1.1.3. Income Inequality Measures

Income inequality can be measured in absolute terms. The poverty line, for instance, is defined as the income threshold below which an individual or a family is considered poor. Inequality needs to be measured in relative terms whenever two income distributions are to be compared. There are many relative measures of inequality. In the particular case of poverty, a relative measure may be the percentage of the population below the poverty line. There are many other inequality indicators expressed in relative terms, such as percentile distributions, the Gini coefficient, the Theil, Atkinson, and Gibrat indexes, etc.

However, none of these inequality indicators informs about the causes of income inequality. Multiple factors may generate income inequality: life cycle effects (age), gender or race discrimination, education and training, inherited wealth, economic circumstances, individuals’ characteristics (IQ, talent), the leisure-labor choice, and so on. This critical remark does not mean that inequality measures are invalid; rather, it points out the need for clarification of definitions and consistency of comparisons prior to reaching the causal aspects of the subject.