Defining and Measuring Inequality - ODI Inequality Briefings 1

Many examples attest to the dramatic extent of inequality within and between countries. In 2000 the richest country in the world (Luxembourg) enjoyed a per capita gross national income level more than 90 times that of the poorest (Sierra Leone). In 1998 the average consumption levels of the richest 10% of Zambians were 37 times those of the poorest 10%. In India in 1990, 56% of those aged 15 years and above were illiterate, while the 3.6% that had attended tertiary education had received around 16% of the total number of person years of formal education. In Venezuela in 1996/97, 48.4% of land holdings were of 5 hectares or less, representing in total 1.6% of agricultural land; 2.2% were of 500 hectares or above, collectively accounting for 59.7% of land area. To add to this there is a growing body of evidence that income inequality (at least) within and between countries has been increasing over the last two decades. There are several reasons why development agencies should be concerned with inequality, including: • Inequality matters for poverty. For a given level of average income, education, land ownership etc., increased inequality of these characteristics will almost always imply higher levels of both absolute and relative deprivation in these dimensions. • Inequality matters for growth. As acknowledged in the 2000 White Paper, there is increasing evidence that countries with high levels of inequality – especially of assets – achieve lower economic growth rates on average. In addition, a given rate and pattern of growth of household incomes will have a larger poverty reduction impact when these incomes are more equally distributed to begin with (see Inequality Briefing No 2). • Inequality matters in its own right. There is a strong, and quite widely accepted, ethical basis for being concerned that there is a reasonable degree of equality between individuals, though disagreement about the question ‘equality of what?’ (for instance, outcomes or opportunities?), as well as about what might be ‘reasonable’. • Inequality is often a significant factor behind crime, social unrest or violent conflict. These are often important contributors to poverty in their own right. Inequalities – even perceived ones – between clearly defined groups, for example according to ethnicity, may be an important issue here. • Inequality is likely to be critically important for the attainment of the Millenium Development Goals (MDG). This is not confined only to the income poverty MDG. Similarly it also matters for PRSPs, country strategies and so on. What is Inequality? Definitions and Dimensions