Much has been said during the last few years about income disparity. And not just the disparity, but the mobility of people from one income group to another.
I’ve done some reading last night and this morning a thought struck me:
GINI measures the disparity in household income. Consider Dick and Jane and their neighbors John and Mary.
Dick works in retail and is making $28,000 a year. Jane works in service and makes $32,000 a year.
John works as a manager in a factory making $70,000. Mary stays home and cares for their family.
The disparity between Dick and Jane vs. John and Mary is low. Dick and Jane earn $60,000 a year while John and Mary earn $70,000.
Now, consider Dick and Jane get divorced.
The disparity between two households earning $28k and $32k compared to the one earning $70k is much higher, and the GINI goes up. But nothing changed as far as economic earnings are concerned. In fact, if you take this one step further, consider John and Mary also suffer divorce. Now the incomes for FOUR households is:
A very disparate view when compared to the initial comparison of $60,000 and $70,000.
In the same way that the demographics of America impact life expectancy statistics [Japanese Americans live as long as native Japanese] I suspect that demographics impact the GINI. I also suspect that this isn’t calculated into the analysis when people discuss the GINI.