Question

When gauging the amount of inequality, why do transitionary and life cycle variations in income cause difficulties?

Answer 1

It shall be noted that the transitionary and lifecycle variations in income cause difficulties while gauging the amount of inequality. This is due to the followings:

1) The measures of the degree of inequality do not take into account the in-kind transfers provided to the poor to support their livelihood.

2) There are times when the income of the people remained high and there are times when people's income has gone low. People generally see such wide fluctuations in their entire lifecycle. This variation is prominent as in general, the people's incomes are lower when young and higher when older. Thus, the annual income does not represent true inequality in living standards. This variation of income over time poses problems in estimating the inequality-gap and its growth over time.

Thus, because of in-kind transfers, the economic life cycle, transitional income, and economic mobility are so important for understanding the variations in income, it is difficult to gauge the amount of inequality in the society using the data on distribution of income in a single year.