The Gini Coefficient

A recent issue of the Handelsblatt (the German Wall Street Journal equivalent) had a neat graphic comparison of the U.S. to 5 other major countries: France, Germany, Italy, Spain and the U.K., along the criteria of the Gini coefficients on pre-tax/transfer incomes, post-tax/transfer incomes, and household wealth. Our pre-Gini on incomes is slightly below that in Italy, a bit higher than in the other four countries.  The big difference is that our post-Gini is much higher than in all the other countries—0.38 compared to a range of 0.29 to 0.34.  We do much less redistribution through transfers and have flatter taxes.

It is thus not surprising that we win the Champions League of Gini wealth inequality:  Ours is 0.85, with a range of 0.65 to 0.78 in the other five countries. The tiny tax increase on the top 1 percent of households that took so much political energy last year will do almost nothing to strip us of our championship status.

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  1. PK says:

    Professor Hamermesh,

    Would you say that Ginis measured at the household level are the larger issue, or the decline in household formation (~27% households single in 2012 vs. ~10% in 1952)? When you look at our income Gini at an individual level (I haven’t tried it for wealth) we’re relatively flat over the last years. Perhaps the lower household formation at the lower end of the income/wealth scale is a symptom?

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  2. frankenduf says:

    so much for the propaganda that our taxes are too high

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    • James says:

      That’s like saying it’s great that the loan shark’s enforcer only broke my arm, ’cause all those other people had their kneecaps broken.

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  3. Enter your name... says:

    Does that calculation properly account for tax expenditures (the difference between “here, take $100 off your tax bill because you’re a low-income parent” and “here, have a $100 because you’re a low-income parent”)?

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  4. nobody.really says:

    Links! Links! Links!

    Chekhov remarked that if you begin a play/novel showing a loaded gun, then at some point before the ending someone has to fire it off. Similarly, if you begin a blog post with “Gee, there’s this terrific graphic…,” you HAVE to provide a link — or at least say why you’re not providing one.

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  5. Michael says:

    My neighbor, an ophthalmologist, makes more than 4 times what I make. Clearly I’ve been wronged by this. Will someone please make the world a better place by taking half his income and giving it to me, so I can buy a nicer car?

    Lowering Gini coefficients is a less worthy goal than improving median standard of living. Increased wealth redistribution makes our Gini look better, but society as a whole is worse off than it would be otherwise.

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    • tmeier says:

      You are talking a different language than the people who think the welfare state should be expanded. Essentially it comes down to your morality being individual and theirs collective. The idea of individual morality strikes them as absurd because we are all interconnected, the idea of collective morality strikes you as absurd because only an individual can make moral decisions and be a moral agent.

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      • Andreas Moser says:

        @tmeier: I am an individual and I make an individual moral decision, but that does not mean that I need to disregard others and society or my community. The reason for that is that i recognize that my personal position (as a healthy, smart and educated white guy from a middle-class family) is only due to luck and that if somebody else is sick, poor or not so smart, it’s not his fault. Our positions in life are largely arbitrary, so we shouldn’t be too proud of them.
        (for more on this see John Rawls about the “veil of ignorance”.)

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      • tmeier says:

        I am familiar with Rawls. My understanding is he essentially argues a coda to Kant’s categorical imperative, adding the idea that you should adjust your attitude to society as imagining yourself unformed, a protoplasmic cypher. This strikes me as contradictory. What does it mean to say ‘you’ except what you are? You can’t be otherwise. It’s like asking you to imagine yourself a whale or an earthworm, you may think this possible but only if you don’t think about it very deeply.

        Myself I don’t choose between individual and collective morality, both seem to me to have points in their favor, I ask what is the likely result and pick from each as it seems good to me. I don’t think human happiness the goal though, happiness is is vague and elusive. I’ll settle for survival.

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      • J1 says:

        Unless you believe there is, or should be, a fixed, finite quantity of wealth in the universe, people at the low end of the wealth spectrum are not wronged because of disparity; regardless of who lives where, there are always going to be places to live that are nicer than others. No matter how you distribute housing, some people are going to be “squeezed out” of the better areas/schools. For the rich and poor to switch locations or be mixed evenly would not change that.

        Likewise, even in a completely egalitarian society there would be low status work that had to be done. I suppose we could try to distribute jobs randomly, but do you really want your doctor or the pilot flying your airplane chosen by lot? In the immortal words of Judge Smails, “the world needs ditch diggers too”.

