Absolute inequality depends on the concrete differences in levels of living, rather than relative differences, as captured by the ratios to the mean.
Consider an economy with just two household incomes: $1,000 and $10,000. If both incomes double in size then relative inequality will remain the same; the richer household is still 10 times richer. But the absolute difference in their incomes has doubled, from $9,000 to $18,000. Relative inequality is unchanged but absolute inequality has risen sharply.
Ravallion, Martin. “The Debate on Globalization, Poverty and Inequality: Why Measurement Matters,” Review of International Affairs, 79 (4): 739-754.
Atlas topic and subject
Page created by: Ben Eisen, last updated by Ian Clark on 5 December 2015.