Lorenz Curve - Explained
What is the Lorenz Curve?
Written by J. Mance Gordon
Updated at April 23rd, 2024
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What is the Lorenz Curve?
The Lorenz Curve A Lorenz curve graphs the cumulative shares of income received by everyone up to a certain quintile.
A Lorenz curve shows the cumulative share of population on the horizontal axis and the cumulative percentage of total income received on the vertical axis.
Every Lorenz curve diagram begins with a line sloping up at a 45-degree angle.
The points along this line show what perfect equality of the income distribution looks like. It would mean, for example, that the bottom 20% of the income distribution receives 20% of the total income, the bottom 40% gets 40% of total income, and so on.
The trick in graphing a Lorenz curve is that you must change the shares of income for each specific quintile into cumulative income. For example, the bottom 40% of the cumulative income distribution will be the sum of the first and second quintiles; the bottom 60% of the cumulative income distribution will be the sum of the first, second, and third quintiles, and so on.
In a Lorenz curve diagram, a more unequal distribution of income will loop farther down and away from the 45-degree line, while a more equal distribution of income will move the line closer to the 45-degree line.
The Lorenz curve is a useful way of presenting the quintile data that provides an image of all the quintile data at once.
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