1. Chapter 19: Who Gets What? The Distribution of Income
Prepared by:
Kevin Richter, Douglas College
Charlene Richter,
British Columbia Institute of Technology
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Chapter Objectives
1a. Use the theory of rational choice to explain how taxes affect the quantity of labour supplied.
1b. List three factors that influence the elasticity of labour supply.
2. Explain how the demand for labour is a derived demand.
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Chapter Objectives
3. List three factors that influence labour demand.
4. Describe the impact of technology and globalization on the demand for labour.
5. Explain what is meant by efficiency wages.
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Chapter Objectives
6. Define monopsonist and bilateral monopoly.
7a. Discuss real-world characteristics of labour markets.
7b. List three types of discrimination.
8. Describe how labour laws and labour unions have improved working conditions.
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5. Distribution of Income
Income represents the amount of money a person earns a year; it is a “flow” concept.
The total amount of money a person has accumulated is one’s wealth; it is a “stock” concept.
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6. Distribution of Income
Share distribution of income is the name given to this relative division of total income among income groups.
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7. Distribution of Income
Socioeconomic distribution of income is the allocation of income among relevant socioeconomic groupings.
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Lorenz Curve
A Lorenz curve is a geometric representation of the share distribution of income among families in a given country at a given time.
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9. Lorenz Curve of Canadian IncomeB C
Cumulative percentage of families
Cumulative percentage of income
100 80 60 40 20
Income
Quintile
Percentage
of Total
Family
Cumulative
Percentage of
Total Family
Lowest fifth
Second fifth
Third fifth
Fourth fifth
Highest fifth
11.9
17.4 24
40.6
6.1 %
6.1% 18
35.4
59.4
100.0 J I H G F
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10. Canada’s Changing Income Distribution
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11. Canada’s Changing Income Distribution
Cumulative percentage of families
Cumulative percentage of income
100 80 60 40 20
Income
Quintile
1980
1996
Lowest fifth
Second fifth
Third fifth
Fourth fifth
Highest fifth
19.3
37.7
61.7
6.3 %
6.1% 18
35.4
59.4
100.0
Line of
equality
1980
1996
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12. Canadian Income Distribution
Some of the reasons for this income inequality are
Economic restructuring
Household restructuring
Restructuring of government benefits.
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13. Canadian Income Distribution
During the ’80s and ‘90s technological changes and international competition caused a shift toward the “flexible work force” in Canada.
Nonstandard employment increased, such as part time, overtime, subcontracting, self-employment and work at home – all nonpermanent positions.
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14. Canadian Income Distribution
Household restructuring occurred partly because of the changing economy, and partly because social views and customs have also changed.
Dual income families became the norm.
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15. Canadian Income Distribution
A single income household cannot compete with the earning power of a two income family.
In addition, reductions in employment insurance benefits and in social assistance means that a period of prolonged unemployment will have a devastating effect on a family.
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16. Sources of Household Income by Quintile
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Defining Poverty
The LICO is set as the income at which families spend 20 percent more of their income on food, shelter and clothing than does the average Canadian family.
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18. Defining Poverty: LICOs
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Poverty Issues
Expectations
Social distress
Differential impacts
Education
Structural component
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Poverty Issues
Expectations – by giving children a proper start in life, society can avoid higher social costs later, such as health care and prison.
People living below poverty line are less able to provide for their children; this will diminish their children’s expectations for their future, and their chances to succeed.
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Poverty Issues
Reduced access to education is a significant factor in poverty.
There is a strong negative correlation between poverty and both education level and occupational skill level (human capital).
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22. International Income Inequality
Cumulative percentage of population
Cumulative percentage of income
100 80 60 40 20
Canada
Sweden
Japan
United States
Brazil
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Per Capita Income
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24. International Income Inequality
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25. Distribution of Wealth
Wealth is the value of the things individuals own less the value of what they owe.
Wealth is a stock concept, representing the value of assets.
Wealth is much more unequally distributed than income in Canada.
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26. Socioeconomic Dimensions
Education
Employment
Full-time
Part-time
Occupational skill
Individual characteristics
Aboriginal
Disabilities
Single parent
Age
Immigrants
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Class System
Developing Country
Canada
Lower class
Middle class
Upper class
Upper class
Middle class
Lower class
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28. Side Effects of Redistributive Programs
There are three side effects of redistribution of income:
The labour to leisure incentive effect.
The tax avoidance or evasion incentive effect.
The incentive to look more needy than you really are.
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29. Side Effects of Redistributive Programs
A tax may result in a switch from labour to leisure.
People may attempt to avoid or evade taxes, leading to a decrease in measured income.
Redistributing money may cause people to make themselves look as if they’re more needy than they really are.
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30. Income Redistribution Policies
The direct methods include:
Taxation—policies that tax the rich more than the poor.
Expenditures—programs that help the poor more than the rich.
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31. Income Redistribution Policies
The indirect method involves the establishment and protection of property rights.
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32. Taxation to Redistribute Income
Taxes can be:
Progressive – the average tax rate increases with income.
Proportional – the average rate of tax is constant regardless of income.
Regressive – the average tax rate decreases with income.
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Taxation
Government gets most of its income from:
Income taxes – which are somewhat progressive.
Sales taxes – which tend to be proportional but are slightly regressive in their effect.
Property taxes – which are roughly proportional.
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Expenditure Programs
Welfare – a provincially administered program of income assistance to support individuals and families which have no other way of supporting themselves.
Old Age Security (OAS) – Canada’s largest pension plan, providing a modest pension income to those over 65 years of age.
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Expenditure Programs
Guaranteed Income Supplement (GIS) – provides an additional monthly benefit for low-income pensioners.
Canada Pension Plan (CPP) – a retirement income plan and a death and disability insurance plan.
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Expenditure Programs
Employment Insurance – short-term financial assistance, regardless of need, to eligible individuals who are temporarily out of work.
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37. Distribution of Income Before and After Taxes
Cumulative percentage of income
Cumulative percentage of households
100 90 80 70 60 50 40 30 20 10
After taxes
Before taxes

38. Indirect Methods of Redistributing Income
The most important redistribution decisions that the government makes involve the indirect method, the establishment and protection of property rights.
Intellectual property rights, for example, provide a legally sanctioned barrier to entry.
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39. Who Gets What? The Distribution of Income
End of Chapter 19
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