Reasons for income inequality - ais-rodgerYr12Ec

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					 Distribution of income and wealth

• Define income
Market income= wages/salaries/profit/rent
Gross income= market income + transfers
Disposable income= gross – income tax
• Define wealth

• Why does inequality occur?
        Measuring inequality
• Lorenz curve (page 223)

• Gini coefficient

• Trends (page 222)
Sources (list from page 224-226)
 Income                 Wealth
Reasons for inequality (include
 statistics to show inequality)
• Ownership of factors of production
(quantity and quality)
•Occupation type
•Family Structure
      Reasons Wealth Inequality
•   Income inequality/savings
•   Inheritance
•   Property
•   Shares
•   Entrepreneurial ability
         Costs of Inequality
Social Costs
• Poverty relative poverty v absolute poverty
12.2% of Australian live below poverty line
(earn below 50% of median income)

• Social divisions and social disorder
         Costs of Inequality
Economic Costs
Increased cost of welfare to government
Reduced consumption and total utility
Reduced economic growth
Increased conspicuous consumption by high
income earners
       Benefits of inequality
Economic Benefits
Incentive effect -
Work harder
Labour mobility increases
Risk taking – entrepreneurs
Increased savings and investment
          Redistribution Policies

• Welfare payments- unemployment, family
  allowances, age pensions etc
• Progressive income tax
Refer to figure 11.17.
Explain how government policies redistribute
income in Australia- use statistics in your answer.
1) Superannuation
Compulsory superannuation has reduce
wealth inequality. Employers will contribute
9% of employees wages to a superannuation
fund. There are also tax incentives for self
funded superannuation. 70% of the wealth
for low income earners is from super.
2) Economic Growth
Sustainable economic growth over the last 20
years has reduced unemployment and
increased real wages. Employment growth
has reduced poverty.
Negative consequences of other
     government policies
Income inequality has increased as a
consequence of micro reform
Tariffs- increased structural unemployment
Enterprise agreements - favoured high
income earners (it would be worse without
safety net adjustments)
GST- bigger impact on low income earners
Overall the policies designed to reduce
inequality tend to outweigh the negative
consequences of microeconomic reform.
Generally the degree of inequality in
Australia has increased slightly over the last
7 years, however, living standards have
Improved. What does this mean?

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