Inequality and poverty notes
4.1.7.1 —> THE DISTRIBUTION OF INCOME AND WEALTH
-WEALTH: stock of assets. Eg. House, shares, land, cars and savings.
-INCOME: money received on a regular basis. Eg. From a job, welfare payments, interest
or dividend.
Wealth inequality is more damaging as it is sustained by generations, not strong
incentives to innovate or be productive. It’s unearned income. It’s harder to asset and tax.
It’s di cult for the government to manage and redistribute.
Income inequality is not as incentive-based. Education levels and wealth drives this, as
well as incentives. It’s earned income.
Wealth inequality is higher than income inequality as it goes through generations and
owners of assets accumulate wealth.
The Lorenz curve measures
distribution of income and wealth in a
country.
The line of perfect equality shows the
distribution of income when the
richest x% of the population owns
x% of the cumulative income.
Gini coe cient gives a numerical
value for inequality: A/(A+B).
Value of 0: perfect equality, everyone
has the same income and wealth.
Value of 1: perfect inequality, all of the
wealth in the country is concentrated
in the hands of 1 individual/household.
Gini in the UK: 0.35.
-EQUALITY: equal distribution of wealth and income in a society. Everyone has the same
income.
-EQUITY: refers to fairness, what is considered to be an acceptable distribution of income
and wealth in a society.
CAUSES
• INEQUALITY IN WAGES: recently, more part-time jobs have been available, leaving
people underemployed and limiting how much they can earn.
-People with a degree earn more over their lifetime. Wage gap between skilled and
unskilled workers has increased recently in the UK. Jobs in the low-skilled industry are
paid less, especially in the public sector.
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, -Women earn less than men on average even with equal pay laws. This could be due to
career breaks, fewer hours worked than men or because women are crowded into low-
paid or part-time jobs which require low skills.
-Workers might be discriminated due to age, disabilities, gender and race.
• WELFARE PAYMENTS AND TAXES: increasing welfare bene ts creates a disincentive to
work. Also, higher welfare payments increase the burden on the government requiring
higher taxes or borrowing.
-Many people are unable to work, lowering their income.
-In UK, some taxes are regressive —> lower incomes bear a larger burden of the tax,
increasing inequality.
• CHANGES TO UK TAX SYSTEM: UK has switched to indirect taxes, which tend to be
regressive. Top income tax rate fell from 83% in 1979 to 40% in 1988. This helped
workers to keep more income.
BUT bene ts of this disproportionately favor the richest households, so more inequality.
• LABOUR MARKET: automatisation: low-income jobs replaced by capital. E ect of covid
(low-income jobs require presence).
• GLOBALISATION: increased competition for low-paid jobs for migrants.
• INEQUALITY BETWEEN COUNTRIES: caused by ce2rtain social groups being excluded
or marginalized based on their ethnicity, gender, sexual orientation and disabilities.
Some countries have been held back by war, drought famines or earthquakes.
Explotation of the poor has led to more inequality.
BENEFITS OF INEQUALITY
• Incentive to work to increase income, increased productivity.
• Incentive to take risks (setting up new businesses), possibility of higher pro ts.
• Incentive to acquire skills that provide high rewards.
• Highly wealth can have a positive income by investing, creating jobs, high level of
spending.
• Unequal economy with low taxation means less government spending, so a more
e cient, dynamic and fast-moving economy.
• Wealth can be inherited, people can access best educations and best jobs.
COSTS OF INEQUALITY
• Instability, low con dence so decreased investment.
• Monopolies are often less e cient and charge higher prices, exploiting consumers.
• Social costs: higher crime rates, high spending required on health care, low quality of
life, low productivity, homelessness.
• Discourages those on lower incomes from participating in society.
4.1.7.2 —> THE PROBLEM OF POVERTY
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4.1.7.1 —> THE DISTRIBUTION OF INCOME AND WEALTH
-WEALTH: stock of assets. Eg. House, shares, land, cars and savings.
-INCOME: money received on a regular basis. Eg. From a job, welfare payments, interest
or dividend.
Wealth inequality is more damaging as it is sustained by generations, not strong
incentives to innovate or be productive. It’s unearned income. It’s harder to asset and tax.
It’s di cult for the government to manage and redistribute.
Income inequality is not as incentive-based. Education levels and wealth drives this, as
well as incentives. It’s earned income.
Wealth inequality is higher than income inequality as it goes through generations and
owners of assets accumulate wealth.
The Lorenz curve measures
distribution of income and wealth in a
country.
The line of perfect equality shows the
distribution of income when the
richest x% of the population owns
x% of the cumulative income.
Gini coe cient gives a numerical
value for inequality: A/(A+B).
Value of 0: perfect equality, everyone
has the same income and wealth.
Value of 1: perfect inequality, all of the
wealth in the country is concentrated
in the hands of 1 individual/household.
Gini in the UK: 0.35.
-EQUALITY: equal distribution of wealth and income in a society. Everyone has the same
income.
-EQUITY: refers to fairness, what is considered to be an acceptable distribution of income
and wealth in a society.
CAUSES
• INEQUALITY IN WAGES: recently, more part-time jobs have been available, leaving
people underemployed and limiting how much they can earn.
-People with a degree earn more over their lifetime. Wage gap between skilled and
unskilled workers has increased recently in the UK. Jobs in the low-skilled industry are
paid less, especially in the public sector.
ffi ffi
, -Women earn less than men on average even with equal pay laws. This could be due to
career breaks, fewer hours worked than men or because women are crowded into low-
paid or part-time jobs which require low skills.
-Workers might be discriminated due to age, disabilities, gender and race.
• WELFARE PAYMENTS AND TAXES: increasing welfare bene ts creates a disincentive to
work. Also, higher welfare payments increase the burden on the government requiring
higher taxes or borrowing.
-Many people are unable to work, lowering their income.
-In UK, some taxes are regressive —> lower incomes bear a larger burden of the tax,
increasing inequality.
• CHANGES TO UK TAX SYSTEM: UK has switched to indirect taxes, which tend to be
regressive. Top income tax rate fell from 83% in 1979 to 40% in 1988. This helped
workers to keep more income.
BUT bene ts of this disproportionately favor the richest households, so more inequality.
• LABOUR MARKET: automatisation: low-income jobs replaced by capital. E ect of covid
(low-income jobs require presence).
• GLOBALISATION: increased competition for low-paid jobs for migrants.
• INEQUALITY BETWEEN COUNTRIES: caused by ce2rtain social groups being excluded
or marginalized based on their ethnicity, gender, sexual orientation and disabilities.
Some countries have been held back by war, drought famines or earthquakes.
Explotation of the poor has led to more inequality.
BENEFITS OF INEQUALITY
• Incentive to work to increase income, increased productivity.
• Incentive to take risks (setting up new businesses), possibility of higher pro ts.
• Incentive to acquire skills that provide high rewards.
• Highly wealth can have a positive income by investing, creating jobs, high level of
spending.
• Unequal economy with low taxation means less government spending, so a more
e cient, dynamic and fast-moving economy.
• Wealth can be inherited, people can access best educations and best jobs.
COSTS OF INEQUALITY
• Instability, low con dence so decreased investment.
• Monopolies are often less e cient and charge higher prices, exploiting consumers.
• Social costs: higher crime rates, high spending required on health care, low quality of
life, low productivity, homelessness.
• Discourages those on lower incomes from participating in society.
4.1.7.2 —> THE PROBLEM OF POVERTY
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