Income & Wealth Distribution (AQA A Level Economics)

Revision Note

Test yourself

Written by: Steve Vorster

Reviewed by: Jenna Quinn

The Difference Between Income & Wealth

Income and wealth are two different concepts
- Income refers to the (flow) of money received from the factors of production
  - Rent, wages, interest and profit
  - Inequality of income is caused by the unequal distribution (flow) of income to households
- Wealth refers to the stock of assets that households own
  - E.g Property, shares, art, pension schemes
  - Assets can be used to generate a flow of income
  - Wealth inequality refers to differences in the number of assets that households own

Causes of Wealth & Income Inequality

There are numerous factors that influence the distribution of income and wealth

Causes of Wealth & Income Inequality

Cause	Explanation
Human capital	The higher the skill level, the higher the level of income A country with a poor education system will see greater inequality than one with a good education system
Inequality of opportunity	Access to education and health can vary significantly within communities and between different regions Inequality in education and healthcare leads to inequality of opportunity in the job market
Assets	Assets generate income and increase in value These assets are then passed on to the next generation through inheritance or gifts, widening wealth disparities
Discrimination	Gender, race or any other discrimination increases income inequality in an economy
Unequal power	Countries with strong trade union membership provides workers with more power and higher levels of income With low trade union membership, the exploitation of workers through low wages is easier and income inequality is worse
Government policies	Countries that provide a range of benefits (such as unemployment, pension, disability, child support, housing support, etc) raise the income of the lowest 20% of the population, resulting in more equal distribution Progressive tax systems allow all income earners to contribute to public revenue according to their ability Decreasing taxes on the lower end and increasing it on the upper end would mean that the system is more progressive and there would be a more equal distribution of income
Globalisation	Globalisation is the economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology and finance This integration of global economies has impacted national cultures, spread ideas, speeded up industrialisation in developing nations and led to de-industrialisation in developed nations Countries which are more isolated will experience higher levels of wealth and income inequality
Market based supply-side policies	Supply-side policies such as deregulation, privatisation and trade liberalisation can provide great opportunities but also increase inequality E.g. Privatisation of state owned assets often allows a few people to get rich (those who buy the asset), however, the service provided by the newly privatised firm may become more expensive to access

The Distinction Between Equality & Equity

Equality describes situations where economic outcomes are similar for different people or different social groups
- Income equality would mean everyone, irrespective of their job, is paid the same
- Inequality in the distribution of income is one cause of absolute and relative poverty
Equity refers to the idea of fairness and is a normative concept
- Equity in the distribution of income means that there is fairness in the wage differentials that exist in society, e.g. those with higher qualifications or skills are paid more than those with less
- The size of acceptable wage differentials is a matter of much debate

Diagram: The Distinction Between Equality and Equity

Equity is a normative concept and carries the idea that those who need more help, get it (two boxes). Those who need less help, receive less (one box). Those who need no help, can stand alone

(Interaction Institute for Social Change | Artist: Angus Maguire)

Last updated: 14 October 2024

You've read 0 of your 10 free revision notes

Unlock more, it's free!

Join the 100,000+ Students that ❤️ Save My Exams

the (exam) results speak for themselves: