time flows

Income Inequality: Starbucks

by Elaine Schwartz    •    Apr 14, 2013    •    1072 Views

During June, 2012, 8 pounds of Guatemalan coffee were sold at auction for $4004.00  ($500.50 a pound). Called Finca El Injerto, the bean is unusually small, originally from Yemen and grown at an elite Guatemalan plantation.

At my Florham Park, NJ Starbucks, you can purchase a half pound of Sun-Dried Sumatra for $18. Or, you might be one of the more fortunate people who ordered Costa Rica Finca Palmilera (a Geisha tree heritage varietal) online at $40 a half pound before it ran out. Geisha refers to its Ethiopian origin.

On the other hand, nearby at my local supermarket, on May 10, Starbucks will be reducing the price of their coffee. A $9.99 12 ounce bag of Starbucks will cost $8.99 while their Seattle’s Best prices will be $1 less at $6.99. The first is a 10% drop, the second, 13%.

What is going on?

Perhaps Starbucks’s management knows about the US Gini Index. A quantitative approach to income distribution, the Gini Index ranges from 0 to 1. For income distribution, the higher the number the more the inequality. In the US, a rising Gini Index has implied that more people at the top have a greater proportion of the nation’s total income.

Some say we should picture an hourglass. A bulge at the top, a bulge at the bottom, and a squeezed middle class.

We should note, though, that even here, a seemingly simple number is controversial. There are different ways to calculate income and demographics are also relevant. In a past econlife post we noted, “When economist Robert Whaples discusses income inequality (#7) in an excellent Teaching Company series on contemporary economic issues, he first has to define income. And that, he says, is not easy.

  • Collecting data, the Census Bureau does not necessarily recognize noncash public benefits.
  • Retirement and health insurance packages are excluded.
  • Households tend to ‘underreport nonwage sources of income.’”

In addition, changing household size is relevant as is whether you do or do not use pre-tax income.

Gini Coefficients

Sources and Resources: This fascinating article on Guatemalan coffee provides insight about the coffee auction described here. For Gini Coefficients and Indices, these articles show how some commentators depend on them while others think they are only a beginning of understanding income distribution. This Scientific American article had the best analysis of the pros and cons of Gini Coefficients.

A hat tip to Bloomberg for this article.





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