What is Income Distribution?

Published by Thomas Herold in Economics

'Income Distribution' is explained in detail and with examples in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Income distribution proves to be the way that a country’s entire gross domestic product is actually shared out among all members of the population. This has long been a main concern of the study of economics and related governmental economic policies. The classical economists of the discipline such as Adam Smith, David Ricardo, and Thomas Malthus were principally concerned about the factor of income distribution. This refers to the actual distribution of income as it pertains to the principal factors of production, such as capital, labor, and land.

More modern day economists have similarly turned their attentions to the topic in recent decades. They have been mostly preoccupied with the income distribution as it pertains to both households and individual consumers in economies. There are many public policy issues which involve such relationships as those of economic growth and income inequality. These have led to the creation of various measurements to analyze income distribution in a society and economy. Chief among these is the Lorenz Curve representation. It is correlated closely with such income inequality measurements as the highly respected and internationally utilized Gini coefficient.

There are many different related causes of and factors leading to income inequality in the world today. Some of the more important ones prove to be tax and other economic policies, fiscal policies, monetary policies by central banks such as the Federal Reserve and Bank of England, labor union policies, the labor market in given industries and regions, individual skills sets of specific workers, impacts of automation and technology, the negative effects of globalization, educational levels of workers in different regions and countries, race, gender, and culture.

Thanks to such useful concepts as the pervasive Gini coefficients, a few well respected organizations including especially the United States’ Central Intelligence Agency and the international body the United Nations have been able to measure actual levels of income inequality on a country to country comparison basis.

The World Bank similarly employs the Gini coefficient index as it has consistently proven to be a dependable and accurate index measurement for comparing and contrasting income distribution on a nation by nation basis. This widespread index runs a measurement gamut of from 0 to 1. On this scale, 0 represents complete equality, while 1 depicts total inequality in the society or economy in question. As of the year 2016, the world’s Gini index measures fittingly at 0.52.

Income inequality may be looked at through two different statistical approaches. These are intra country inequality that looks at the conditions within the nation itself. The other is inter country inequality that amounts to the various inequality levels between one country and the next one.

A May of 2011 report that the OECD researched and published demonstrated a disturbing trend regarding income inequality and income distribution among the OECD developed nations. The income gap between poor and rich in these developed nations, practically all of which represent the high income economies, “has reached its highest level for over 30 years, and governments must act quickly to tackle inequality.”

The United States is a classic example of this troubling point. Income in America has become so unevenly distributed throughout the prior 30 years that the earners of the top quintile 20 percent now earn a greater share than the combined four quintiles or bottom 80 percent together do. This is the kind of dangerous and damaging statistic upon which violent class based revolutions are built.

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The term 'Income Distribution' is included in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.