Topic 7 - Distribution of Income, Wealth,and Inequality

• Wealth


  A stock of assets, such as a house, shares, land, cars and savings
• Wealth inequality


  The unequal distribution of assets
• Income


  Money received on a regular basis, e.g. from a job, welfare payments, interest or dividends
• Income inequality


  When income is unevenly distributed across a nation
• Lorenz curve


  • Measures the distribution of income and wealth in a country
  • The line of perfect equality shows the distribution of income when the richest x% of the population owns x% of the cumulative income
  • The Lorenz curve shows the actual distribution of income and wealth
• Gini coefficient


  • Gives a numerical value for inequality and is derived from the Lorenz curve
  • A value of 0 indicates perfect equality, a value of 1 is perfect inequality
• Equality


  The equal distribution of wealth and income in society, so that everyone has the same income
• Equity


  Fairness, or what is considered to be an acceptable distribution of income and wealth in society
• Recently, more part-time and temporary jobs have been available rather than full time jobs, leaving people underemployed and limiting how much they can earn
• On average, those with a degree earn more over their lifetime than those who gain just A Levels
• Jobs in the low-skilled service industries, especially in the public sector, tend to pay less than jobs in the private sector
• Even with equal pay laws, women still earn less than men on average, due to career breaks, fewer hours worked, being crowded into low-paid or part-time jobs, and potential discrimination against promotions
• Workers might be discriminated against due to age, disabilities, gender and race
• State pensions and welfare payments tend to increase less than wages, even though they are index-linked to inflation, meaning those on benefits see a smaller real increase in their income compared to those in jobs
• In the UK, some taxes are regressive, meaning those on lower incomes bear a larger burden of the tax
• Unemployment can cause relative poverty and is particularly detrimental where no one in a household is working, since they are left to rely on state benefits
• Over the last 2-3 decades, the UK has switched towards indirect taxes, which tend to be more regressive, and the top income tax rate fell from 83% in 1979 to 40% in 1988 and is still at this rate today
• The basic income tax rate fell from 33% to 22%, which helps workers keep more income, but the benefits of this disproportionately favour the richest households, leading to an increase in income inequality
• Globally, there is inequality between countries, some of which is caused by certain social groups being excluded and marginalised based on ethnicity, gender, sexual orientation and disabilities
• Some countries have been held back by wars, droughts, famines and earthquakes, which has kept their populations in poverty, and across Africa, population issues are complicating efforts to reduce poverty and eliminate hunger
• Two people born in two countries can have very different opportunities open to them, depending on where they were born, leading to inequality of opportunity
• Recently, developing countries have been growing faster and are catching up with the developed world, helping to narrow the gap between the rich and poor countries
• The bulk of economic development happened in the Western world, even though China was the technological leader until the 1500s, possibly because British society was more open to social mobility and political liberty, and had free speech supported by Parliament which led to the growth of new ideas
• Exploitation of the poor through colonial rule led to more inequality between countries, and the fast spread of ideas meant the Industrial Revolution reached much of Europe, while war and famine held back this development in many poor countries today
• Kuznets hypothesis


  As society moves from agriculture to industry, inequality within society increases, since the wages of industrial workers rises faster than farmers, then wealth is redistributed through government transfers and education
• Thomas Piketty famously discredited the Kuznets hypothesis in 2014 by arguing that the capitalist free market system inevitably leads to continued inequality, as the rate of return on capital increases, so the rich get richer with higher returns on their investments
• Absolute poverty


  Living below subsistence, unable to meet basic needs of food, clean water, sanitation, health, shelter and education
• Relative poverty


  Measured by comparison to the average in the country, those with below 60% of the median income are considered to be in relative poverty
• Inequality in wages or unemployment, where workers with lower levels of education struggle to find well-paid jobs, can lead to poverty
• Welfare payments and taxes that are regressive can increase inequality and relative poverty
• Disease, malnutrition and other health problems can make it hard to get a job, pushing people into absolute poverty, especially in countries with scarce jobs
• Wars, conflicts, corruption, political oppression and natural disasters can destroy people's livelihoods and push them into extreme poverty
• Poverty is associated with lower life expectancies, poorer health, malnutrition, poor housing, crime, mental health issues, and limited access to education
• Sustained economic growth and government intervention through progressive taxes and welfare payments can help reduce poverty
• The UK has a National Minimum Wage to ensure all workers can access a minimum standard of living
• Government spending on housing and public services like education and healthcare helps provide equal opportunities and a minimum standard of living