 Goal of Equity in Income distribution: is to have a more equitable (fairer) distribution of income. That means productive income is divided among the members of the economy more equitably.  TARGET – To ensure all persons have access to sufficient resources to maintain a minimum standard of living and to reduce the income gap between the lowest and highest income groups.

 Income: the acquisition of economic resources over time (earned income and unearned income, factor income and transfer payments).  Equality of Income distribution – The government does not have a target for this.  There is no evidence that a more equal distribution of income leads to a higher standard of living.

 Ability and opportunity: some people have less opportunity to earn higher income because of their family background.  Dependence: some people are unable to earn income so are dependent on others.  Government welfare and payments: people reliant on these as a source of income will have a lower income.  Business employed by: some business reward workers with higher wages.  Family size

 Accumulated wealth or inherited wealth: some people have more of this and can use it to earn more income  Better qualifications and skills: the more qualified the higher the wage you can potentially earn  Types of jobs: because of the nature of the work or the lengthy period of training some occupation earn more than others  Discrimination: some workers receive lower wages because of their age, sex etc

Measuring equality in Income distribution  The Australian Bureau of statistics (ABS) measures income distribution through its “Survey of Household Income and income Distribution”

Using A.B.S. data, Lorenz diagram is used to show how evenly income or wealth is distributed between individuals in the country. Measuring equality in Income distribution

Greater Inequality

 Gini coefficient is a measure of the degree of inequality in the distribution of a nation’s income or wealth.  It represents the area between the actual Lorenz curve and the line of total equality, The greater deviation of the area, the higher the Gini coefficient and the greater the inequality in the distribution of equivalised disposable weekly income.

 Gini coefficient is a number between 0.00 and The bigger the area, the closer the Gini coefficient is to its maximum value of 1, but the smaller the area, the lower the degree of inequality and the closer the Gini coefficient is to 0.  Australia’s GINI coefficient is about 0.34

 Government Policies ◦ The main approach to improving equity in income distribution is through the government’s tax and transfer system. The government aims to redistribute income to disadvantage groups through:  Progressive taxation system: higher income earners are taxed a higher rate on additional income earned compared to low income earners  Transfer payments  Provision of government services, e.g. Medicare

 Changes in the level of Economic Growth. ◦ When economic activity is high, employment increases. Participation in the production process leads to more people earning an income which increases the income of people in the lowest quintile and closes the gap between the low and high income groups. ◦ When economic activity is low, unemployment increases. More people are relying on transfer income which is lower than a factor income. So the income of people in the lowest quintile falls which increases the gap between the low and high income groups.

 Efficiency is about getting the best use out of what you have and therefore using it effectively.  It is about using the productive resources we have and producing as many goods and services as possible given the resources we have.  Equity is about being fair and just.  It is difficult to have both in income distribution.

 If the government promote too much equality in income distribution by increasing welfare benefits or taxing high income people more than this could discourage people from finding a job or working harder or gaining extra skills, leading to a reduction in efficiency.  However, if the economy aims to focus on becoming more efficient then this can lead to a widening of the gap between the rich and poor.