Question

Hi ,I need your answer today for all parts /a/b/c/d of these question below.Br/Ha

This question is about the wage distribution.

a) The Gini-coefficient can be used to measure wage inequality. How is this measure formally defined? Also provide a graphical illustration.

b) The P90/P10 and P50/P10 are also common measures of wage inequality. Explain the measures.

c) What are the pros and cons with the two types of measures in a) and b)? Are there situations where one of the measures is preferred to the others?

d) Discuss three established models that can explain the observed long right tail in the wage distribution. What are the key features of the models and how can they explain this asymmetry in the wage distribution?

Answer 1

The Gini coefficient often expressed as a Gini ratio or a normalized Gini index is a measure of statistical dispersion which is there to represent the income or wealth distribution of nation people, and is the most interestingly used measure of inequality of income or wealth.The Gini index is the Gini coefficient expressed as a percentage, and is equal to the Gini coefficient multiplied by 100. (The Gini coefficient is equals to half of the relative mean difference.) It is used to measure income inequality and the value of Gini Coefficient ranges from 0 to 1, where 0 corresponds to perfect income equality that is everyone has the same income, and 1 corresponds to perfect income inequality that is one person has all the income, rest everyone else has zero income. it is also used to measure wealth inequality.

Graphical Presentation

Graphically, the Gini coefficient can be defined on the basis of Lorenz curve, which plots the proportion of the total income of the population (y axis) that is cumulatively earned by the bottom x% of the population . The line at 45 degrees though represents perfect equality of incomes and the index is 0 and the horizontal axis and the right vertical axis represent perfect inequality and index is 100. The graph shows that the Gini coefficient is all equal to the area marked A divided by the sum of the plotted areas marked A and B, that is, Gini = A / (A + B). It is also equal to 2A and to 1 - 2B due to the fact that A + B = 0.5 (since the axes scale from 0 to 1).it is estimated that the nearly equal a country's income distribution, the closer is its Lorenz curve to the 45 degree line and lower is its Gini index, for example, a Scandinavian country with an index of 25 then The more unequal a country's income distribution, the farther is its Lorenz curve from the 45 degree line and higher is its Gini index.

However there are some issues in interpreting a Gini coefficient and the same value may result from many separate distribution curves. The demographic figures should be taken into account. Countries with an aging population, or with a baby boom, experience an increasing pre-tax Gini coefficient even if real income distribution for working adults whether men or women remains constant.

100% Cumulative share of people from lowest to highest incomes