they will get their 30 pieces of silver.

    Time for something stronger folks, something better. We need to have workers start to buy and run the closing factories. shops and offices . We need to take over the power, the water and the air ways and run them ourselves. We need to stop banking with the Aussie banks and join co-operatives. We need stop going to aussie food chains and by local. We need to realize there will be only change to the system from outside the system – because the system is broken.

  6. RedLogix 6

    I wonder how the NZ measure of GINI would change if we included the fact that much of this country’s income and wealth is controlled by overseas people – and thus not directly captured in this statistic?

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