Shows the distribution of income in an economy by showing perfect equality and the economy's deviation from it
Gini Coefficient
The Gini coefficient is calculated by A/ (A+B) and represents the level of inequality in an economy from 0 to 1 where the bigger it is the more unequal the economy is
Causes of Income Inequality within Countries
-Minimum wage rates
-Assortative mating
-Social benefits and tax
-R>g hypothesis
-Inheritance
Assortative Mating
Rich, talented and successful people marry each other and have children who benefit from this thus income is concentrated among them
Minimum Wage Rates
Requires firms to pay employees more which reduces how much owners earn in profits and increases earnings for workers thus reducing the gap in incomes
Social Benefits and Tax
Progressive tax systems and benefits e.g. Universal Credit redistribute income and increase earnings for the poorest thus reducing income inequality
R>g hypothesis
R represents the rate of return on assets and g represents the wage growth rate if r is greater than g the wealthy who own assets earn more than the poor who rely on wages leading to increased income inequality
Inheritance
Wealthy people are likely to leave money and assets to their children thus they can benefit from the r>g hypothesis leading to greater income inequality
Kuznets Curve
As an economy industrialises inequality initially increases until inequality peaks at the Kuznets threshold where the government intervenes with progressive taxation, education and social welfare schemes
