Do Inequality Measures Measure Inequality?

In the literature, much attention has been paid to a number of aspects of inequality including the distinction between relative and absolute inequality, axiomatization of inequality, the Lorenz criterion for inequality comparisons, properties of various inequality measures, and inequality decomposition. In no way do I wish to argue with the main results derived in these areas. Rather, my purpose here is to add to the theory of inequality measurement by dealing with one aspect of inequality which has been largely ignored by economists and by others. This is the question of how inequality changes – in particular, whether it increases, decreases, or remains unchanged – when income grows in specified ways. The balance of this chapter deals with two distinct conceptual entities, “inequality” and “inequality measures.” The next section analyzes how “inequality” might be said to change under various types of economic growth and explores the foundations for alternative views. One approach in terms of “elitism of the rich” and “isolation of the poor” is then described. The following section looks into the behavior of “inequality measures” and the relationship between “inequality measures” and “inequality,” and a final section draws some conclusions.