4.2.2

• Income

  Income is a 'flow' concept and consists of the returns that households receive as a result of providing their factors of production e.g. wages, rent, interest payments etc.
• Wealth

  Wealth is a 'stock' concept and is a measure of household assets e.g. houses, cars etc.
• Distribution

  The distribution of income refers to how income is shared across the population; clearly wealth inequality refers to how wealth is shared out amongst the population.
• Inequality of income and wealth

  Inequality of income and wealth are often quite closely correlated, because earning a higher income allows households to buy more assets. However, there are some exceptions e.g. some households may have low income but may have inherited wealth, and pensioners often have very low income but might be regarded as wealthy if they own homes or large amounts of savings
• Measures of income inequality

  • Quantile ratio - this is the ratio of the average income of the richest 20% of the population to the average income of the poorest 20% of the population
  • Gini coefficient - A Gini index or coefficient of 0 represents perfect equality, while an index of 100 (or coefficient of 1) implies perfect inequality
• Gini coefficient graph

  
• Mains causes of inequality within countries

  • Big differences in wages and earning in different jobs/occupations
  • Wage differentials are themselves caused by demand and supply-side factors in the labour market
  • The effects of unemployment
  • Changes in the taxation of income and wealth
• Main causes of inequality between countries

  • low life expectancy
  • low school enrolment rates due to high prices
  • low access to basic health care
  • limited access to affordable technology
  • lower productivity which then leads to lower wages
• The profit motive

  Commercial businesses are assumed to be driven by the profit motive when making investment, output and employment decisions. Profit flows are dividends to shareholders and inequalities of wealth can be widened as businesses list their shares in stock markets and investors can earn capital gains as well as dividend income.
• A capitalist labour market

  In competitive labour markets, wages and earnings are influenced by the forces of labour demand and supply. In theory there are few limits to the pay that can be achieved by the top earners including those with very scarce skills that the market values and executives who have the power to set their own remuneration (including bonuses and share options).