Hoover index

Hoover Index, also known as the Robin Hood Index or the Schutz Index, is a measure used in economics and social sciences to quantify the degree of income or wealth inequality within a population. It was named after the American president Herbert Hoover, who was a mining engineer and economist before his presidency. The index represents the proportion of total community income or wealth that would have to be redistributed to achieve a state of perfect equality.

Definition

The Hoover Index is calculated as half the sum of the absolute differences between the actual income of each individual and the average income, divided by the total income of the population. Mathematically, it can be expressed as:

\[ H = \frac{1}{2} \frac{\sum |x_i - \bar{x}|}{\sum x_i} \]

where \(x_i\) is the income of the \(i\)th individual, \(\bar{x}\) is the average income, and \(\sum\) denotes the summation over all individuals in the population.

Interpretation

A Hoover Index of 0 indicates perfect equality, where everyone has the same income or wealth, while a value of 1 indicates maximum inequality, where a single individual possesses all the income or wealth. Values of the Hoover Index typically range between 0 and 1, where higher values signify greater inequality.

Comparison with Other Measures

The Hoover Index is one of several measures used to assess economic disparity, alongside others like the Gini coefficient, the Theil index, and the Atkinson index. Each of these indices has its own method of calculation and interpretation, making them useful for different aspects of inequality analysis. The Gini coefficient, for example, is more sensitive to changes in the middle of the income distribution, while the Hoover Index and the Theil index can provide more insight into the extremes of the distribution.

Applications

The Hoover Index is applied in various fields, including economics, public policy, and social sciences, to analyze income or wealth distribution within a country, region, or group. It helps in understanding the extent of inequality and in designing and evaluating policies aimed at reducing this inequality.

Limitations

Like all indices, the Hoover Index has its limitations. It does not account for the sources of income or wealth inequality, nor does it consider the impact of taxes and transfers. Additionally, it does not provide information about the distribution of income or wealth across different segments of the population.

See Also

• Income distribution
• Economic inequality
• Poverty
• Wealth distribution