Definition and How to Read It
The Lorenz curve is a graph showing the relationship between the cumulative share of population (horizontal axis) and the cumulative share of income (vertical axis). Devised in 1905 by American economist Max Lorenz, it plots what percentage of total income is held by the bottom x% of the population. Perfect equality produces a 45-degree straight line, and greater inequality causes the curve to bow further downward.
Relationship to the Line of Equality
The larger the area between the line of perfect equality and the Lorenz curve, the greater the income disparity. For example, in a society where the bottom 50% of the population holds only 20% of total income, the curve deviates significantly from the equality line.
In Nordic countries with robust redistribution policies, the curve stays close to the equality line. The Lorenz curve's visual nature makes it more intuitive than a single numerical index for grasping the degree of inequality.
Conversion to the Gini Coefficient
The Gini coefficient equals the area between the equality line and the Lorenz curve divided by the total area under the equality line. Zero means perfect equality and one means perfect inequality. The Lorenz curve aids visual understanding while the Gini coefficient compresses that information into a single number.
Understanding Income Rankings
When checking your income ranking on MyRank, awareness of the Lorenz curve's shape adds depth to interpretation. In countries with steep curves, the top few percent hold most of the income, making middle-class rankings appear relatively low. Interpreting your rank requires understanding the income distribution shape of your country.