What Does the Gini Coefficient Measure?
Learn what the Gini coefficient measures, how to interpret values from zero to one, and why income inequality is different from poverty or average income.
The Gini coefficient measures how unequally income or wealth is distributed among people or households in a population. A higher coefficient means greater inequality in the distribution being measured.
How to interpret it
The coefficient ranges from 000 to 111. A value of 000 represents perfect equality: everyone receives the same income or holds the same wealth. A value of 111 represents perfect inequality: one person has all of it. Real distributions fall between these extremes.
Always check what is being measured. A Gini coefficient for income describes the distribution of income, which is received over a period of time. A Gini coefficient for wealth describes the distribution of wealth, which is the value of assets held at a point in time. The two figures are not interchangeable.
A simple comparison
Suppose two economies each have two households. In the first, both households receive 202020 income units. In the second, one receives 101010 and the other 303030. Both economies have the same average household income of 202020 units, but income is more unequal in the second. Its income Gini coefficient would therefore be higher. You do not need to calculate the coefficient to make that comparison.
Exam mistake to avoid: a higher Gini coefficient does not necessarily mean people are poorer. It shows greater inequality, not the average income or the number of people in poverty. When interpreting a figure, specify whether it refers to income or wealth and whether a change means inequality has risen or fallen.
For Cambridge International AS Level Economics, this falls under Addressing income and wealth inequality, point 3.3.2. Gini coefficient calculation is not required at AS Level.
