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Johannesburg, South Africa
Gini Coefficient: How can we measure inequality?
Gini Coefficient: How can we measure inequality?
May 8, 2026
Introduction
Introduction
South Africa has one of the highest PPP-adjusted Real GDP per Capitas in all of Africa. Despite that, many live in severe poverty. Both of those statements are possible because GDP can only be used to measure inequality externally, against other GDPs. It is not an internal measure of inequality. Economists have to rely on other methods to evaluate inequality at a national scale, one of those being the Gini Coefficient.
How does it work in theory?
How does it work in theory?
Let's start by imagining a country with perfect inequality. There, everyone's income would be the same, right? If we were to graph total share of income against percentage of total population, we'd get a straight line, which would end up looking like this.
Now, what about a more realistic, unequal country? In that case, the line wouldn't be straight, and would instead look something like this.
If we were to put the two on the same graph, we can find the distance from perfect equality, at each person, as just the distance between functions. Suppose we wanted to find how far the median person is from perfect equality. We can count this out graphically, with the blue line.
We can also do this algebraically, where f(x) is the green line.
Of course, if we want to know how unequal the whole country is, using a random person won't cut it. Instead, let's get the average of every person. As we get more specific, the number of distances will start to approach infinity, meaning we will have to use integration.
What is the Gini Coefficient?
What is the Gini Coefficient?
The Gini coefficient is simply the ratio of average distance from equality to equality itself.
To find the average, first we need to find the total, which we already did by adding up every distance. However, since both functions are limited to the same domain, we don't need to convert the total into the average. Instead, we can just use the area between the curves.
Graphically, this can be summarized as the blue area, divided by the blue and green areas.
Algebraically, we just do the same thing, but with integration. F(x) is the green line function from earlier.
How does it work in real life?
How does it work in real life?
Given that the Gini coefficient is a ratio of a lesser value to a greater value, it ranges from 0 to 1. The greater a country's Gini coefficient, the more unequal it is. In South Africa's case, the Gini coefficient in 2024 was forecast to be 0.63. For reference, most countries have a Gini coefficient between 0.3 and 0.04, meaning that South Africa suffers from severe inequality.
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