Published on November 29, 2007
Income and Wealth Distribution: Income and Wealth Distribution Income and Wealth Distribution: Income and Wealth Distribution Poverty: Poverty Poverty: Poverty Absolute Poverty: A situation where individuals do not have access to the basic requirements of life – food, shelter, clothing. Relative Poverty: A situation where individuals are excluded from being able to take part in what are considered the normal, acceptable standards of living in a society. Poverty: Poverty Difficulties of drawing the line between those ‘in poverty’ and those outside. What do we mean by food, clothing and shelter? Is living in a sewer a form of shelter? Does having some clothing mean that you are not experiencing absolute poverty? Poverty: Poverty In the UK – low income threshold – 60% of the median income. This means 12.5 million people living below this level – a poverty line? Links between ‘low pay’/poverty line and health, crime, education levels, social problems. The latter also represents a significant ‘social cost’ (negative externality) to the government Poverty Trap: Poverty Trap Where those on the poverty line may not benefit from getting paid work – they might be better off staying on benefits! e.g. Family, three children, without work, income = £120 in benefits of various sorts. One parent gets a job earning £140 but after tax and national insurance has a take home pay of £110! Measurements: Measurements Measurements of Income Distribution: Measurements of Income Distribution Lorenz Curve: A curve showing the proportion of national income earned by a given percentage of the population. e.g what proportion of national income is earned by the top 10% of the population? Lorenz Curve: Lorenz Curve % of National Income Percentage of Population This line represents the situation if income was distributed equally. The poorest 10% would earn 10% of national income, the poorest 30% would earn 30% of national income. 10% 10% 30% 30% Slide11: Lorenz Curve % of National Income Percentage of Population The Lorenz Curve will show the extent to which equality exists. The greater the gap between the line of equality and the curve the greater the degree of inequality. 30% 20% In this example, the poorest 30% of the population earn 20% of the national income. 7% In this second example, the Lorenz curve lies further below the line of equality. Now, the poorest 30% only earn 7% of the national income. Gini Coefficient: Gini Coefficient Enables more precise comparison of Lorenz Curves The proportion of the area taken up by the Lorenz Curve in relation to the overall area under the line of equality Gini Coefficient: Gini Coefficient % of National Income Percentage of Population The area bounded by the Lorenz Curve Wealth: Wealth Wealth: Wealth A STOCK as opposed to income which represents a FLOW Measures wealth at a point in time Wealth can be measured by reference to type of asset representing the stock. Types of Asset: Types of Asset Shares Houses Bank deposits Land Building Society Accounts Currency holdings Buildings Machinery and Equipment Gold Etc. We are considerably richer than you! Title: The Fullers. Copyright: Getty Images available from Education Image Gallery Income Distribution: Income Distribution Income represents a FLOW £x per week, month, year, etc. Income can be in the form of: Wages Rents Dividends Interest Pensions Benefit payments Income from self employment Inheritance Income Distribution: Income Distribution Income can be earned income (from employment, etc.) or Unearned income – inheritance, benefit payments, pensions, etc. Income Distribution: Income Distribution Redistribution of Income: Redistribution of Income Taxation: Taxation Costs Market Distortion Administrative Costs Incentives May not impact because some will not be paying tax Can be avoided May not be targeted at those who need the help Benefits Reduction in poverty levels Can be used to provide incentives Legislation: Legislation Minimum Wage – targets those on ‘low wages’ but what is the right level? Discrimination – reducing the impact of racial, sexual and disabled incidences of discrimination Regulation – Employment related regulation Equity: Equity Causes of Inequality: Causes of Inequality Individual National Individual: Individual Ownership of resources – housing, land, etc. Qualifications Motivation Skills Ability Family size National: National Factor endowments (land, labour, capital) Size and quality of labour force Climate Stage of economic development Economic Power – ability to be able to dictate terms with suppliers, buyers, etc.