Interpreting Inequality Measures

Chapter 3 is concerned with the problem of how to interpret orders of magnitude of inequality changes. For example, the information that a Gini or Atkinson measure of inequality has increased by a given percentage does not have an obvious intuitive meaning. The chapter explores various attempts to interpret orders of magnitude in a transparent way. One suggestion is that the analogy of sharing a cake among a very small number of people provides a useful intuitive description. In contrast with the Gini measure, for which a simple cake-sharing result is available, the Atkinson measure requires a nonlinear equation to be solved. Comparisons of excess shares - the share obtained by the richer person in excess of the arithmetic mean - for a range of assumptions are provided. The implications for the ‘leaky bucket’ experiments are also examined. An additional approach is to obtain the pivotal income, above which a small increase for any individual increases inequality.