Not all measures of income inequality are equal: A comparison between the Gini and the Zenga

In the presence of rapid global change, sociologists and economists are noticing growing income inequality within a majority of the OECD's member countries (OECD, 2011). The main impetus for change is purportedly in the distribution of wages and salaries, and perhaps in capital income. In Canada, changes in household income distributions from 1980-2000 have occurred mostly in the tails of the distribution (Frenette, Green, & Milligan, 2007). In light of this information, it is important to identify useful tools that can effectively measure these changes. The Gini Index is a popular tool that is well understood and easily interpreted in the social sciences; however, it may be insensitive to changes in the tails of a distribution if the mean of the distribution remains relatively unchanged. The Zenga Index is a newer measure of income inequality that is better able to detect changes in the relative nature of 'poor' and 'rich' because it is based on the ratio of upper and lower group means. This study compared Provincial Gini and Zenga Indices using a 20% sample of household incomes from Canada's 2006 Census. The weighted sample represents approximately 13.45 million household incomes from the ten provinces. Gini and Zenga scores were calculated for each Province using six separate household income calculations. The household incomes varied according to combinations of family structures and tax adjustments. Gini and Zenga scores were used to rank the Provinces, from the highest income inequality to the lowest, for each income measurement. As expected, most of the rankings agreed within and between income measurement groups. In a few circumstances the Gini and Zenga rankings disagreed within income measurements. These findings suggest the Zenga is a reliable measure of income inequality and is also more sensitive in detecting changes in the tails of income distributions.