Distribution of Income and Wealth A2 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 Free market would not provide benefits and inequalities would be large Gov intervenes to lessen these inequalities Impact of the State Wealthier household will be able to earn more through dividends and interest from their assets. Wealth Inequality Different households will have different numbers in employment. Household Composition People with skills and qualifications will tend to earn more. These differ between households. Skills and Qualifications Part time workers earn less than full time White earn more than black on average etc Earnings Differences

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

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