The Nature Of Income Inequality In Uk And Us Assignment Sample

Is The Gini Coefficient A Good Indicator To Compare The Nature Of Income Inequality In Uk And Us?

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Gini Index refers to a measurement of income distribution across a specific population. Range for this coefficient is 0 to 1, where 0 indicates perfect equality of income whereas 1 indicates perfect inequality of income within a country. The aim of this study is to discuss Gini Coefficient for two countries, the UK and US. This study is going to portray income distribution within UK and Us with support of Gini Coefficient or Index. Concept of Lorenz Curve is the utilised technique for measuring income distribution within a country. Outcome of this technique is supported to compare income distribution within two countries.

2. Methodology

Lorenz Curve refers to graphical representation of distribution of wealth and income within a particular population. This curve is often accompanied by a straight diagonal line holding a slope of 1. The slope represents exact equality in wealth or income distribution and Lorenz curve of a country lies beneath that slope showing estimated or observed distribution (Schneider, 2021). Gini Coefficient is being determined by Lorenz Curve and it is being calculated by A/(A+B). Initially, the area of B has to be calculated after splitting the population and income that exists within a country. The value of A is being calculated with support of B and the outcome of A lies above Lorenz Curve whereas B holds the below position.

3. Results

3.1 Quantitative Results

Based on FY 2020, the following data was collected for the income range and Gini Index was calculated.

Table 1: Population percentage and income group percentage in UK as per FY2020

 Lorenge Curve of UK

Gini coefficient =

Area of all 5 triangles = 0.5*0.2*100 = 0.1

Area under actual Lorenz = 0.14321+ 0.1 = 0.24321

Gini Coefficient = (0.5- 0.24321)/0.5 = 0.51358

Thus, Gini Coefficient for UK for FY 2020 is 0.51358

3.2. Qualitative Results

Unequal distribution arises due to certain non-numerical factors present within the country such as political instability, socio-economic inequality, and uncontrollable variables. The Gini Index Score for UK in FY2017 was 33.4% whereas it was 36.3% in FY2020 (parliament, 2021). Therefore, this indicates that UK has an unequal distribution of income compared to any other developed country. Inequality within household income roughly remains similar within the UK and does not show an upward trend within the time frame 1960s and 1970s. However, household income increases by 1% and that supports reducing the inequality and bringing instability in current period (Statista, 2021). Moreover, in the UK income inequality varies between ethnic groups, regions and disability status.

Gini Coefficient for US is 41.1 and this indicates only 1% of top-earners are able to achieve 40 times more income compared to 90% bottom-lined incomers. Therefore, in US poverty has become an issue and it is estimated 12.3%-17.8% lies below the poverty line. Economic inequality within US occurs due to decline of unions, extreme technological change, the eroded value of minimum wage and globalisation (pewresearch, 2021). A rising parity in income distribution within US becomes visible from early 1990s and the situation broadens up due to absence of government support to minimize wealth gap.

4. Analysis

The data from World Bank indicates that UK scores 35.1 as Gini Index Score and US scores 41.1. Both UK and US have population growth and this indicates a lower Gini Index Score is going to expand income unequal distribution within the existing population. UK and US hold different factors for income inequality and this needs to be rectified by Government for a particular country's improvement. In UK, growth of financial sector leads to enhancement of income level of high earners compared to low earners (Hailemariam et al. 2020). Deregulation and privatisation within financial sector are leading to less support towards non-financial ones. Long-term employment becomes visible as manufacturing industry growth rate declines. Economic growth in US got suppressed due to more shifts of resources towards wealthy savers. Hence, aggregated demand got stuck between 2% and 4% of gross domestic product.

5. Conclusion

The collected facts and data help to identify income distribution conditions within UK and US with usage of Gini Coefficient. In this study, Gini Coefficient is being used to measure inequality of wealth distribution and other non-numerical factors are being identified to get a true picture of a particular country. Among the values as per World Bank, US has a higher Gini Index compared to UK and this indicates a greater inequality within wealth distribution. Therefore, in UK high-income groups receive a larger percentile of total income present within the population compared to lower income groups. The value of Lorenz Curve has definitely provided a supportive reason for income inequality in both countries. However, political and economic instability are the two prime factors that create inequality of wealth distribution and leads to poverty. In UK, financial sectors are growing rapidly whereas growth of manufacturing sectors is not prominent as a result Gini Index Score increases. On contrary, in US resources are shifted to high-income groups and this restricted improvement of gross domestic product.

References

Hailemariam, A., Dzhumashev, R. and Shahbaz, M., 2020. Carbon emissions, income inequality and economic development. Empirical Economics, 59(3), pp.1139-1159.

https://www.pewresearch.org/social-trends/2020/01/09/trends-in-income-and-wealth-inequality/#:~:text=The%20rise%20in%20economic%20inequality,value%20of%20the%20minimum%20wage [Accessed on 25th March 2022].

parliament (2021) Income inequality in the UK, Available at: https://researchbriefings.files.parliament.uk/documents/CBP-7484/CBP-7484.pdf [Accessed on 25th March 2022].

pewresearch (2021) Trends in income and wealth inequality, Available at:

Schneider, M., 2021. The Discovery of the Gini CoefficientWas the Lorenz Curve the Catalyst?. History of Political Economy, 53(1), pp.115-141.

statista (2021) Gini index of the United Kingdom from 1977 to 2020, Available at: https://www.statista.com/statistics/872472/gini-index-of-the-united-kingdom/ [Accessed on 25th March 2022].