Income Distribution: a Definition

Income Distribution is a statistical measure that shows in what way the total Gross Domestic Product (GDP) of a country is dispersed among its residents. It should be noted that the word ‘distribution’ in Income Distribution is used in the statistical sense and not as the action of the government collecting and distributing the revenue. The Income Distribution stems from the decisions people make about their work, savings and investments that are influenced by the markets as well as by the system of taxes prevalent at the time in the country.

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The Significance of Income Distribution

Economists are not only concerned about the Income Distribution among the individuals and households in the country, but also other issues such as the theoretical and policy matters that are related to the economic growth of the country and inequalities that exist in the Income Distribution. The income distribution within a community and in countries can be studied using the Lorenz Curve that is directly connected with other measurements of inequality of income distribution, such as the Gini Coefficient.

Causes of Income Distribution and the Levels of Inequality

The causes of income distribution and the levels of inequality are varied and from many spheres. The causes could include, among others, aspects such as the tax policies of the country, economic policies, labour union policies, monetary policies, the market for labour, capabilities of workers, technology and automation, education, globalization, gender, race, and culture. The decline in the number of farming families, increase in Social Security benefits, the income levels of the rich increasing when compared to that of the low and middle classes, and the changes in the family structure from single-earner families to those with multiple-earners, and the increased migration from the poorer to the more affluent countries are also considered to be factors that influence inequality in the income distribution.

Economists have observed that by studying the income distribution and economic inequality that the inequality has the tendency to increase as a country develops, but that once a particular average income is reached the inequality shows a decrease. This tendency is called by its proposer’s name, the Kuznets’ Curve. Although, many modern economists differ from the view that it is essential for the inequality to increase as the country grows.

Pros and Cons of Inequality in Income Distribution

Inequality in Income Distribution through wages and incomes is obviously distressing if it stems from the privileges handed out by the government. But, at the same time, this inequality in income distribution could work positively in freer economies by acting as motivations to the people to increase the production and thus achieve higher levels of incomes. Furthermore, the inequality in income distribution could also induce the younger generation of the country to attain training and education that would improve their chances of getting higher paid jobs.

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