        Your argument that raising the median standard of living doesn’t help as much as closing the gap makes no sense. Raising the standard of living appears to be the objective (if not, why is redistribution necessary?), and inequality is, by your own logic, necessary to do so. Shouldn’t our goal be to raise that standard by whatever means, even if doing so benefits the rich more than the poor? There are always going to be people in this world who are smarter and more successful, or merely luckier, than you or me. Is the possibility they would benefit more from improvements to the lot of the poor than the poor would themselves grounds for opposing those improvements? To say yes seems covetous and petty. Let’s focus more on making the world a better place and less on our apoplexy that that guy is richer/lives in a better neighborhood/drives a nicer car/has a better looking wife than we think he should.

        I would encourage everyone, and particularly those who think equality is irrelevant, to read Andreas’ paper at the link.

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      • James says:

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    • Caleb B says:

      Exactly, who cares what the coefficient is if my standard of living is higher?

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      • Pshrnk says:

        Almost all of us care. Evolved to compete on the field of reproductive fitness almost all of us, no matter how much we have, care to some degree when others have more.

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    • Andreas Moser says:

      Equality serves a useful economic purpose, at least in a world where resources are limited. While you personally have not “been wronged”, many people at the very low end of the wealth spectrum are wronged due to huge income/wealth disparities. They are being crowded out of certain parts of the city and the schools there and they are forced to work for those with more money in jobs which do not give them a fulfilling life.

      Raising the median standard of living does not help those at the very low end of the spectrum as much as closing the gap. And in our society, that wealth gap can be closed without any rich person having to lose a house, a car or a vacation. They may just have a little bit less to pass on to their children, their dogs or to super-PACs.

      I wrote a paper once on the subject of “equality versus sufficiency”: http://andreasmoser.wordpress.com/2012/05/21/equality-versus-sufficiency/

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      • Caleb B says:

        @Andreas Moser

        The wealth gap exists bc our government encourages her poorest of citizens to not have wealth or work. See NPR’s review of the disability program. Poor parents are encouraging their kids to do poorly in school to draw a check. That is real. I know a teacher that sees it happen with about HALF her 4th grade class.

        If you like, review the devastating impact indian tribal checks have had on reservation communities in New Mexico. The cycle of poverty is extending for five and six generations…all because pay and work have been divorced.

        Wealth gap, I don’t care. Possible income mobility, THAT matters. Good news, it still exists in America. I know first hand. I moved from the bottom 5th to the top 5th by using federal education grants, work-study, etc. It wasn’t even that hard…it just took trying…which isn’t happening with most poor on government subsidies.

        We need to address the cultural issues of America’s poor. I watch Vietnamese immigrants come here with nothing and the 2nd generation are almost always very successful, but families that speak English and have every opportunity to advance don’t…it’s bc government transfers incentive laziness.

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  6. Dave F. says:

    I have said it before and I will say it again – it is simply silly to treat these direct comparisons of some countries to others when there are whole lists of confounding factors. I am far from an expert in this field, but there are quite a few things that could severely skew distributions, including family size, immigration differences, etc.

    Besides, is the main goal income equality, or is the goal a wealthy society? We are more wealthy and more productive than all those EU countries in almost every way.

    Why do I want America to be like France?

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    • Andreas Moser says:

      Have you been to France? Have you tasted the food, seen the girls and listened to the language. There are many reasons why I would like every place to be like France.

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      • tmeier says:

        I have lived in France (and the UK and spent a deal of time in the other Western European countries) and though I find many points in their favor their economic and political systems are not among them. France of course did not always have the political and economic orientation it has now and was always apparently a nice place in many ways. I think it’s more the customs and culture, the gustatory approach to life which gives France it’s positive character, this it has had for the last few hundred years at least.

        As to the women, I found European women different on average from those in the U.S. in that they don’t expect as much from a man. British on the whole I found most congenial if you want an easy, comfortable relationship and British men (who only seem to really want a girlfriend to drive them home from the pub when they’ve drunk too much) aren’t much competition.

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    • Dave F. says:

      Yep, I spent almost 7 years of my life living in Germany, and have visited France several times. They have great bread, and Nutella is more readily available, but that is about it. The girls are cute, but Beach Boys explained decades ago that our girls are better here. The language is more ridiculous than ours (which is tough to do), and you can get better food in the right places in America anyways. Also, those are all examples that have nothing to do with the economy…

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  7. Chris says:

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  8. Scott2526 says:

    Your your definition of being more fair is taking a higher percentage of someones earned income, Gini is a wondefully informative figure. However, if your have high(er) levels of individual freedom to make choices partnered with with basic protections from exploitation, then all Gini measures is the amount someone takes from you in the states definition of fairness. If we have freedoms and basic protections (which fundamentally) all the countries listed do, I would argue the lower the Gini the more economic freedom a county offers.

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