Resources for Courses

New A LevelEconomics

LabourMarkets

SAM

PLE

RESOURCE

ONLY

Resources for Courses

Teacher InstructionsThis activity gives students both the opportunity to increase their understanding ofthe distribution of income in the UK and also the opportunity to further develop thenecessary quantitative skills for A-level Economics.

Students should start by looking at the decile data provided on income, benefits andtax. They should then calculate the cumulative level of initial income, and then the cumulative % of initial income for each decile group.

Then repeat the exercise for income after benefits, and then income after both benefitsand tax.

Finally, they should plot two types of graphs:1 A Lorenz Curve: showing income before tax, income after benefits, and income

after benefits and tax2 A bar chart: showing, for each decile, income before tax, income after benefits,

and income after benefits and tax

Hints and tipsSome students may need a reminder of what is meant by “cumulative” and “deciles”(although they should have done this topic in GCSE maths). An easy way to explain it to them is to ask them to imagine everyone in the country lined up from lowest income to highest income, and then splitting them into 10 equal-sized groups.

Extension ExerciseThe data used in this resource is taken from Table 14 on the following ONS webpage:www.ons.gov.uk/ons/rel/household-income/the-effects-of-taxes-and-benefits-on-household-income/historical-data--1977-2013-14/summary--historical-data--1977-2013-14.html

Open up Table 14, and explore the data in more detail – there are some interesting observations to make. You may want to encourage students to look at and try to explain:

• The pattern of maternity benefits

• The pattern of NHS benefits

• The proportion of original income spenton alcohol duties and tobacco duties

• The pattern of child benefit

• The pattern of investment income, asa good proxy for wealth

Lorenz Curve Analysis

SAM

PLE

RESOURCE

ONLY

Task 1 – calculating income data

Study the data below, and then complete the table – the first few calculations needed have beendone for you as an example.

Average perhouseholdper year

1st decile

Original income

Cumulativeoriginal income

Cumulative% of income

1.13 (3737

÷331550 x 100)

7 304

11 041(3 737 + 7 304)

3.33 (11041

÷331550 x 100)

11 411

22 452(11 041 +

11411)

6.77 (22452

÷331550 x 100)

16 051 21 609 28 074 36 105 45 654 59 239 102 366

331 550

100.00

Incomeafter benefits

9 524 16 307 20 341 23 947 28 957 34 277 41 123 50 026 67 721 104 779

Cumulative % of income after benefits

2.43 (9524 ÷392022 x 100)

6.59 (25831

÷ 392022 x 100)

100.00

2nddecile

3rd decile

4th decile

5th decile

6th decile

7th decile

8th decile

9th decile

10th decile

3 738

3 737

Cumulativeincomeafter benefits

9 524 25 831 (9 524 + 16 307)

392 022

Income after benefits and tax

12 050 18 958 22 450 23 895 27 230 29 486 33 700 39 102 46 372 73 682

Cumulative income after benefits and tax

326 925

Cumulative % of income after benefits and tax

100.00SAM

PLE

RESOURCE

ONLY

Task 2 – plotting Lorenz curves

Task 3 – bar charts

On a piece of graph paper, you will be plotting Lorenz curves to illustrate the data that you havejust calculated.

On the same set of axes, you will draw one curve for original income, one curve for income afterbenefits and one curve for income after tax

Hints and tips• Label your x-axis “cumulative share of population”. This axis shows the poorest 10%, then

the poorest 20%, then the poorest 30% and so on. • Label your y-axis “cumulative share of income”• Use 3 different colours to plot your 3 different Lorenz curves• The bigger you can draw your curves, the easier it will to plot them and to interpret them

Some follow-up questions for discussion1 Which decile sees the smallest change in their income following taxes and benefits?2 What is the % decrease in income for the richest decile following taxes and benefits?3 What is the % increase in income for the poorest decile following taxes and benefits?4 Do you think the UK’s tax and benefit system does an effective job in redistributing income?

On a separate piece of graph paper, you should now plot bar charts to illustrate the levels oforiginal income, income after benefits, and income after benefits/tax for each decile.

Your chart should look something like this:

1st decile Decile groups

Original income

Income

Income after benefits

Income after benefits & taxSA

MPL

E

RESOURCE

ONLY

Calculation Solutions

The answers are shown below, in bold, to 2 decimal places.

Average perhouseholdper year

1st decile

Original income

Cumulativeoriginal income

Cumulative% of income

1.13 (3737

÷331550 x 100)

7 304

11 041(3 737 + 7 304)

3.33 (11041

÷331550 x 100)

11 411

22 452(11 041 +

11411)

6.77 (22452

÷331550 x 100)

16 051

38 503

11.61

21 609

60 112

18.13

28 074

88 186

26.60

36 105

124 291

37.49

45 654

169 945

51.26

59 239

229 184

69.12

102 366

331 550

100.00

Incomeafter benefits

9 524 16 307 20 341 23 947 28 957 34 277 41 123 50 026 67 721 104 779

Cumulative % of income after benefits

2.43 (9524 ÷392022 x 100)

6.59 (25831

÷ 392022 x 100)

11.78 17.89 25.27 34.02 44.51 57.27 73.27 100.00

2nddecile

3rd decile

4th decile

5th decile

6th decile

7th decile

8th decile

9th decile

10th decile

3 738

3 737

Cumulativeincomeafter benefits

9 524 25 831 (9 524 + 16 307)

46 172 70 119 99 076 133 353 174 476 224 502 287 223 392 022

Income after benefits and tax

12 050 18 958 22 450 23 895 27 230 29 486 33 700 39 102 46 372 73 682

Cumulative income after benefits and tax

12 050 31 008 53 458 77 353 104 583 134 069 167 769 206 871 253 243 326 925

Cumulative % of income after benefits and tax

3.69 9.48 16.35 23.66 31.99 41.01 51.32 63.28 77.46 100.00SAM

PLE

RESOURCE

ONLY