Inequality Flashcards
(29 cards)
Why does inequality matter?
It influences the perceived status of an individual and their happiness
Define commutative justice?
Each person should receive income proportional to their contribution of labour and capital
Define distributive justice?
Each person should receive income according to their need
3 factors inequality has an effect on?
Social capital, trust and crime rates
Why is inequality and socio political instability positively associated? (2)
Perception of lack of social justice Unrest often erupts when a wealthy middle class is weakened
How is inequality usually correlated with economic growth?
Irrelevant or negatively
Why is extreme inequality associated with financial crises?
Increased borrowing when extreme inequality
3 reasons too much equality is bad?
Too equal -> poor economic efficiency
Inequality produces economic incentives
Inequality can arise due to choice (eg. Leisure vs work, attitudes towards risk)
When is it not possible to distinguish between the inequality of two countries when looking at their Lorenz curves?
When the 2 lines cross
3 statistical measures for personal income distribution?
Range
IQR
Ratio of top to bottom deciles (or other percentages)
One index and one graphical measure of personal income distribution?
Index: Gini coefficient
Graphical: Lorenz curve
2 data sources required for personal income dist.?
Income tax data
Family expenditure surveys
2 data manipulations that can be done for personal income dist.?
Controlling for family size
Adjusting for ages in families
2 advantages of income tax data?
Highly accurate data on individuals income From HRMC (official record)
2 disadvantages of income tax data?
Tax units without demographic characteristics
Doesn’t include informal work/the unemployed tf incomplete data at bottom end of distribution
Advantage of family expenditure survey?
Includes demographic characteristics
2 disadvantages of family expenditure survey?
Poor data at top end (non response)
Can be inaccurate due to collection methods (since its a survey)
How can you calculate the Gini coefficient?
Divide area under LC into trapezia
Calculate each area, sum to get A
Gini = (0.5-A)/0.5
2 advantages of the Gini coefficient?
Easy to calculate
Uses entire income distribution
3 disadvantages of Gini coefficient?
Can’t sum it across groups/countries
Divergences from equality are equally weighted
Can have different LCs but the same Gini coefficient
Reasons for increase in UK inequality? (6)
Change in industrial structure Returns to education Skill biased technological change Regional divergences Demographic changes Gov policy
DRS can’t rate grime
What does the factor/functional income distribution try to explain?
The share of NI that each of the FofP receive
How much of total income does labour income account for?
60%
Learn diagram and different areas
Wage rate against employment
