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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
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 benefitMonetary Benefits
• Provision of education, health care to give all citizens equality of opportunity.
• Funded through taxationDirect Provision of
Goods/Services
• NMW, anti discrimination policies.Legislation & Labour Market
Policy