Lorenz curve

A graph which is used in the study of social stratification in order to show the extent to which the actual distribution of a particular good (usually income, earnings, or wealth) deviates from a condition of perfect equality.

In the hypothetical example shown in Figure 5, the cumulated percentage of income recipients is plotted against the cumulated percentage of total income, for two separate time periods. In each case, the researcher is posing the question ‘What proportion of total income is received by 5 per cent, 10 per cent, 15 per cent (and so on) of all income recipients?’ (In this case families are the unit of analysis.) If every family had the same income, the first 5 per cent of families would have 5 per cent of all income, the first 10 per cent would have 10 per cent of all income, and so on. These points, plotted on the graph, would form a straight line (a gradient of one for one) on the diagonal at 45 degrees, This is the line of complete equality. If, on the other hand, all income went to one recipient, the points plotted would lie along the horizontal axis (5 per cent of recipients receive zero per cent of total income, as do 10 per cent, 20 per cent, and on), until-at almost 100 per cent of the recipients-the line would extend straight up the vertical axis.

Real distributions will tend to form curves lying somewhere between these two extremes. The nearer the curve is towards the line of complete equality, the more equal the distribution; the nearer it is towards the rectangular boundary, the more unequal the distribution. In the figure shown, for example, the curves suggest that the degree of income inequality was greater at time ithat an time ii. See also Gini coefficient ; income distribution.

FIGURE 5: Lorenz Curves showing the degree of inequality in distributions of family income at two different times