Distribution of Income

Wealth - Property, Shares, Pensions
Income - Wages, Salaries, investment income, income from self-employment

Causes of wealth inequality

  1. Inheritance
  2. Marriage - Wealthy people marry other wealthy people
  3. Income inequality - High earners have higher savings than can be invested
  4. Chance - lottery

Causes of income inequality

  1. Wealth inequality - E.g property can earn income
  2. Household composition - Number of people in the household working
  3. Level of skills and qualifications
  4. Difference in earnings - Full time vs Part time, availability of overtime

Measuring Equality

Equality - Measurable - How evenly resources are distributed
Equity - Not measurable - Fairness, do people have the same opportunities

Lorenz Curve

The lorenz curve shows the level of inequality on a country

Gini coefficient = \( \frac{A}{A+B} \)
0 -> Perfect equality
1 -> Perfect inequality
Lower Gini coefficient -> less equality

Inequal country - e.g Brazil

Lorenz Curve with high inequality

The curve is far from the Lorenz curve, this country has high inequality and a high Gini coefficient

Equal country - e.g Czech Republic

Lorenz Curve with low inequality

The curve is close to the Lorenz curve, this country has low inequality and a low Gini coefficient

Why has the Gini coefficient been increasing in the UK?

  • Reduction in top-rate tax
  • Increase in regressive taxes - VAT
  • Real wages have stagnated - Wages have not kept up with inflation
  • Benefits / JSA have not kept up with inflation
  • Inequality of opportunity exists - High proportion of Oxbridge graduates from privileged backgrounds get the best paid jobs
  • Increase in single-parent households