Equity in distribution of income is fairness in how income is distributed throughout the population, income should vary according to skill.

How to measure

Lorenz curve: curve that shows the cumulative percentage of national income earned by various percentiles of the population

• The line of absolute inequality> perfect distribution of income.
• Farther away a a country’s curve is from the line, more unequal is the distribution of income. Shift of a Lorenz curve towards the line of perfect.. indicates an improvement in the distribution of income. Vice versa
• Gini coefficient: Area X / Area X+Y, X is bounded by the line of absolute and the curve and A+B is the area below the line of absolute equality. Higher the gini coefficient> greater the distance between the curve and line of …> more unequal. Values between 1 and 0

Poverty and Inequality

• High level of inequality> high poverty> clear sign of lack of equity

Types of Poverty

1. Absolute poverty: When the income is is insufficient for meeting daily needs of shelter, food, water, health, education. Requires a definition of poverty line (arbitrary level of minimum income required for basic consumption). World bank is 1.25 USD per day.
2. Relative poverty: Comparative measure based on the living standards in the country; relative distribution of income; gini coeficient; minimum consumption is not defined as a fixxed level but based on the consumption relative to the rest of the population

Measuring poverty

• National poverty lines: Some countries set their own national poverty line reflecting relative poverty. Arbitrary percentage of the median income of the population
• Setting the poverty line at the minimum income required to meet basic needs and wants; takes into account a basic standard of living people should be able to enjoy; rleative to living standards. However this is a subjective and open to opinions
• Multidimensional Poverty Index (MPI): Composite indicator. Measures poverty in 3 dimensions: health education and living standards. Over 10 indicators. MPI between 0-1. Higher = more poverty. Poverty> deprivation in 1/3 of 10 indicators