Income and Wealth inequality

Written by Mr Spottiswoode’s AS
Economics Morning Class
 Definitions
• Income: A flow of money received by
households, e.g. as a wage, profits from
investment (financial) and also outflow for
consumption and saving
• Wealth: A stock of assets that households
own, e.g. gold, shares, houses. To keep
the income from flowing out and hope that
the value of assets will appreciate
 Absolute Poverty Relative Poverty

£20K £20K
£16K £16K
£14K £14K
£11K £11K
£8K £8K
£6K £6K
 Is inequality a market failure?
• YES • NO
• The free market is not • Those who are harder
allocating resources working must receive
(income and wealth) in a reward for their effort
“fair” way • Having high earners
• Inequality leads to many gives an incentive for
negative externalities others to work harder,
(benefits payments, crime open new businesses,
costs, poor health, etc.). etc.

Of all the market failures, this is the

most controversial
 Evidence of inequality by….
1. Gender
2. Age
3. Job
4. Place
5. Ethnic group
6. Amount of wealth owned by richest 1%
 Gender Inequality
• Males earn a higher income than females
• Equal rise in income for both sex till age
30 – female average income reached a
peak while men’s average income
continue to rise well into their 40s
• Highest average income for women:
£23,782
• Highest average income for men: £29,886
 Age Inequality
• Old generation (55-64) have 2 ½ times
more wealth than young generation (33-
44) but gap is too small. The old
generation needs more money for
retirement.
• Middle group (30-49) earns more than the
young (16-29) and old (50-69)
• Teenagers (16-19) earns the least,
approximately £11, 200
 Religion and Race Inequality
• White and Indian have 2 times more income
then other races
• Black race earns 10 times less than White race
• Jewish earn 2 times more than Christians and
Sikh but Muslim 10 times less than Jewish
• No religious group earns £138k and Christians
£223k (main religious groups in UK)
 Richest 1% over 70 years

• 1937 they had 12.6% of the UK wealth

• It decreased a lot until 1976. They had 4.2% of
the UK wealth
• It increased a lot until 2000 reaching 10% of the
UK wealth
 Unequal income of jobs

• The manual workers earn much less than

people who work in economic areas.
• 90% of full-time employees earn less than
£46,488 per year.
• Hairdressers earn £12,402 compared to
the basic salary of Chief executive of RBS
--£1.2 million.
 Regional inequality

• From north to south, wealth of people is

getting bigger from £150,629 in Scotland
compared with that of south
east,£287,892.
Solutions
 Linking the state retirement pension to
average earnings rather than prices

• Ad Relieve relative poverty

• AD More earning better life
• DIS More taxation
• Dis Great pressure on total government
spending – other areas will have less
funds
 Regional policy assistance
• Ad Improved infrastructure
• AD more businesses attracted
• AD more jobs
• AD higher standards of living
• DIS Inequality between parts of the country
• DIS Difficult to measure how much and what to
spend on
• DIS Rising tax
• DIS High economic costs in the short term
 A switch towards greater means-
tested benefits
• AD Benefits go to people and families in
greatest need
• DIS Unpopular with recipients which
reduced the policy's efficiency
• DIS Cause people to be lazy and not find
a job
• DIS Opportunity cost of using money from
other areas
 Special employment measures
including New Deal
• Ad rising employment levels
• AD reduced long-term unemployment
among youth and older people
• DIS More employment subsidies including
tax
• DIS spend money of training for
participants on the scheme
 Increased spending on education
and training
• AD More labour mobility
• AS higher standards of living
• AD Less unemployment
• DIS Takes time to get benefits
• DIS higher economic costs in the short
term
 Changes to the tax and benefits
system #1
• Lower tax
• Ad reduced poverty trap
• Ad encourage people to look for a job
• Dis Expensive way of alleviating=viating
relative poverty
• Dis It does not reduce the gap
 Changes to the tax and benefits
system #2
• Higher tax
• Ad It’s more progressive
• Ad reduce the post tax income of people
at the top of the scale
• Ad reduce the gap
• Dis Disincentive for people to earn extra
income
• Dis It damages enterprise and productivity
 CREDITS
• Written by…. • Written by….
• Valerija Artemjeva • Tang Hsin Qin
• Chen Zheng Hao • Adrian Trofim
• Huang Yong Hui • Zhang Mingyuan
• Jana Junele • Data from the 2010 Hills
• Dmitry Kudelya Report as reported by
• Nan Yi the Guardian. See here
for data.
• Lola Sanakulova
• Typist (must improve
• Murager Shayakmetov skills)
• Adrian Spottiswoode