How to Measure Income Inequality?

Measuring income inequality means dividing the population into various groups and then comparing the groups, a task that we can be carry out in several ways. 

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Measuring Income Distribution by Quintiles

One common way of measuring income inequality is to rank all households by income, from lowest to highest, and then to divide all households into five groups with equal numbers of people, known as quintiles. This calculation allows for measuring the distribution of income among the five groups compared to the total. The first quintile is the lowest fifth or 20%, the second quintile is the next lowest, and so on. We can measure income inequality by comparing what share of the total income each quintile earns.

It can also be useful to divide the income distribution in ways other than quintiles; for example, into tenths or even into percentiles (that is, hundredths). 

Another method is through the Lorenz Curve. 

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• Pigovian Tax
• Coase Theorem
• Agglomeration Diseconomies

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• Government Approaches to Encouraging Innovation
• Public Good
• Public, Private, Club, Common Goods
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• What is the Free Rider Problem for Public Goods?
• Free Rider
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• Income Inequality
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• Measuring Income Inequality
• Lorenz Curve
• Ladder of Opportunity
• Tradeoff between Incentives and Income Equality