In these posts, we perform a series of analyses to understand if household income is distributed unequally throughout New Jersey, compared to other states in the country. Using data from the 2010-2014 5-year American Community Survey, we will explore two variables related to household income distribution, the Gini Index, and the 80/20 Household Income Ratio.
The Gini Index, or Gini Coefficient of Income Inequality, is a measure of income distribution among all individuals or households in a particular economy[i]. It is the most commonly used measurement of inequality[ii], and it is how organizations like The World Bank and The United Nations measure income distribution and inequality of nations. The Gini index measures to which extent the distribution of income in an economy deviates from a perfectly equal distribution. To fully understand the concept of a Gini Index, one must first be familiar with a Lorenz Curve. A Lorenz Curve is a graph that plots the cumulative percentage of total income received in an economy against the cumulative percentage of recipients, beginning with the poorest individual or household. An example of a Lorenz Curve is shown below, in Figure 1. The Gini Index measures the area between the Lorenz Curve and a hypothetical 45-degree line of absolute equality, represented by A in Figure 1. It is expressed as a percentage of the maximum area underneath the line of equality. The Gini Index can range from 0, a completely equal economy (the 45-degree line of equality), to 100, an economy which is completely unequal.
Considering that the Gini Index measures an economy’s deviation from a perfectly equal scenario, we can think of an economy whose Gini Index is 40.00 as being 40 percent less equal than a perfectly equal economy.
The 80/20 Household Income Ratio illustrates the ratio of income earned by households at the 80th percentile cutpoint to income earned by households at the 20th percentile cutpoint. An 80/20 Ratio of 4.00 equates to an economy where households in the top income-earning quintile earn four times the income as households in the bottom-earning quintile. Higher 80/20 Ratios indicate higher levels of inequality in economies.
The level of inequality in a country, county, or neighborhood can indicate the welfare of the area. The quality of life for individuals living in areas of great inequality can differ vastly, depending on where they fall in the income spectrum.
Map 1, below, illustrates how household income is distributed within New Jersey’s counties and how such distribution compares with all other US counties. In the map, each county is shaded depending in which US county quartile of income inequality it falls. Counties with low Gini Index Scores (i.e. low inequality) are shaded yellow, while counties with high Gini Index Scores (high inequality) are shaded dark blue. Seven, or one-third of New Jersey’s 21 counties are considered to have extreme inequality, meaning that they fall in the top 25 percent of the most unequal US counties. Furthermore, fourteen, or two-thirds of New Jersey’s 21 counties exhibit at least high levels of inequality, falling in top two quartiles of inequality.
The size of the circle seen within each county is dependent upon the county’s 80/20 Ratio. Twelve, or 57.14% of New Jersey’s 21 counties exhibit 80/20 Ratios that fall within the top two quartiles of all US counties.
While the proportion of New Jersey counties considered to be at least highly unequal is relatively on par with what is seen in other states throughout the country, more interesting discoveries can be made when we dive deeper into the Gini Index Scores and 80/20 Ratios of individual counties. You can use the interactive feature below to examine these two variables of income distribution for every county in the US for which data is available. In the interactive table, we see that Essex County has the 26th-highest Gini Index Score out of all US counties as well as the 62nd-highest 80/20 Ratio in the US. These rankings definitely put Essex County in some dubious company, in regards to income inequality. However, since both the high and low extremes of these variables are mostly represented by sparsely populated counties, filtering to reveal results of only more populous counties shows even more striking results. Using the Population Filter option at the top right of the interactive feature to show results of counties whose population is 250,000 and over, Essex County comes in at fifth-highest in terms of its Gini Index Score, and 10th-highest in terms of its 80/20 Ratio. Such numbers definitively place Essex County as one of the nation’s most unequal county economies.
Check back next week as we explore household income inequality within New Jersey’s neighborhoods.
Author: John Manieri, AICP
Research and Technical Assitance: Steve Scott
[i] In most cases, the Gini Coefficient is viewed by country. In these cases, entire countries would be the “economy” of observation. In our case, counties and neighborhoods (census tracts) are our economies.
[ii] The World Bank, Measuring Inequality. http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/EXTPA/0,,contentMDK:20238991~menuPK:492138~pagePK:148956~piPK:216618~theSitePK:430367,00.html.
U.S. Census Bureau, 2010-2014 5-year American Community Survey. Table B19080
U.S. Census Bureau, 2010-2014 5-year American Community Survey. Table B19083