INEQUALITY

Patchwork text on Inequality

[Name of the Institute]An Unequal World- the facts

Equality and equity are two different concepts. Equality refers to a distribution where every individual gets equal part. Equity is a concept that those who deserve will get the benefits and accordingly. Equality suggests that every human being must get equal part in resources and income in all over the world regardless of nationality, gender, etc.

Is the world equal? The answer is no. In April 2011, UNICEF in its report “Global Inequality: Beyond the Bottom Billion” analyzed income distribution in 144 countries. The findings showed that more than 70 percent of the world's income belongs to the top 20 percent of the population. Several indicators are used to measure income inequality. Gini indexes, Purchasing Power Parity (PPP) index, along with measures of poverty such as Human Development Index are used to analyze the unequal distribution of income and resources in the world. Every measure in different studies provides evidence that we live in an unequal world.

Gini Index

Gini index is used to measure and compare income inequality within households or countries. The method of calculating Gini coefficient involves Lorenz curve which is a plot of income distribution against the cumulative number of recipients starting from the poorest. Lorentz curve and a hypothetical line of equality are plotted on same graph as follows.

Where B is the area under Lorenz curve and A is the area between the line of equality and the Lorenz curve. Formula of Gini coefficient is given by

G = A / (A+B)

Purchasing Power Parity (PPP) Index

Purchasing power parity is rather disputed index of income inequality. In developing this index a specific basket of goods is compared for the difference in prices in different countries. Thus a real exchange rate is formed in place of nominal exchange rate. On the basis of this PPP-index exchange rate, countries are classified into high or low income group.

Source: Calculation in UNICEF report using World Bank (2011), UNU-WINDER (2008) and Eurostat (2011)

In figure 1 world's population is distributed in 5 fractions and plotted on vertical axis against the distribution of income plotted on horizontal axis. The figure shows that four lowest fractions of world population get less than 20% of the world's income. While the largest part of world's income belongs to the minimum fraction of the world's population. With the passage of time the amount of income in each fraction of population fluctuates but the extent of inequality remains same. The inequality within different regions of the world is presented graphically in Figure 2.

Source: Adapted in report of UNICEF from Sutcliffe (2005) using World Bank (2011), UNU-WIDER (2008) and Eurostat (2011)

In figure 2 distribution of world's income is plotted on vertical axis against countries on one second axis and income classes within countries in third axis. The figure shows that rich countries have proportionately larger size of rich classes as compare to the poor countries. High income classes in richer countries get higher income as compare to the poorer ...