Wealth, Income and Poverty
- Created by: Clodagh
- Created on: 01-05-14 13:52
View mindmap
- Income, Wealth & Poverty
- Wealth
- Wealth consists of assets with a marketable value
- Assets might include houses, cars and pensions
- Wealth tends to be more unequally distributed than income
- The cumulative nature of wealth: Those with valuable assets can derive high levels of income
- The excess of income over expenditure then adds to wealth. Accumulated wealth is passed down generations
- Pension rights: These are the second biggest type of wealth in the UK after housing
- Those individuals whose jobs carry generous pension entitlements therefore gain in wealth relative to others
- Over time asset prices tend to rise faster than incomes
- Housing has inelastic supply which sees prices rise significantly when the income elastic demand for housing increases
- Wealth is less easy to redistribute than income
- Although wealth can be taxed, it is often used for things such as benefit payments (which affect the distribution of income)
- It is not unusual to give assets directly to the poorer members of society
- Although wealth can be taxed, it is often used for things such as benefit payments (which affect the distribution of income)
- The cumulative nature of wealth: Those with valuable assets can derive high levels of income
- Wealth consists of assets with a marketable value
- Income
- Income is a flow concept measured over a period of time
- The flow of income is derived from the stock of assets that form wealth
- Distribution of Income
- Factors Affecting
- Wage differentials: Those with high level qualifications and skills tend to generate high marginal revenue product (MRP) for their employers
- The increasing skill demands of the modern economy are putting a premium on the wages of skilled workers
- Differences in income earned from assets: The most important are financial assets such as savings and stock market investments, which yield interest and dividends to those who own them
- Age: The distribution of income is skewed by age. The earnings potential of workers tends to peak in their 40s and 50s when they are rewarded for their work experience
- The influence of government policy: They tend to operate a progressive system of taxation (which takes a higher proportion of income from those who earn more) and redistribute income through the benefit system
- Means-tested benefits (available only to those on low incomes and with few assets) have the greatest effect on distribution of income
- Wage differentials: Those with high level qualifications and skills tend to generate high marginal revenue product (MRP) for their employers
- Factors Affecting
- Income is a flow concept measured over a period of time
- The Lorenz Curve
- It is a geographical representation of inequality
- The curve plots the percentage of a nation's income that is enjoyed by the poorest percent of the population
- The diagonal curve represents complete equality
- Poverty
- Absolute poverty affects those who are so poor that their basic needs (food, water, clothing, shelter) are not met and whose continued survival is threatened
- Relative poverty affects those who are poor relative to others in their society
- Causes of poverty
- Low wages: affecting those with few skills and qualifications and hence a low MRP
- Unemployment: Those affected are likely to be well below the median income level in society
- Benefit payments may stave off absolute poverty
- Changing patterns of demand for labour: e.g The decline of UK manufacturing has left those with specific non-transferable skills structurally unemployed
- Single parenthood: The household has only one potential wage earner, who may be unable to work in the absence of affordable childcare
- Longer life spans: As life expectancy increases, it is necessary to finance more years of retirement from the pension funds built up
- The Poverty Trap
- This refers to a disincentive to work
- It is created by the interaction of means tested benefits and progressive taxation
- It is a possible example of government failure occurring from a conflict of objectives between equity and efficiency
- Evaluation of measures to tackle poverty
- Withdrawing benefits altogether is undesirable because of the adverse impact it will have on the distribution of income
- Switching to universal benefits. This is expensive and does not target those who need it most
- Withdrawing means-tested benefits only gradually as additional income is earned
- This policy is more affordable and should provide a good incentive to work to those who are on low incomes
- Wealth
Comments
No comments have yet been made