Income distribution

In economics, income distribution is how a nation's total GDP is distributed amongst its population.[1] Income and its distribution have always been a central concern of economic theory and economic policy. Classical economists such as Adam Smith, Thomas Malthus, and David Ricardo were mainly concerned with factor income distribution, that is, the distribution of income between the main factors of production, land, labour and capital. Modern economists have also addressed this issue, but have been more concerned with the distribution of income across individuals and households. Important theoretical and policy concerns include the relationship between income inequality and economic growth.

The distribution of income within a society may be represented by the Lorenz curve. The Lorenz curve is closely associated with measures of income inequality, such as the Gini coefficient.

Measurement

The concept of inequality is distinct from that of poverty[2] and fairness. Income inequality metrics (or income distribution metrics) are used by social scientists to measure the distribution of income, and economic inequality among the participants in a particular economy, such as that of a specific country or of the world in general. While different theories may try to explain how income inequality comes about, income inequality metrics simply provide a system of measurement used to determine the dispersion of incomes.

Causes

Causes of income inequality and of levels of equality/inequality include: tax policies, other economic policies, labor union policies, Federal Reserve monetary policies & fiscal policies, the market for labor, abilities of individual workers, technology and automation, education, globalization, gender, race, and culture.

Distribution measurement internationally

Using Gini coefficients, several organizations, such as the United Nations (UN) and the US Central Intelligence Agency (CIA), have measured income inequality by country. The Gini index is also widely used within the World Bank.[3] It is an accurate and reliable index for measuring income distribution on a country by country level. The Gini index measurements go from 0 to 1 for 1 being perfect inequality and 0 being perfect equality. The world Gini index is measured at 0.52 as of 2016.[4]

The World Inequality Lab at the Paris School of Economics published in December 2017 the World Inequality Report 2018 that provides estimates of global income and wealth inequality.[5]

Idealized hypothetical Kuznets curve

Standard economic theory stipulates that inequality tends to increase over time as a country develops, and to decrease as a certain average income is attained. This theory is commonly known as the Kuznets curve after Simon Kuznets. However, many prominent economists disagree with the need for inequality to increase as a country develops. Further, empirical data on the proclaimed subsequent decrease of inequality is conflicting.

There are two ways of looking at income inequality, within country inequality (intra-country inequality) – which is inequality within a nation; or between country inequality (inter-country inequality) which is inequality between countries.

According to intra-country inequality at least in the OECD countries, a May 2011 report by OECD stated that the gap between rich and poor within OECD countries (most of which are "high income" economies) "has reached its highest level for over 30 years, and governments must act quickly to tackle inequality".[6]

Furthermore, increased inter-country income inequality over a long period is conclusive, with the Gini coefficient (using PPP exchange rate, unweighted by population) more than doubling between 1820 and the 1980s from .20 to .52 (Nolan 2009:63).[7] However, scholars disagree about whether inter-country income inequality has increased (Milanovic 2011),[8] remained relatively stable (Bourguignon and Morrison 2002),[9] or decreased (Sala-i-Martin, 2002)[10] since 1980. What Milanovic (2005) [11] calls the “mother of all inequality disputes” emphasizes this debate by using the same data on Gini coefficient from 1950–2000 and showing that when countries’ GDP per capita incomes are unweighted by population income inequality increases, but when they are weighted inequality decreases. This has much to do with the recent average income rise in China and to some extent India, who represent almost two-fifths of the world. Notwithstanding, inter-country inequality is significant, for instance as a group the bottom 5% of US income distribution receives more income than over 68 percent of the world, and of the 60 million people that make up the top 1% of income distribution, 50 million of them are citizens of Western Europe, North America or Oceania (Milanovic 2011:116,156).[8]

In a TED presentation shown here, Hans Rosling presented the distribution and change in income distribution of various nations over the course of a few decades along with other factors such as child survival and fertility rate.

Income distribution in different countries

Thailand

  • Thailand has been ranked the world's third most unequal nation after Russia and India, with a widening gap between rich and poor according to Oxfam in 2016.[12] A study by Thammasat University economist Duangmanee Laovakul in 2013 showed that the country's top 20 land owners owned 80 percent of the nation's land. The bottom 20 owned only 0.3 percent. Among those having bank deposits, 0.1 percent of bank accounts held 49 per cent of total bank deposits.[13] As of 2018, Thai per capita income is US$6,000 a year. The government aims to raise it to US$15,000 (498,771 baht) per year, driven by average GDP growth of five to six percent. Under the 20-year national plan stretching out to 2036, the government intends to narrow the income disparity gap to 15 times, down from 20 times in 2018.[14]

Income distribution in the United States

In the United States, income has become distributed more unequally over the past 30 years, with those in the top quintile (20 percent) earning more than the bottom 80 percent combined.[15]

See also

References

  1. ↑ O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 348. ISBN 0-13-063085-3.
  2. ↑ For poverty see FGT metrics.
  3. ↑ "GINI index (World Bank estimate) | Data". data.worldbank.org. Retrieved 2016-12-04.
  4. ↑ root (2008-08-10). "Gini Index". Investopedia. Retrieved 2016-12-04.
  5. ↑ [wir2018.wid.world Dedicated website for World Inequality Report 2018]
  6. ↑ Society: Governments must tackle record gap between rich and poor, says OECD
  7. ↑ Nolan, P., 2009. Crossroads: The End of Wild Capitalism Marshall Cavendish: London, New York
  8. 1 2 Milanovic, B., 2011. Haves and the Have-Nots, Basic Books: New York
  9. ↑ Bourguignon, François; Morrisson, Christian (2002). "Inequality Among World Citizens: 1820–1992". American Economic Review. 92 (4): 727–744. doi:10.1257/00028280260344443.
  10. ↑ Sala-i-Martin, X., 2002. "The Disturbing "Rise" of Global Income Inequality," NBER Working Papers 8904, National Bureau of Economic Research, Inc.
  11. ↑ Milanovic, B., 2005. Worlds Apart: Measuring International and Global Inequality, Princeton University Press: Princeton
  12. ↑ Sukprasert, Pattramon (6 February 2017). "Thailand 'third most unequal'". Bangkok Post. Retrieved 6 February 2017.
  13. ↑ Chaitrong, Wichit (14 August 2018). "Government urged to help 1.2m desperately poor Thais". The Nation. Retrieved 14 August 2018.
  14. ↑ Theparat, Chatrudee (14 August 2018). "Steering the NESDB through transistion". Bangkok Post. Retrieved 14 August 2018.
  15. ↑ Congressional Budget Office: Trends in the Distribution of Household Income Between 1979 and 2007. October 2011.

Further reading

  • Piketty, T., & Goldhammer, A. (2014). Capital in the twenty-first century. Cambridge Massachusetts: The Belknap Press of Harvard University Press.
  • Atkinson, A. B. (2015). Inequality: What can be done? Cambridge, MA: Harvard University Press.
  • Baumohl, B. (2005). The secrets of economic indicators. Bernard Baumohl. 2005.
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