The Gini index is a tool, created by Corrado Gini in 1912, to measure inequality among the inhabitants of a population. To do so, it compares the income that people receive as a salary.
We can hear about both the Gini index and theGini coefficient, both represent the same concept, the only difference is that the Gini index is expressed as a percentage. Thus, the Gini index is equal to the Gini coefficient multiplied by 100 and expressed in %.
The Gini coefficient is calculated from the Lorenz curve, which is its graphical representation and is very useful to understand its interpretation.
As we can see in the image, it represents on the abscissa axis the cumulative percentage of population in a territory and on the ordinate axis the cumulative percentage of income. Thus, a diagonal line would mean equality, because each percentage of the population would receive the same percentage of income. 10% of the population would get 10% of the income, 20% of the population would get 20% of the wages, and so on.
The Gini index represents the maximum inequality with a 1, in which case only one of the inhabitants would receive the total wage income. The 0, however, means total equality of the wage income of all inhabitants.
In the graph above we can see that the further the Lorenz curve moves away from the line of equality, the greater the wage inequality among the inhabitants of a territory.
The formula for the Gini coefficient expresses a ratio composed of the area formed by the Lorenz curve with the equality line and the area formed between the equality line and the sides of the square that correspond to this bisector.
