Inequality Is The Wrong Indicator – Why We Should Focus On Poverty Instead

One of the most talked-about social issues today is inequality. Numerous media outlets from CNBC to Brazil’s Jornal O Globo have published the results of Oxfam’s global report on inequality which alleges an ever-rising gap between the rich and the poor.

In its 2018 report, Oxfam claims that “82% of all growth in global wealth in the last year went to the top 1%, while the bottom half of humanity saw no increase at all”; “New data from Credit Suisse means 42 people now own the same wealth as the bottom 3.7 billion people”; and “Over the last decade, ordinary workers have seen their incomes rise by an average of just 2% a year, while billionaire wealth has been rising by 1% a year – nearly six times faster,” among others.

However, before flipping the table and occupying Wall Street, we should take a closer look at what these figures really mean. Is inequality as bad of a problem as it seems to be? Or are the poor better off today than before?

The Problem with Inequality

First of all, observing inequality on its own is insufficient for any means of understanding. By definition, it measures the level of income or wealth that a group of people receive or own relative to another group of people within a society. The key word here is relative. That means it provides no information in regards to whether the bottom quintile has a low or high level of income or about the quality of life of any other subdivision whatsoever.

Considering the standard measure of inequality, a country with a low Gini index (relatively equal) may not necessarily be more developed or richer than a country with a high Gini index (relatively unequal).

For instance, Cuba, with a Gini index of 0.38 and Liberia with 0.32 have much less inequality than the highly-developed Singapore and Hong Kong, with Gini coefficients of 0.45 and 0.53, respectively. Citizens in a poor country with low inequality are equitably poor. In this example, inequality fails to indicate whether Singapore’s or Hong Kong’s lowest quintiles have a better quality of life than that of Cuba and Liberia or vice versa.