Topic 1
1.1 Why do we want to study
inequality?
Welfare Perceived status
consideration Happiness
Trust and social Co-operation
capital Damages on social capital and trust
Crime rates
Socio-political Perception of lack of social justice
instability Unrest
Polarising society + putting democratic
institutions into jeopardy
Economic growth Controversial theories: inequality can
facilitate + retard growth
Industrialisation
Improved health and education
Political reforms and stability
Inequality associated with financial crisis
Positive implications of inequality
Excessive equality can be bad for economic efficiency
Provides economic incentive
May be based on choice: leisure vs. income, attitudes towards risk
1.2 Forms of inequality
Personal income distribution Graphical tool: Lorenz curve
Inequality measures: Gini
coefficient
Data: individual/household data
o Sources: income tax data,
family expenditure/income
survey
Factor/functional income Factors of production: labour
distribution income share vs capital income
share
May have problems of
definition
Labour income share = roughly
60% of total income
Global income distribution
,Lorenz Curve
The further to the left/higher the curve = more perfect equality
When 2 coefficients’ cross (as below): more information needed before
determining which economy is more unequal
Gini Coefficient
Ranges from 0 (perfect equality) to 1 (perfect inequality)
, Calculating Gini coefficient
Area of each trapezium = (a +b) ÷ 2
Advantages Disadvantages
Easy to calculate Not additive across groups
Takes account entire Top or bottom of distribution equally
income distribution weighted
Different Lorenz curves indicate same
Gini coefficient
Can be calculated even
if data not divided into
percentiles/quintiles/dec
iles
Why has inequality gone up?
1. Change in industrial structure
2. Higher returns to education/skill premium due to tech process
3. Urban/rural + regional divergences
4. Demographic changes
1.1 Why do we want to study
inequality?
Welfare Perceived status
consideration Happiness
Trust and social Co-operation
capital Damages on social capital and trust
Crime rates
Socio-political Perception of lack of social justice
instability Unrest
Polarising society + putting democratic
institutions into jeopardy
Economic growth Controversial theories: inequality can
facilitate + retard growth
Industrialisation
Improved health and education
Political reforms and stability
Inequality associated with financial crisis
Positive implications of inequality
Excessive equality can be bad for economic efficiency
Provides economic incentive
May be based on choice: leisure vs. income, attitudes towards risk
1.2 Forms of inequality
Personal income distribution Graphical tool: Lorenz curve
Inequality measures: Gini
coefficient
Data: individual/household data
o Sources: income tax data,
family expenditure/income
survey
Factor/functional income Factors of production: labour
distribution income share vs capital income
share
May have problems of
definition
Labour income share = roughly
60% of total income
Global income distribution
,Lorenz Curve
The further to the left/higher the curve = more perfect equality
When 2 coefficients’ cross (as below): more information needed before
determining which economy is more unequal
Gini Coefficient
Ranges from 0 (perfect equality) to 1 (perfect inequality)
, Calculating Gini coefficient
Area of each trapezium = (a +b) ÷ 2
Advantages Disadvantages
Easy to calculate Not additive across groups
Takes account entire Top or bottom of distribution equally
income distribution weighted
Different Lorenz curves indicate same
Gini coefficient
Can be calculated even
if data not divided into
percentiles/quintiles/dec
iles
Why has inequality gone up?
1. Change in industrial structure
2. Higher returns to education/skill premium due to tech process
3. Urban/rural + regional divergences
4. Demographic changes
