Measuring inequality beyond the Gini coefficient may clarify conflicting findings.

Abstract

Prior research has found mixed results on how economic inequality is related to various outcomes. These contradicting findings may in part stem from a predominant focus on the Gini coefficient, which only narrowly captures inequality. Here, we conceptualize the measurement of inequality as a data reduction task of income distributions. Using a uniquely fine-grained dataset of N = 3,056 US county-level income distributions, we estimate the fit of 17 previously proposed models and find that multi-parameter models consistently outperform single-parameter models (i.e., models that represent single-parameter measures like the Gini coefficient). Subsequent simulations reveal that the best-fitting model-the two-parameter Ortega model-distinguishes between inequality concentrated at lower- versus top-income percentiles. When applied to 100 policy outcomes from a range of fields (including health, crime and social mobility), the two Ortega parameters frequently provide directionally and magnitudinally different correlations than the Gini coefficient. Our findings highlight the importance of multi-parameter models and data-driven methods to study inequality.