The gap between the richest and the poorest has never been wider. In many countries, income inequality has increased as poverty also increases.
Income inequality has both economic and political impacts on a nation. These include political polarization, negative attitudes towards the wealthy, slower GDP growth, reduced income mobility, higher poverty rates, and greater household debt.
The Gini Coefficient
The Gini coefficient or Gini index is a statistical measure of distribution to represent the income or wealth of a country’s residents. Developed by Italian statistician Corrado Gini in 1912, the Gini coefficient is the most commonly used measure of inequality.
The Gini coefficient measures the distribution of incomes across income percentiles. The coefficient ranges from 0 (0%) to 1 (100%), with 0 representing perfect equality and 1 representing perfect inequality. In a country where everyone has the same income, the Gini coefficient would be 0. If a single resident earned all of the income while everyone else earned nothing, the coefficient would be 1.
Mathematically, the Gini coefficient is defined based on the Lorenz curve. The Lorenz curve plots the percentiles of the population on the horizontal axis of the graph according to income or wealth, whichever is being measured. The cumulative income or wealth of the population is plotted on the vertical axis.
It is important to note that while the Gini coefficient is a useful tool for analyzing wealth or income distribution, is not an absolute measurement of a country’s wealth. High-income and low-income countries can have the same Gini coefficient. Additionally, the Gini coefficient may be inaccurate and overstate income inequality due to limitations such as a lack of reliable and up-to-date GDP and income information.
Lesotho has a Gini coefficient of .632, making it have the highest income inequality in the world. Lesotho is a lower-middle-income country with high poverty rates and unemployment rates. Over the past two decades, Lesotho has reduced its poverty rate significantly, making strides to reduce its Gini coefficient and create more equality; however, it remains the most unequal country for income in the world.
2. South Africa
With a Gini coefficient of .0625, South Africa is the second-most unequal country in the world. In South Africa, the wealthiest 10% own 71% of the wealth, while the poorest 60% own just 7%. Additionally, about 55.5% of South Africans live in poverty, earning less than $83 per month.
Haiti’s Gini coefficient is .608. The top 20% of households in Haiti hold 4% of the total wealth in the country. Poverty is high in Haiti, with about 59% of Haitians living on less than $2 per day and GDP growth is very slow. With only about 50% of children attending school, the lack of education in Haiti has made is difficult for about two-thirds of people to find formal jobs that pay them well.
One of the world’s poorest countries at its independence in 1966, Botswana has since made great strides in development, expecting to become a high-income country by 2036. Despite this, Botswana has a Gini coefficient of .605. Income inequality is declining in Botswana due to regional convergence caused by fast growth in rural areas.
Namibia has very high rates of poverty and unemployment at 29.9% and 26.6% respectively, despite the country’s relatively high economic growth. Namibia’s Gini coefficient is .597, a big improvement from its 2003 coefficient of .633. It is believed that as much as 70% of the wealth is held by the wealthiest residents. The inequality in Namibia is considered to be a ticking time bomb and will involve improving education and investing in creating sustainable jobs in order to fix it.
Zambia’s Gini coefficient is .575. Zambia’s income inequality has slowly risen over the past several years. While unemployment is at 10% in Zambia, about 84% of those employed are in the informal sector, such as agricultural (50% of the population) with low earnings. Those employed in the formal sector each about 2.5 times what informal employees earn. This is, unsurprisingly, rooted in low levels of or lack of education.
Comoros has the seventh-highest income inequality in the world with a Gini coefficient of .559. Poverty is relatively widespread, with about 42.4% of the population living below the poverty line and about 23.55 of the population living in extreme poverty. Income inequality is most obvious in rural areas where more poverty and intergenerational inequality exist. Despite this, younger men and women are increasingly working in sectors that are more productive and pay better, helping to close the income gap.
8. Hong Kong
Hong Kong’s Gini coefficient is .539, the highest of any developed economy. The income inequality has reached its highest level in more than 40 years and is fueling social tensions among its residents. About 1 in 5 Hong Kong residents live below the poverty line. The wealthiest 10% earn nearly 44 times more than the poorest 10%.
Guatemala’s Gini coefficient is .53. The wealthiest 10% of the population hold about 50% of the wealth and the poorest 10% own less than 1%. The indigenous, non-Spanish-speaking population has limited access to education and opportunities and 90% of the indigenous population live below the poverty line. Those living in poverty fall into the cycle not being able to afford education past elementary school and being forced to work informal jobs that don’t pay well.
Paraguay has a Gini coefficient of .517. Despite the widespread inequality, Paraguay has reduced its poverty significantly in recent years as its economy continues to grow and is expected to continue to do so in the coming years. The unequal distribution of income and wealth is closely related to access to land: big landowners are enjoying the benefits of an improving economy while other sectors of society are excluded from the improved economic situation.
The ten countries with the lowest income inequality are:
- Faroe Islands .227
- Slovakia .237
- Slovenia .244
- Sweden .249
- The Czech Republic .25
- Ukraine .255
- Belgium .259
- Kazakhstan .263
- Belarus .265
- Moldova .268
The United States’ Gini coefficient is .485, the highest it’s been in 50 years according to the U.S. Census Bureau. The U.S. has the highest Gini coefficient among the G7 nations. The top 1% of earners in the United States earn about 40 times more than the bottom 90% of earners. About 33 million U.S. workers earn less than $10 per hour, placing a family of four below the poverty line.