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18. August 2019

How Not to Measure Inequality




According to the relative metric, if the income of the poor increases at a faster rate than the income of the rich, this is recruited as a decline in inequality even if the absolute income gap between the two continues to widen.

Take for example a poor country whose average income goes from $500 to $1,000 (a 100% increase), and a rich country whose income goes from $50,000 to $75,000 (a 50% increase). The poor country’s income has grown twice as fast as the rich country’s, relative to its starting point. According to the relative metric, this is a decline in inequality (and is represented as such in the Gini index, the elephant graph, and the log scale).



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