Distribution of Income and Wealth A 2 Economics

Aims and Objectives Aim: • Understand the distribution of income in the UK Objectives: • Define distribution of income • Explain measures of inequality: Lorenz Curve, Gini Coefficient • Analyse UK income inequalities • Evaluate methods of government intervention

Starter • Define income • Define equity • Define wealth

UK Income Profile

Distribution of Income Definition: how income is shared out between factors of production • More equal than the distribution of wealth. • Can be measured by factor of production, between households and between regions. • Article

Measuring The Distribution of Income: Lorenz Curve • A method of measuring the degree of inequality in the distribution of income and wealth is the Lorenz Curve.

Measuring The Distribution of Income: Lorenz Curve • Horizontal axis = cumulative % of population • Vertical axis = cumulative % of income earned • 45 degree line = perfect equality i. e. the bottom 40% of population earned 40% of income. • The actual cumulative percentages are then plotted • If inequalities exist this line falls below the 45 degree line. • The greater the inequality the further the curve will be below the 45 degree line. Which country is income distributed more unevenly?

Measuring The Distribution of Income: Gini Coefficient • A statistical measure of the degree of inequality shown on the Lorenz curve is the Gini Coefficient • Ratio of the area between 45 degree line and the Lorenz curve divided by the total area below the 45 degree line. • (a / a + b) • Perfect equality ratio of 0 • Perfect inequality ratio of 1 • Closer it is to 1 the more unequal the distribution of income Trends in UK

The Distribution of Income: Inequalities • Distribution has become more unequal in recent decades. Due to: • Reduction in top rates of income tax • Privatisation lead to rise in executives pay • Real value of benefits such as Job Seekers Allowance fell • % of single parent households not in work doubled between 1975 -2000.

The Distribution of Income: Inequalities • Brainstorm in groups what you feel the causes of inequality between household income are.

Causes of Income Inequalities Between Households Impact of the State • Free market would not provide benefits and inequalities would be large • Gov intervenes to lessen these inequalities Wealth Inequality • Wealthier household will be able to earn more through dividends and interest from their assets. Household Composition • Different households will have different numbers in employment. Skills and Qualifications • People with skills and qualifications will tend to earn more. These differ between households. Earnings Differences • Part time workers earn less than full time • White earn more than black on average etc

Government Intervention • Brainstorm in groups methods of government intervention to influence wealth and income distribution in the UK.

Government Intervention Methods • Progressive taxation Taxation Monetary Benefits • Means tested e. g. income support. • Universal e. g. child benefit Direct Provision of Goods/Services • Provision of education, health care to give all citizens equality of opportunity. • Funded through taxation Legislation & Labour Market Policy • NMW, anti discrimination policies.