How We Define Inequality

"Saying Grace" by Norman Rockwell (1951)
“Saying Grace” by Norman Rockwell (1951)

During the 2008 Financial Crisis and into the Great Recession thereafter, journalists and policy makers alike turned their focus to the seemingly rising inequality in America. As protesters occupied Zoccotti Park in the financial district of Manhattan, their cheers and chants echoing down the side streets towards the New York Stock Exchange, we became a nation divided into 99 percenters and 1 percenters. Inequality has come to be the clarion call of the 2010s. Nearly every news program, town hall meeting, and op-ed these days brings up the topic in one way or another. Yet as Amartya Sen explains in his book Inequality Reexamined, a work that grapples with and expands upon John Rawls’ A Theory of Justice, “inequality” is a slippery term that carries with it many unconscious assumptions that greatly influence how we come to view society.

When speaking of equality, Sen argues, it would benefit us greatly to ask: “Why equality?” and “Equality of what?” Today, when a politician, journalist or blogger mentions inequality, more often than not they are referring to income inequality: the distribution of yearly income for a household or an individual. It is true that income inequality is easy to measure and easy for the majority of the population to understand, but to a large extent it ignores what Sen would call “the basic heterogeneity of human beings” and “the multiplicity of variables in terms of which equality can be judged.” After all, inequality is much more than one’s salary—it is also where you can afford to go to school, the type of groceries you can buy, the safety of your neighborhood, the hospital that you go to when you get sick, the opportunities for a job and much, much more. Understandably, these variables are difficult to measure. But they are just as (if not more) relevant in our nationwide discussion of inequality. Even if distribution were equal, Sen writes, “two persons holding the same bundle of primary goods can have very different freedoms to pursue their respective conceptions of the good.”

Some prominent writers on the subject of inequality turn to the Gini coefficient to measure inequality across nations. This number has dominated much of the conversation on the subject of world inequality. It is, as we will explain later, a useful but perhaps imperfect calculation of inequality. The Gini coefficient, usually expressed as a number between 0 and 1, measures income dispersion by calculating the ratio of the area between the line of perfect income equality and the Lorenz curve. Most commonly it is used to measure income after taxes and transfers (this is a major factor when comparing the US with the EU). An unequal nation will have a Gini coefficient closer to 1 while an equal nation will have a coefficient closer to 0. In recent years the United States has hovered around the .45 mark. Brazil was calculated at .519 in 2012. South Korea and Russia are slightly more equal according to the Gini coefficient, ranking at .419 and .417 respectively in 2011.

Yet as Lane Kenworthy points out in his work Jobs with Equality, the Gini coefficient and its effect on inequality can be misleading. Consider the four hypothetical nations in the box below which have been borrowed from Kenworthy’s book.

Table 1

In Society D, inequality is at its highest (if we look at the Gini coefficient), yet poor households are pulling in more money than any other Society. Rather than rising inequality, Kenworthy argues, what should really concern us is that poverty has not improved in America. We should be looking to increase income at the bottom of the spectrum by providing well-paying jobs. The distinction between poverty and inequality is a crucial one. Additionally, the debate over poverty and inequality changes drastically when one frames the argument in relative rather than absolute terms.

In the end we must consider inequality in all of its forms, quantifiable or not. It would help to examine our end goals as well. What type of equality do we hope to achieve? What, if any, is an acceptable level of inequality? To what extent should we allow people to fail? Additionally, the tools that we use to measure inequality in America are somewhat inadequate in measuring inequality worldwide. It is difficult to translate inequality statistics between nations because each country has unique advantages and disadvantages stemming from geography, political institutions, trade agreements and an array of other factors.  Oftentimes the cost of living in “dollars-per-day” is a better measure of poverty because the price of goods and services varies greatly across the globe. Even if we are  limited in our tools for measuring inequality, that should not discourage us from finding new tools and furthering the conversation.

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