Download Income and Wealth Distribution - PowerPoint Presentation



Goal of Equity in Income distribution: is to
have a more equitable (fairer) distribution of
income. That means productive income is
divided among the members of the economy
more equitably.
TARGET – To ensure all persons have access
to sufficient resources to maintain a
minimum standard of living and to reduce
the income gap between the lowest and
highest income groups.



Income: the acquisition of economic
resources over time (earned income and
unearned income, factor income and transfer
payments).
Equality of Income distribution – The
government does not have a target for this.
There is no evidence that a more equal
distribution of income leads to a higher
standard of living.





Ability and opportunity: some people have less
opportunity to earn higher income because of
their family background.
Dependence: some people are unable to earn
income so are dependent on others.
Government welfare and payments: people reliant
on these as a source of income will have a lower
income.
Business employed by: some business reward
workers with higher wages.
Family size




Accumulated wealth or inherited wealth: some
people have more of this and can use it to earn
more income
Better qualifications and skills: the more qualified
the higher the wage you can potentially earn
Types of jobs: because of the nature of the work
or the lengthy period of training some occupation
earn more than others
Discrimination: some workers receive lower wages
because of their age, sex etc
Measuring equality in Income
distribution

The Australian Bureau of statistics (ABS) measures income
distribution through its “Survey of Household Income and
income Distribution”
Measuring equality in Income
distribution
Using A.B.S. data, Lorenz diagram is used to show
how evenly income or wealth is distributed
between individuals in the country.
Cumulative share of total equivalised disposable income(%)
Lorenz diagram showing the distribution of Australia’s equivalised
120
disposable weekly income by cumulative quintile,2009-10
100
100
80
80
60
60
40
40
20
0
0
20
7.4
0
Total equality in
59.8
income
distribution
36.8
Equivalised
19.8
0
0
0
0
income share by
cumulative
quintile
Cumulative share of total equivalised disposable income(%)
Lorenz diagram showing the distribution of Australia’s
120
equivalised disposable weekly income by cumulative
quintile,2009-10
100
100
80
80
60
60
40
40
20
0
0
20
7.4
0
Total equality in
59.8
income
distribution
36.8
19.8 Greater Inequality
Equivalised
0
income share by
0
0
0
cumulative
quintile


Gini coefficient is a measure of the degree of
inequality in the distribution of a nation’s income
or wealth.
It represents the area between the actual Lorenz
curve and the line of total equality, The greater
deviation of the area, the higher the Gini coefficient
and the greater the inequality in the distribution of
equivalised disposable weekly income.


Gini coefficient is a number between 0.00 and
1.00. The bigger the area, the closer the Gini
coefficient is to its maximum value of 1, but the
smaller the area, the lower the degree of inequality
and the closer the Gini coefficient is to 0.
Australia’s GINI coefficient is about 0.34

Government Policies
◦ The main approach to improving equity in income
distribution is through the government’s tax and
transfer system. The government aims to
redistribute income to disadvantage groups
through:
 Progressive taxation system: higher income earners
are taxed a higher rate on additional income earned
compared to low income earners
 Transfer payments
 Provision of government services, e.g. Medicare

Changes in the level of Economic Growth.
◦ When economic activity is high, employment increases.
Participation in the production process leads to more
people earning an income which increases the income of
people in the lowest quintile and closes the gap between
the low and high income groups.
◦ When economic activity is low, unemployment increases.
More people are relying on transfer income which is
lower than a factor income. So the income of people in
the lowest quintile falls which increases the gap between
the low and high income groups.




Efficiency is about getting the best use out of
what you have and therefore using it
effectively.
It is about using the productive resources we
have and producing as many goods and
services as possible given the resources we
have.
Equity is about being fair and just.
It is difficult to have both in income
distribution.


If the government promote too much equality in
income distribution by increasing welfare
benefits or taxing high income people more than
this could discourage people from finding a job
or working harder or gaining extra skills, leading
to a reduction in efficiency.
However, if the economy aims to focus on
becoming more efficient then this can lead to a
widening of the gap between the rich and poor.