In economics, income distribution is how a nation's total GDP is distributed amongst its population. 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
balance between income inequality and economic growth, and their often inverse relationship.
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.
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 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 of income inequality
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.
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.
2014 World Gini Index
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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.
Trends
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".
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). However, scholars disagree about whether inter-country income inequality has increased (Milanovic 2011), remained relatively stable (Bourguignon and Morrison 2002), or decreased (Sala-i-Martin, 2002) since 1980. What Milanovic (2005) 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).
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.
As of 2018, Albania has the smallest gap in wealth distribution with Zimbabwe having the largest gap in wealth distribution.
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. 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. As of 2019, Thai per capita income is US$8,000 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.
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.
Income distribution in the United Kingdom
Inequality
in the UK has been very high in the past, and did not change much until
the onset of industrialization. Incomes used to be remarkably
concentrated pre-industrial evolution: up to 40% of total income went into the pockets of the richest 5%.
In the more recent years income distribution is still an issue. The UK
experienced a large increase in inequality during the 1980s—the incomes
of the highest deciles increase while everyone else was stagnant. Uneven
growth in the years leading up to 1991 meant further increases in
inequality. Throughout the 1990s and 2000s, more even growth across the
distribution meant little changes in inequality, with rising incomes
for everybody. In sight of Brexit, there is more predicted income distribution discrepancies between wages.
