The cost-of-living crisis has highlighted the differences between groups in society — the rich and highly paid compared with those struggling to meet day-to-day expenditures. Data are important to economists. Unless we can find a way of measuring the extent to which income is distributed unequally, how do we know if inequality is getting better or worse, or how do we compare inequality in different societies? If we are going to monitor the degree of inequality in a country, we need to be able to find a quantifiable way of representing it.
Measuring inequality is less straightforward than many other economic variables, because it involves looking at the relative incomes of different groups in society. A first step is to be able to identify the income levels of households in a country. It would be implausible to contact every household in a country to discover their incomes, so we must rely on taking a sample. In the UK, data are collected in the Living Costs and Food Survey (LCF). This is the survey that is also used to define the ‘basket of goods’ used in compiling the consumer price index (CPI) and the retail price index (RPI).
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