Distribution of Income

Topics: Supply and demand, Economic inequality, Economics Pages: 8 (2813 words) Published: June 23, 2013
Year 10 Commerce Assessment Task
DISTRIBUTION OF INCOME
‘Distribution of income’ refers to how a country’s total gross domestic product (GDP) is spread among the members of different social and socio-economic groups. This report on the economic issue of income distribution will: * Justify the significance of this issue

* Explain the major impacts of income distribution on the Australian economy * Analyse possible approaches for the Government to deal with the issue

DISTRIBUTION OF INCOME AND WEALTH
Members of the economy must generate income through the production and selling of goods and services, and every economy must distribute this wealth throughout the population. Income inequality continues as a steadily increasing issue in Australia’s economy. Income can encompass a number of different sources, the major sources of including: * Wages and salaries – money earned from labour. The amount received depends on whether the individual has a wage (an hourly rate), or a salary (the amount of money paid to an individual for the year, distributed in smaller chunks weekly/fortnightly) * Rent – money is generated from tenants in extra property * Interest – a percentage of one’s money in a financial institution is earned as it sits in the bank * Profit – money received in return for investment in business ventures * Welfare payments – payments from the Government to lower income earners, including single-parent families, unemployed people, and people suffering from disabilities. Wealth is usually associated with income; however these issues are not the same. While income is the total amount of money received by individuals, wealth is to the value of all stock and assets owned. Therefore, income is a part of a person’s wealth. Income distribution is an important issue because the reduction of income inequality can relate to social justice issues, like poverty. An obvious, crucial factor for reducing poverty is sustained economic growth; however, this does not solve poverty quickly enough, due to the already uneven distribution of wealth. This is why the reduction in income inequality is critical to be enforced alongside economic growth to combat this global problem. Inequality can also affect the harmony between socio-economic groups in society. Greater public support for major bodies, like the Government, would arise if everyone was on the same standing in terms of wealth, as opposed to bias towards privileged groups. CAUSES OF INCOME INEQUALITY

There are many causes for income inequality which can often be related. Some major causes include: 1. The labour market – the determination of wages by the market: the differences in the supply and demand for different types of work. This means that for jobs which many people are willing to work (high supply), the wage would be lower, as competition between workers drives the wage down. Thus, jobs with a large need for the position to be filled, with a low supply, will have higher wages. 2. Natural ability –traits like intelligence, motivation, charisma etc. are in higher demand, and this drives wages up. 3. Taxation – the rate at which income is taxed according to the progressive tax system – the tax rate increases as the income increases. Thi either increase or decrease the inequality, depending on the level of the top tax rate. 4. Graph 1 – Average Weekly Total Earnings by Occupation: Full-time adult non-managerial employees http://www.abs.gov.au/ausstats/abs@.nsf/mf/6305.0/ Graph 1 – Average Weekly Total Earnings by Occupation: Full-time adult non-managerial employees http://www.abs.gov.au/ausstats/abs@.nsf/mf/6305.0/ Increases in capital goods – people are able to be replaced by machines in the workforce. This requires more skilled workers who can operate and repair the machinery, so wages go up for skilled workers, and wages go down for unskilled workers. 5. Education – well-educated workers are in high demand, so wages are...

Bibliography: Transcript of a Speech
Camdessus, M. June 1995, Income Distribution and Sustainable Growth: The Perspective from the IMF at Fifty, Washington.
Reference Books
Distribution of Income and Wealth, 2006, Cambridge: Economics HSC, Cambridge University Press: Port Melbourne, Victoria.
Economic Systems; Household Income; Government Budgets, 1997, Understanding Our Economy, Rigby Heinemann: Port Melbourne, Victoria
Consumers in the Market Economy; Labour Market Outcomes, 2009, The Market Economy: Year 11 Preliminary Economics, Pearson Education Australia: Port Melbourne
Websites
Australian Bureau of Statistics. 2002-10, Employee Earnings and Hours, Australia, Preliminary, May 2002, http://www.abs.gov.au/ausstats/abs@.nsf/mf/6305.0; Australian Social Trends, 2005, http://www.abs.gov.au/ausstats/abs@.nsf/0/BAC94EBF241B1C9CCA25703B0080CCC8?opendocument; Household Income and Income Distribution, Australia, 2009-10, http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6523.0Main%20Features22009-10?opendocument&tabname=Summary&prodno=6523.0&issue=2009-10&num=&view; Employee Earnings and Hours, Australia, May 2010, http://www.abs.gov.au/ausstats/abs@.nsf/mf/6306.0 (all accessed 10 March)
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