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Copyright 2006 – Biz/ed Income and Wealth Distribution.

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Presentation on theme: "Copyright 2006 – Biz/ed Income and Wealth Distribution."— Presentation transcript:

1 Copyright 2006 – Biz/ed Income and Wealth Distribution

2 Copyright 2006 – Biz/ed Income and Wealth Distribution

3 Copyright 2006 – Biz/ed Poverty

4 Copyright 2006 – Biz/ed Poverty Absolute Poverty: A situation where individuals do not have access to the basic requirements of life – food, shelter, clothing. Relative Poverty: A situation where individuals are excluded from being able to take part in what are considered the normal, acceptable standards of living in a society.

5 Copyright 2006 – Biz/ed Poverty Difficulties of drawing the line between those ‘in poverty’ and those outside. What do we mean by food, clothing and shelter? Is living in a sewer a form of shelter? Does having some clothing mean that you are not experiencing absolute poverty?

6 Copyright 2006 – Biz/ed Poverty In the UK – low income threshold – 60% of the median income. This means 12.5 million people living below this level – a poverty line? Links between ‘low pay’/poverty line and health, crime, education levels, social problems. The latter also represents a significant ‘social cost’ (negative externality) to the government

7 Copyright 2006 – Biz/ed Poverty Trap Where those on the poverty line may not benefit from getting paid work – they might be better off staying on benefits! e.g. Family, three children, without work, income = £120 in benefits of various sorts. One parent gets a job earning £140 but after tax and national insurance has a take home pay of £110!

8 Copyright 2006 – Biz/ed Measurements

9 Copyright 2006 – Biz/ed Measurements of Income Distribution Lorenz Curve: A curve showing the proportion of national income earned by a given percentage of the population. e.g what proportion of national income is earned by the top 10% of the population?

10 Copyright 2006 – Biz/ed Lorenz Curve % of National Income Percentage of Population This line represents the situation if income was distributed equally. The poorest 10% would earn 10% of national income, the poorest 30% would earn 30% of national income. 10% 30%

11 Copyright 2006 – Biz/ed Lorenz Curve % of National Income Percentage of Population The Lorenz Curve will show the extent to which equality exists. The greater the gap between the line of equality and the curve the greater the degree of inequality. 30% 20% In this example, the poorest 30% of the population earn 20% of the national income. 7% In this second example, the Lorenz curve lies further below the line of equality. Now, the poorest 30% only earn 7% of the national income.

12 Copyright 2006 – Biz/ed Gini Coefficient Enables more precise comparison of Lorenz Curves The proportion of the area taken up by the Lorenz Curve in relation to the overall area under the line of equality

13 Copyright 2006 – Biz/ed Gini Coefficient % of National Income Percentage of Population The total area under the line of equality The area bounded by the Lorenz Curve

14 Copyright 2006 – Biz/ed Wealth

15 Copyright 2006 – Biz/ed Wealth A STOCK as opposed to income which represents a FLOW Measures wealth at a point in time Wealth can be measured by reference to type of asset representing the stock.

16 Copyright 2006 – Biz/ed Types of Asset Shares Houses Bank deposits Land Building Society Accounts Currency holdings Buildings Machinery and Equipment Gold Etc. How the other half lives ! Copyright: Stock.Xchng

17 Copyright 2006 – Biz/ed Income Distribution Income represents a FLOW £x per week, month, year, etc. Income can be in the form of: –Wages –Rents –Dividends –Interest –Pensions –Benefit payments –Income from self employment –Inheritance

18 Copyright 2006 – Biz/ed Income Distribution Income can be earned income (from employment, etc.) or Unearned income – inheritance, benefit payments, pensions, etc.

19 Copyright 2006 – Biz/ed Income Distribution

20 Copyright 2006 – Biz/ed Redistribution of Income

21 Copyright 2006 – Biz/ed Taxation Costs –Market Distortion –Administrative Costs –Incentives –May not impact because some will not be paying tax –Can be avoided –May not be targeted at those who need the help Benefits –Reduction in poverty levels –Can be used to provide incentives

22 Copyright 2006 – Biz/ed Legislation Minimum Wage – targets those on ‘low wages’ but what is the right level? Discrimination – reducing the impact of racial, sexual and disabled incidences of discrimination Regulation – Employment related regulation

23 Copyright 2006 – Biz/ed Equity

24 Copyright 2006 – Biz/ed Causes of Inequality Individual National

25 Copyright 2006 – Biz/ed Individual Ownership of resources – housing, land, etc. Qualifications Motivation Skills Ability Family size

26 Copyright 2006 – Biz/ed National Factor endowments (land, labour, capital) Size and quality of labour force Climate Stage of economic development Economic Power – ability to be able to dictate terms with suppliers, buyers, etc.


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