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 The Uk And The Us?

The 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 the Gini Coefficient for two countries, the UK and the US. This study is going to portray income distribution within the UK and Us with the support of the Gini Coefficient or Index. Concept of the 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.

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Methodology

The Lorenz Curve refers to a graphical representation of the 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 the Lorenz curve of a country lies beneath that slope showing estimated or observed distribution (Schneider, 2021). The Gini Coefficient is being determined by the 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 the support of B and the outcome of A lies above the Lorenz Curve, whereas B holds the below position.

Results

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

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 the UK in FY2017 was 33.4%, whereas it was 36.3% in FY2020 (parliament, 2021). Therefore, this indicates that the 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 of the 1960s and 1970s. However, household income increases by 1% and that supports reducing the inequality and bringing instability in the current period (Statista, 2021). Moreover, in the UK income inequality varies between ethnic groups, regions and disability status.

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

4. Analysis

The data from the World Bank indicates that the UK scores 35.1 as a Gini Index Score and the US scores 41.1. Both the UK and the US have population growth and this indicates a lower Gini Index Score is going to expand income-unequal distribution within the existing population. The UK and US hold different factors for income inequality and this needs to be rectified by Government for a particular country's improvement. In the UK, growth of the financial sector leads to enhancement of the income level of high earners compared to low earners (Hailemariam et al. 2020). Deregulation and privatisation within the financial sector are leading to less support towards non-financial ones. Long-term employment becomes visible as the manufacturing industry growth rate declines. Economic growth in the 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 the UK and US with the usage of the Gini Coefficient. In this study, the 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 the World Bank, the 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 the 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 lead to poverty. In the UK, financial sectors are growing rapidly, whereas growth of manufacturing sectors is not prominent; as a result, the Gini Index Score increases. On the contrary, in US resources are shifted to high-income groups and this restricted improvement of gross domestic product.

Reference List

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].