Measurement of Inequality in Human Development – A Review

It is widely accepted that country-averages of income, literacy, life expectancy and other indicators conceal widespread human deprivation and inequality. The measures of human development based on these indicators are also averages, and therefore mask disparities in the overall population. While the Human Development Index (HDI) itself is well accepted as a summary measure of HD capabilities and achievements, there is no a consensus about how to measure inequality in the HD distribution within a country. The conceptual difficulties, as well as the lack of appropriate disaggregated data, are customarily given as major obstacles for not adjusting the HDI for inequality. The objective of this paper is to first review some recent developments in measuring inequality in the distribution of multidimensional indices such as the HDI, and second - to present a practical implementation of the Alkire and Foster (2010) adaptation of the Foster, Lopez-Calva, Szekely (2005) method. The paper will first attempt to summarize the normative issues around the importance of accounting for inequality in opportunities for and outcomes of human development. Then it will review different approaches to accounting for inequality when quantifying HD. A special emphasis is placed on data requirements for each of the approaches. Consequently, data availability for the disaggregated analysis in the international context is thoroughly examined. Ease of interpretation is an important consideration. Finally, the paper describes the inequality-adjusted HDI and provides its limited sensitivity analysis.