Population Changes and the Measurement of Inequality

Population changes in countries with little natural growth tend to occur via migration channels and among poorer individuals such as refugees and economic migrants, or richer individuals such as international white collar workers or global entrepreneurs. These migratory flows are increasing in size, they are difficult to capture in censuses and surveys, and they potentially bias the measurement of inequality. This paper provides a formal treatment of the impact of population changes on the measurement of inequality when changes occur to the extremes of an income distribution. It provides the conditions under which inequality is expected to increase or decrease and determines the relative importance of including or excluding selected observations at the top or at the bottom. An application to US data illustrates the mathematical results and shows that including or excluding observations from the extremes can bias the measurement of inequality significantly.